# Official Journal C 312/2023

| | ISSN 1977-091X |
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| Official Journal
  of the European Union | C 312 |
| | |
| English edition | Information and Notices | Volume 661 September 2023 |

ISSN 1977-091X

Official Journal

of the European Union

C 312

English edition

Information and Notices

Volume 661 September 2023

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| Contents | page |
| --- | --- |
| | I   Resolutions, recommendations and opinions |
| | RECOMMENDATIONS |
| | Council |
| 2023/C 312/01 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Belgium and delivering a Council opinion on the 2023 Stability Programme of Belgium | 1 |
| | RECOMMENDATIONS |
| 2023/C 312/02 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Bulgaria and delivering a Council opinion on the 2023 Convergence Programme of Bulgaria | 13 |
| 2023/C 312/03 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Czechia and delivering a Council opinion on the 2023 Convergence Programme of Czechia | 22 |
| 2023/C 312/04 | Council recommendation of 14 July 2023 on the 2023 National Reform Programme of Denmark | 31 |
| 2023/C 312/05 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Germany and delivering a Council opinion on the 2023 Stability Programme of Germany | 38 |
| 2023/C 312/06 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Estonia and delivering a Council opinion on the 2023 Stability Programme of Estonia | 49 |
| 2023/C 312/07 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Ireland and delivering a Council opinion on the 2023 Stability Programme of Ireland | 58 |
| 2023/C 312/08 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Greece and delivering a Council opinion on the 2023 Stability Programme of Greece | 67 |
| 2023/C 312/09 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Spain and delivering a Council opinion on the 2023 Stability Programme of Spain | 77 |
| 2023/C 312/10 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of France and delivering a Council opinion on the 2023 Stability Programme of France | 86 |
| 2023/C 312/11 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Croatia and delivering a Council opinion on the 2023 Stability Programme of Croatia | 97 |
| 2023/C 312/12 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Italy and delivering a Council opinion on the 2023 Stability Programme of Italy | 105 |
| 2023/C 312/13 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Cyprus and delivering a Council opinion on the 2023 Stability Programme of Cyprus | 116 |
| 2023/C 312/14 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Latvia and delivering a Council opinion on the Stability Programme of Latvia | 125 |
| 2023/C 312/15 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Lithuania and delivering a Council opinion on the 2023 Stability Programme of Lithuania | 135 |
| 2023/C 312/16 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Luxembourg and delivering a Council opinion on the 2023 Stability Programme of Luxembourg | 145 |
| 2023/C 312/17 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Hungary and delivering a Council opinion on the 2023 Convergence Programme of Hungary | 155 |
| 2023/C 312/18 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Malta and delivering a Council opinion on the 2023 Stability Programme of Malta | 167 |
| 2023/C 312/19 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of the Netherlands and delivering a Council opinion on the 2023 Stability Programme of the Netherlands | 176 |
| 2023/C 312/20 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Austria and delivering a Council opinion on the 2023 Stability Programme of Austria | 186 |
| 2023/C 312/21 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Poland and delivering a Council opinion on the 2023 Convergence Programme of Poland | 197 |
| 2023/C 312/22 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Portugal and delivering a Council opinion on the 2023 Stability Programme of Portugal | 206 |
| 2023/C 312/23 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Romania and delivering a Council opinion on the 2023 Convergence Programme of Romania | 216 |
| 2023/C 312/24 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Slovenia and delivering a Council opinion on the 2023 Stability Programme of Slovenia | 224 |
| 2023/C 312/25 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Slovakia and delivering a Council opinion on the 2023 Stability Programme of Slovakia | 233 |
| 2023/C 312/26 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Finland and delivering a Council opinion on the 2023 Stability Programme of Finland | 243 |
| 2023/C 312/27 | Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Sweden and delivering a Council opinion on the 2023 Convergence Programme of Sweden | 252 |

Contents

page

I   Resolutions, recommendations and opinions

RECOMMENDATIONS

Council

2023/C 312/01

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Belgium and delivering a Council opinion on the 2023 Stability Programme of Belgium

1

RECOMMENDATIONS

2023/C 312/02

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Bulgaria and delivering a Council opinion on the 2023 Convergence Programme of Bulgaria

13

2023/C 312/03

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Czechia and delivering a Council opinion on the 2023 Convergence Programme of Czechia

22

2023/C 312/04

Council recommendation of 14 July 2023 on the 2023 National Reform Programme of Denmark

31

2023/C 312/05

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Germany and delivering a Council opinion on the 2023 Stability Programme of Germany

38

2023/C 312/06

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Estonia and delivering a Council opinion on the 2023 Stability Programme of Estonia

49

2023/C 312/07

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Ireland and delivering a Council opinion on the 2023 Stability Programme of Ireland

58

2023/C 312/08

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Greece and delivering a Council opinion on the 2023 Stability Programme of Greece

67

2023/C 312/09

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Spain and delivering a Council opinion on the 2023 Stability Programme of Spain

77

2023/C 312/10

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of France and delivering a Council opinion on the 2023 Stability Programme of France

86

2023/C 312/11

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Croatia and delivering a Council opinion on the 2023 Stability Programme of Croatia

97

2023/C 312/12

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Italy and delivering a Council opinion on the 2023 Stability Programme of Italy

105

2023/C 312/13

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Cyprus and delivering a Council opinion on the 2023 Stability Programme of Cyprus

116

2023/C 312/14

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Latvia and delivering a Council opinion on the Stability Programme of Latvia

125

2023/C 312/15

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Lithuania and delivering a Council opinion on the 2023 Stability Programme of Lithuania

135

2023/C 312/16

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Luxembourg and delivering a Council opinion on the 2023 Stability Programme of Luxembourg

145

2023/C 312/17

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Hungary and delivering a Council opinion on the 2023 Convergence Programme of Hungary

155

2023/C 312/18

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Malta and delivering a Council opinion on the 2023 Stability Programme of Malta

167

2023/C 312/19

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of the Netherlands and delivering a Council opinion on the 2023 Stability Programme of the Netherlands

176

2023/C 312/20

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Austria and delivering a Council opinion on the 2023 Stability Programme of Austria

186

2023/C 312/21

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Poland and delivering a Council opinion on the 2023 Convergence Programme of Poland

197

2023/C 312/22

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Portugal and delivering a Council opinion on the 2023 Stability Programme of Portugal

206

2023/C 312/23

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Romania and delivering a Council opinion on the 2023 Convergence Programme of Romania

216

2023/C 312/24

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Slovenia and delivering a Council opinion on the 2023 Stability Programme of Slovenia

224

2023/C 312/25

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Slovakia and delivering a Council opinion on the 2023 Stability Programme of Slovakia

233

2023/C 312/26

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Finland and delivering a Council opinion on the 2023 Stability Programme of Finland

243

2023/C 312/27

Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Sweden and delivering a Council opinion on the 2023 Convergence Programme of Sweden

252

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EN

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I Resolutions, recommendations and opinions

RECOMMENDATIONS

Council

| 1.9.2023 | EN | Official Journal of the European Union | C 312/1 |
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1.9.2023

EN

Official Journal of the European Union

C 312/1

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Belgium and delivering a Council opinion on the 2023 Stability Programme of Belgium

(2023/C 312/01)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Belgium as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Belgium’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Belgium as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Belgium’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
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(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investments and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investments and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 30 April 2021, Belgium 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Belgium (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Belgium 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. |
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(9)

On 30 April 2021, Belgium 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Belgium (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Belgium 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 30 April 2023, Belgium submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Belgium’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 30 April 2023, Belgium submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Belgium’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Belgium. It assessed Belgium’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Belgium’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Belgium’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Belgium. It assessed Belgium’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Belgium’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Belgium’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Belgium’s general government deficit decreased from 5,5 % of GDP in 2021 to 3,9 % in 2022, while general government debt fell from 109,1 % of GDP at the end of 2021 to 105,1 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Belgium, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Belgium should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(12)

According to data validated by Eurostat, Belgium’s general government deficit decreased from 5,5 % of GDP in 2021 to 3,9 % in 2022, while general government debt fell from 109,1 % of GDP at the end of 2021 to 105,1 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Belgium, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Belgium should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a cut in excise duties on petrol fuel and VAT reductions on residential electricity and gas contracts, while such fiscal policy expenditure-increasing measures included extended coverage of the social tariff on electricity and natural gas for vulnerable households, across-the-board income transfers to households directly through their gas and electricity energy bills (‘the energy package’), earmarked lump sum transfers (for those households using heating oil, propane or pellet fuel), and direct support to help companies faced with rising energy costs. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely on the electricity and oil sectors. The Commission estimates the net budgetary cost of those measures at 0,9 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,5 % of GDP in 2022, from 3 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a cut in excise duties on petrol fuel and VAT reductions on residential electricity and gas contracts, while such fiscal policy expenditure-increasing measures included extended coverage of the social tariff on electricity and natural gas for vulnerable households, across-the-board income transfers to households directly through their gas and electricity energy bills (‘the energy package’), earmarked lump sum transfers (for those households using heating oil, propane or pellet fuel), and direct support to help companies faced with rising energy costs. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely on the electricity and oil sectors. The Commission estimates the net budgetary cost of those measures at 0,9 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,5 % of GDP in 2022, from 3 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Belgium (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Belgium preserve nationally-financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Belgium (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Belgium preserve nationally-financed investment.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 2 % of GDP. As recommended by the Council, Belgium continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). Belgium 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 1,9 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,8 % of GDP compared to 2021), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). At the same time, rising current expenditure, driven in particular by the automatic indexation of social benefits and public-sector wages and other structurally increasing current expenditure, reflecting, in particular demographic ageing, also contributed to the growth in net primary current expenditure. That significant expansionary contribution of nationally financed current expenditure was thus only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine. Belgium therefore did not sufficiently limit the growth in nationally financed current expenditure. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 2 % of GDP. As recommended by the Council, Belgium continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). Belgium 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 1,9 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,8 % of GDP compared to 2021), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). At the same time, rising current expenditure, driven in particular by the automatic indexation of social benefits and public-sector wages and other structurally increasing current expenditure, reflecting, in particular demographic ageing, also contributed to the growth in net primary current expenditure. That significant expansionary contribution of nationally financed current expenditure was thus only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine. Belgium therefore did not sufficiently limit the growth in nationally financed current expenditure.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1 % in 2023 and 1,7 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a real GDP growth of 1,2 % in 2023 and 1,4 % in 2024. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1 % in 2023 and 1,7 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a real GDP growth of 1,2 % in 2023 and 1,4 % in 2024.

| (17) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 5,1 % of GDP in 2023. The increase in 2023 mainly reflects increasing permanent current spending, notably due to the automatic indexation of social benefits and public-sector wages as well as to demographic ageing, the budgetary impact of a temporary decrease in firms’ social contributions during the first half of 2023, and a deficit-increasing reform of the taxation of residential energy products. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 105,1 % at the end of 2022 to 106,7 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 5 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a slightly lower general government debt-to-GDP ratio of 106 % at the end of 2023. The difference is due to a somewhat higher projected nominal GDP in 2023 in the Commission’s 2023 spring forecast. |
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(17)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 5,1 % of GDP in 2023. The increase in 2023 mainly reflects increasing permanent current spending, notably due to the automatic indexation of social benefits and public-sector wages as well as to demographic ageing, the budgetary impact of a temporary decrease in firms’ social contributions during the first half of 2023, and a deficit-increasing reform of the taxation of residential energy products. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 105,1 % at the end of 2022 to 106,7 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 5 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a slightly lower general government debt-to-GDP ratio of 106 % at the end of 2023. The difference is due to a somewhat higher projected nominal GDP in 2023 in the Commission’s 2023 spring forecast.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a cut in excise duties on petrol fuel that ended on 31 March 2023, VAT reductions on electricity and gas residential contracts, an extension of the coverage of the social tariff on energy products, the energy package, earmarked lump sum transfers (for those households using heating sources other than gas and electricity), and direct support to help companies faced with rising energy costs. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers, namely by taxes on the electricity and oil sectors, that have been in place since 2022, and by a tax in 2023 on a gas international network system operator (Fluxys). Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,4 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, although many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,5 % of GDP. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a cut in excise duties on petrol fuel that ended on 31 March 2023, VAT reductions on electricity and gas residential contracts, an extension of the coverage of the social tariff on energy products, the energy package, earmarked lump sum transfers (for those households using heating sources other than gas and electricity), and direct support to help companies faced with rising energy costs. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers, namely by taxes on the electricity and oil sectors, that have been in place since 2022, and by a tax in 2023 on a gas international network system operator (Fluxys). Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,4 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, although many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,5 % of GDP.

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Belgium ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Belgium should stand ready to adjust current spending to the evolving situation. Belgium 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Belgium ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Belgium should stand ready to adjust current spending to the evolving situation. Belgium 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 1,1 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,7 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. The growth of nationally financed primary current expenditure in excess of the medium-term potential output growth 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 (net of discretionary revenue measures) is also driven by permanent increases in public-sector wages and social benefits (due to the indexation of such wages and benefits), by structurally rising current expenditure resulting from demographic ageing, by a reform of residential energy contract taxation, and by a temporary decrease in firms’ social contributions during the first half of 2023. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,3 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Belgium plans to finance additional investment through the Facility and other Union funds, and it also plans to preserve nationally-financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investment projects in the renovation of buildings, sustainable mobility and the decarbonisation of the energy sector, and key investments to accelerate the digital transition, including digitalising the public administration, promoting digital inclusion and reinforcing cyber security, which are funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 1,1 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,7 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. The growth of nationally financed primary current expenditure in excess of the medium-term potential output growth 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 (net of discretionary revenue measures) is also driven by permanent increases in public-sector wages and social benefits (due to the indexation of such wages and benefits), by structurally rising current expenditure resulting from demographic ageing, by a reform of residential energy contract taxation, and by a temporary decrease in firms’ social contributions during the first half of 2023. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,3 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Belgium plans to finance additional investment through the Facility and other Union funds, and it also plans to preserve nationally-financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investment projects in the renovation of buildings, sustainable mobility and the decarbonisation of the energy sector, and key investments to accelerate the digital transition, including digitalising the public administration, promoting digital inclusion and reinforcing cyber security, which are funded by the Facility and other Union funds.

| (21) | According to the 2023 Stability Programme the general government deficit is expected to decline to 4,2 % of GDP in 2024. The decrease in 2024 also reflects the withdrawal of temporary support measures that were adopted in the context of rising energy prices. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 107,1 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,7 % of GDP in 2024. This is higher than the deficit projected in the 2023 Stability Programme, mainly due to deficit-reducing measures not yet specified in the 2023 Stability Programme amounting to 0,2 % of GDP (therefore not taken into account in the Commission’s 2023 spring forecast) and to a less favourable projection of government revenue, in particular as regards corporate taxes. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio of 107,3 % at the end of 2024. |
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(21)

According to the 2023 Stability Programme the general government deficit is expected to decline to 4,2 % of GDP in 2024. The decrease in 2024 also reflects the withdrawal of temporary support measures that were adopted in the context of rising energy prices. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 107,1 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,7 % of GDP in 2024. This is higher than the deficit projected in the 2023 Stability Programme, mainly due to deficit-reducing measures not yet specified in the 2023 Stability Programme amounting to 0,2 % of GDP (therefore not taken into account in the Commission’s 2023 spring forecast) and to a less favourable projection of government revenue, in particular as regards corporate taxes. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio of 107,3 % at the end of 2024.

| (22) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also currently assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(22)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also currently assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally-financed primary expenditure (15) in 2024 should not exceed 2 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,4 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally-financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally-financed primary expenditure (15) in 2024 should not exceed 2 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,4 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally-financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (24) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow by 2,7 % in 2024, which is above the recommended growth rate. |
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(24)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow by 2,7 % in 2024, which is above the recommended growth rate.

| (25) | According to the 2023 Stability Programme, government investment is expected to increase from 2,9 % of GDP in 2023 to 3,1 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include a project for a fiscal reform of the tax and benefits system aimed at boosting employment and economic activity, thereby fostering the sustainability of public finances, and a pension reform (as foreseen in the recovery and resilience plan) to improve the financial sustainability of the pensions system. In addition, the recovery and resilience plan intends to step up efforts to bolster public investment with a view to speeding up the green and digital transitions, including through the implementation of the recovery and resilience plan. |
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(25)

According to the 2023 Stability Programme, government investment is expected to increase from 2,9 % of GDP in 2023 to 3,1 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include a project for a fiscal reform of the tax and benefits system aimed at boosting employment and economic activity, thereby fostering the sustainability of public finances, and a pension reform (as foreseen in the recovery and resilience plan) to improve the financial sustainability of the pensions system. In addition, the recovery and resilience plan intends to step up efforts to bolster public investment with a view to speeding up the green and digital transitions, including through the implementation of the recovery and resilience plan.

| (26) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 3,3 % of GDP in 2025 and to 2,9 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2026. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 107,1 % at the end of 2024 to 107,8 % by the end of 2026. |
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(26)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 3,3 % of GDP in 2025 and to 2,9 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2026. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 107,1 % at the end of 2024 to 107,8 % by the end of 2026.

| (27) | Belgium faces substantial fiscal sustainability challenges. Those challenges relate to both the high level of government debt and the expected worsening, under unchanged policies, of the impact of ageing-related expenditure on public finances in the face of a rapidly ageing population. In the Commission’s 2021 Ageing Report, ageing-related expenditure is projected to increase by 3,6 percentage points of GDP by 2040 and by 5,4 percentage points of GDP by 2070, mostly due to pension and long-term care expenditure. Pension expenditure is projected to increase by 3 percentage points of GDP over 2019–2070, compared to 0,1 percentage point of GDP on average in the euro area. In the case of Belgium, the bulk of the projected increase would already occur by 2040, when pension expenditure would increase by 2,7 percentage points of GDP to 14,9 % of GDP. Belgium’s recovery and resilience plan includes a pension reform that aims to help address this challenge, alongside other objectives such as improving the social sustainability of the system, incentivising people to remain active in the labour market after meeting early retirement conditions and ensuring greater convergence between and within pension systems. On long-term care, public spending amounted to 2,2 % of GDP in 2019 (Union average 1,7 %), which made Belgium one of the countries with the highest spending on long-term care in the Union. By 2070, long-term care expenditure is projected to increase further to 4,3 % of GDP in the baseline scenario. However, those costs could increase to 6,0 % of GDP in the most negative scenarios (16). Evidence suggests a possible overuse of residential care and unnecessary or premature institutionalisation of older people. Available data suggest that the number of older people placed unnecessarily or at least prematurely in a residential care facility remains high, although it has been decreasing over the last decade. In particular, the data pointed out that the share of individuals affected by this issue was high in Brussels and Wallonia. Reforms to improve the cost-efficient use of the different care settings, in particular to avoid and delay unnecessary or premature institutionalisation, have been initiated by the federated entities, to which responsibility for long-term care has been devolved since 2019. However, they do not focus enough on addressing the fiscal sustainability challenge. |
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(27)

Belgium faces substantial fiscal sustainability challenges. Those challenges relate to both the high level of government debt and the expected worsening, under unchanged policies, of the impact of ageing-related expenditure on public finances in the face of a rapidly ageing population. In the Commission’s 2021 Ageing Report, ageing-related expenditure is projected to increase by 3,6 percentage points of GDP by 2040 and by 5,4 percentage points of GDP by 2070, mostly due to pension and long-term care expenditure. Pension expenditure is projected to increase by 3 percentage points of GDP over 2019–2070, compared to 0,1 percentage point of GDP on average in the euro area. In the case of Belgium, the bulk of the projected increase would already occur by 2040, when pension expenditure would increase by 2,7 percentage points of GDP to 14,9 % of GDP. Belgium’s recovery and resilience plan includes a pension reform that aims to help address this challenge, alongside other objectives such as improving the social sustainability of the system, incentivising people to remain active in the labour market after meeting early retirement conditions and ensuring greater convergence between and within pension systems. On long-term care, public spending amounted to 2,2 % of GDP in 2019 (Union average 1,7 %), which made Belgium one of the countries with the highest spending on long-term care in the Union. By 2070, long-term care expenditure is projected to increase further to 4,3 % of GDP in the baseline scenario. However, those costs could increase to 6,0 % of GDP in the most negative scenarios (16). Evidence suggests a possible overuse of residential care and unnecessary or premature institutionalisation of older people. Available data suggest that the number of older people placed unnecessarily or at least prematurely in a residential care facility remains high, although it has been decreasing over the last decade. In particular, the data pointed out that the share of individuals affected by this issue was high in Brussels and Wallonia. Reforms to improve the cost-efficient use of the different care settings, in particular to avoid and delay unnecessary or premature institutionalisation, have been initiated by the federated entities, to which responsibility for long-term care has been devolved since 2019. However, they do not focus enough on addressing the fiscal sustainability challenge.

| (28) | Despite recent reforms, the tax wedge (social security contributions and taxation of labour income) in Belgium remains well above the Union average at all wage levels, except for very low wage earners (50 % of the average), which may create disincentives to work. Some measures have been introduced to increase the net income of low wage earners, such as the job bonus (in Flanders) and in-work benefits for the long-term unemployed or for interregional mobility (at federal level). However, those measures also further increase the high marginal tax rate for lower-middle-income earners (‘low wage trap’), which may discourage investments in lifelong learning as well as increase the number of hours worked. Unemployment benefits are unlimited in time and not means-tested for the long-term unemployed. Moreover, several non-cash social benefits are linked to the unemployment status of beneficiaries, which may contribute to existing inactivity, unemployment and low wage traps. A broad review of the benefits system would improve transparency in terms of work incentives and could contribute to increase the effectiveness of activation policies. |
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(28)

Despite recent reforms, the tax wedge (social security contributions and taxation of labour income) in Belgium remains well above the Union average at all wage levels, except for very low wage earners (50 % of the average), which may create disincentives to work. Some measures have been introduced to increase the net income of low wage earners, such as the job bonus (in Flanders) and in-work benefits for the long-term unemployed or for interregional mobility (at federal level). However, those measures also further increase the high marginal tax rate for lower-middle-income earners (‘low wage trap’), which may discourage investments in lifelong learning as well as increase the number of hours worked. Unemployment benefits are unlimited in time and not means-tested for the long-term unemployed. Moreover, several non-cash social benefits are linked to the unemployment status of beneficiaries, which may contribute to existing inactivity, unemployment and low wage traps. A broad review of the benefits system would improve transparency in terms of work incentives and could contribute to increase the effectiveness of activation policies.

| (29) | The extensive use of tax expenditure, partly to counterbalance the high tax rates, creates inefficiencies and tends to favour certain types of remuneration and expenses. This leads to economic, social and environmental distortions. Special schemes like meal vouchers, commuting subsidies or withholding tax exemption for overtime, research and development work and night/shift work are costly for the budget and have been found to create inefficiencies. Some personal income tax deductions (e.g. deduction for service vouchers) disproportionally benefit high-income earners. There are still tax incentives for immovable property investments at federal level (cadastral values that underestimate actual rental income, interest deductibility for secondary housing loans) and at regional level (chèque-habitat in Wallonia). Those tax incentives distort resource allocation and potentially generate tax-induced overinvestment in certain types of assets. Tax-related environmentally harmful subsidies have increased. The reduction of the VAT rate on electricity and gas for residential contracts, while providing household support, continues to favour fossil fuels in the long term and discourages further diversification and energy savings. In the face of increasing traffic congestion and air pollution issues, transport taxes and pollution taxes still seem to be underused. The broader tax reform, which the government plans to phase in by 2024, is expected – if adopted and implemented – to reduce the tax burden on labour and reduce some of the distortions. |
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(29)

The extensive use of tax expenditure, partly to counterbalance the high tax rates, creates inefficiencies and tends to favour certain types of remuneration and expenses. This leads to economic, social and environmental distortions. Special schemes like meal vouchers, commuting subsidies or withholding tax exemption for overtime, research and development work and night/shift work are costly for the budget and have been found to create inefficiencies. Some personal income tax deductions (e.g. deduction for service vouchers) disproportionally benefit high-income earners. There are still tax incentives for immovable property investments at federal level (cadastral values that underestimate actual rental income, interest deductibility for secondary housing loans) and at regional level (chèque-habitat in Wallonia). Those tax incentives distort resource allocation and potentially generate tax-induced overinvestment in certain types of assets. Tax-related environmentally harmful subsidies have increased. The reduction of the VAT rate on electricity and gas for residential contracts, while providing household support, continues to favour fossil fuels in the long term and discourages further diversification and energy savings. In the face of increasing traffic congestion and air pollution issues, transport taxes and pollution taxes still seem to be underused. The broader tax reform, which the government plans to phase in by 2024, is expected – if adopted and implemented – to reduce the tax burden on labour and reduce some of the distortions.

| (30) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Belgium’s recovery and resilience plan is underway, albeit with increasing risk of delays. Belgium has not yet submitted a payment request. An effective governance will be needed to allow for a swift and steady implementation. The recovery and resilience plan is expected to be revised in 2023, to include among others a REPowerEU chapter, while taking into account the downward revision of the Facility maximum grant allocation to Belgium. 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 Belgium’s strategic objectives in the field of energy and the green transition. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 31 March 2023, Belgium expressed its intention to request EUR 1 024 900 000 of additional loan support under the Facility. The systematic and effective involvement of local and regional authorities, social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(30)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Belgium’s recovery and resilience plan is underway, albeit with increasing risk of delays. Belgium has not yet submitted a payment request. An effective governance will be needed to allow for a swift and steady implementation. The recovery and resilience plan is expected to be revised in 2023, to include among others a REPowerEU chapter, while taking into account the downward revision of the Facility maximum grant allocation to Belgium. 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 Belgium’s strategic objectives in the field of energy and the green transition. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 31 March 2023, Belgium expressed its intention to request EUR 1 024 900 000 of additional loan support under the Facility. The systematic and effective involvement of local and regional authorities, social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (31) | The Commission approved all Belgium’s cohesion policy programming documents in 2022 apart from the European Regional Development Fund for the Brussels-Capital Region, which was adopted in 2023. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in Belgium. |
| --- | --- |

(31)

The Commission approved all Belgium’s cohesion policy programming documents in 2022 apart from the European Regional Development Fund for the Brussels-Capital Region, which was adopted in 2023. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in Belgium.

| (32) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Belgium faces a number of additional challenges related to its labour market, education system, energy policy and the green transition. The job vacancy rate in Belgium is currently one of the highest in the Union and employers are finding it increasingly difficult to hire employees with the right skills. Regional disparities in labour market participation, however, are significant. Labour shortages are high in both low- and high-skilled occupations with shortages in several sectors, including information and communication technologies, professional, technical and scientific jobs, hospitality and healthcare. The number of graduates, especially women, in science, technology, engineering and mathematics (STEM) remains low and their share is only slowly increasing, despite dedicated STEM action plans. Skills mismatches are also explained by low participation in adult learning. The current incentives for adult learning may not reach the low-educated, for whom upskilling could offer better employment opportunities. High-quality education and training systems that respond to changing labour market needs and targeted upskilling and reskilling measures are key to reducing skills shortages and promoting labour inclusion and reallocation. Addressing labour shortages and skills mismatches is a key lever for tackling the digital transformation and enabling the green transition, as well as for achieving the 2030 Union headline targets on employment and skills. |
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(32)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Belgium faces a number of additional challenges related to its labour market, education system, energy policy and the green transition. The job vacancy rate in Belgium is currently one of the highest in the Union and employers are finding it increasingly difficult to hire employees with the right skills. Regional disparities in labour market participation, however, are significant. Labour shortages are high in both low- and high-skilled occupations with shortages in several sectors, including information and communication technologies, professional, technical and scientific jobs, hospitality and healthcare. The number of graduates, especially women, in science, technology, engineering and mathematics (STEM) remains low and their share is only slowly increasing, despite dedicated STEM action plans. Skills mismatches are also explained by low participation in adult learning. The current incentives for adult learning may not reach the low-educated, for whom upskilling could offer better employment opportunities. High-quality education and training systems that respond to changing labour market needs and targeted upskilling and reskilling measures are key to reducing skills shortages and promoting labour inclusion and reallocation. Addressing labour shortages and skills mismatches is a key lever for tackling the digital transformation and enabling the green transition, as well as for achieving the 2030 Union headline targets on employment and skills.

| (33) | In addition to reducing work disincentives from the tax and benefits system, more effective and targeted activation measures could help unlock the large untapped labour potential and alleviate the growing labour and skills shortages. Disadvantaged groups, including people with low education attainment, a migrant background or with disabilities, are less integrated in the labour market. There is a low transition rate on average from unemployment or inactivity to employment. This suggests that there is still scope to strengthen the effectiveness of active labour market policies, in particular with more systematic evaluations and integrated pathways for jobseekers who face multiple barriers to finding a job. Pursuing policies to boost the reintegration of workers on long-term sick leave, in particular due to burnout and depression (25 % of cases), who now largely exceed the number of unemployed, will also be necessary to further increase the employment rate. |
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(33)

In addition to reducing work disincentives from the tax and benefits system, more effective and targeted activation measures could help unlock the large untapped labour potential and alleviate the growing labour and skills shortages. Disadvantaged groups, including people with low education attainment, a migrant background or with disabilities, are less integrated in the labour market. There is a low transition rate on average from unemployment or inactivity to employment. This suggests that there is still scope to strengthen the effectiveness of active labour market policies, in particular with more systematic evaluations and integrated pathways for jobseekers who face multiple barriers to finding a job. Pursuing policies to boost the reintegration of workers on long-term sick leave, in particular due to burnout and depression (25 % of cases), who now largely exceed the number of unemployed, will also be necessary to further increase the employment rate.

| (34) | On labour shortages and skills mismatches, there are concerns about the performance, inclusiveness and equity of the education systems, also in light of high public spending on education. The gap in educational outcomes is closely linked to students’ socioeconomic and migrant background and is among the largest in the Union, leading to inequalities in education. Increasing the labour market relevance and attractiveness of vocational education and training will be key. Strengthening the teaching profession by providing better teacher training and continuous professional development, and by developing more flexible and attractive career paths, would help reduce a growing shortage of qualified teachers, which risks further increasing existing educational inequalities. Some steps have been recently taken or are planned to strengthen the teaching profession. It will be essential to continue and monitor the implementation of those measures and their impact. |
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(34)

On labour shortages and skills mismatches, there are concerns about the performance, inclusiveness and equity of the education systems, also in light of high public spending on education. The gap in educational outcomes is closely linked to students’ socioeconomic and migrant background and is among the largest in the Union, leading to inequalities in education. Increasing the labour market relevance and attractiveness of vocational education and training will be key. Strengthening the teaching profession by providing better teacher training and continuous professional development, and by developing more flexible and attractive career paths, would help reduce a growing shortage of qualified teachers, which risks further increasing existing educational inequalities. Some steps have been recently taken or are planned to strengthen the teaching profession. It will be essential to continue and monitor the implementation of those measures and their impact.

| (35) | Around 70 % of Belgium’s gross inland energy consumption is covered by fossil fuel imports. In 2021, oil provided 45 % of Belgium’s energy mix and natural gas 23 %. Belgium’s consumption of natural gas dropped by 15 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, in line with the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (17). Belgium could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (18). Renewable energy accounted for only 13 % of final energy consumption in 2021. Belgium will need to significantly increase its renewable energy target by 2030, which is currently 17,5 % and considered unambitious in the Commission’s 2020 assessment, to reflect the more ambitious Union objectives. To meet the planned reduction of nuclear energy and projected rise in electricity demand, energy efficiency and the share of electricity from renewable sources will need to significantly increase. The development of onshore wind projects and the related expansion of the power grid are, however, still severely hampered by low public acceptance and long delays related to permitting procedures, in particular due to repetitive and lengthy appeal procedures. Further steps can be taken to accelerate the deployment of onshore wind power and related grid reinforcement. Spatial planning and a review of the minimum distance rules of wind turbines from airports, radars and military zones could free up more space for wind energy. Furthermore, permitting could be made easier by granting wind and grid infrastructure projects the status of overriding public interest and processing appeals faster. The participation of municipalities and citizens in renewable energy generation projects could increase local acceptability.
  The expansion of rooftop solar power (both small-scale and large-scale installations) could be further stimulated by adopting reforms that provide for binding requirements for large public and commercial buildings, incentives for landlords, and legal frameworks that facilitate energy sharing. In addition, self-consumption and demand-side flexibility could be promoted. The proactive development of more integrated and consistent ten-year electricity network investment plans could avoid delays in connecting new wind energy projects (and other renewable sources) as well as end users (heat pumps, charging points for electric cars), and should anticipate the expected surge in industrial electricity consumption. |
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(35)

Around 70 % of Belgium’s gross inland energy consumption is covered by fossil fuel imports. In 2021, oil provided 45 % of Belgium’s energy mix and natural gas 23 %. Belgium’s consumption of natural gas dropped by 15 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, in line with the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (17). Belgium could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (18). Renewable energy accounted for only 13 % of final energy consumption in 2021. Belgium will need to significantly increase its renewable energy target by 2030, which is currently 17,5 % and considered unambitious in the Commission’s 2020 assessment, to reflect the more ambitious Union objectives. To meet the planned reduction of nuclear energy and projected rise in electricity demand, energy efficiency and the share of electricity from renewable sources will need to significantly increase. The development of onshore wind projects and the related expansion of the power grid are, however, still severely hampered by low public acceptance and long delays related to permitting procedures, in particular due to repetitive and lengthy appeal procedures. Further steps can be taken to accelerate the deployment of onshore wind power and related grid reinforcement. Spatial planning and a review of the minimum distance rules of wind turbines from airports, radars and military zones could free up more space for wind energy. Furthermore, permitting could be made easier by granting wind and grid infrastructure projects the status of overriding public interest and processing appeals faster. The participation of municipalities and citizens in renewable energy generation projects could increase local acceptability.

The expansion of rooftop solar power (both small-scale and large-scale installations) could be further stimulated by adopting reforms that provide for binding requirements for large public and commercial buildings, incentives for landlords, and legal frameworks that facilitate energy sharing. In addition, self-consumption and demand-side flexibility could be promoted. The proactive development of more integrated and consistent ten-year electricity network investment plans could avoid delays in connecting new wind energy projects (and other renewable sources) as well as end users (heat pumps, charging points for electric cars), and should anticipate the expected surge in industrial electricity consumption.

| (36) | Further policy reforms and additional investments to reduce greenhouse gas emissions in the energy, industry, building and transport sectors would help reduce Belgium’s high overall dependency on fossil fuel imports. Energy efficiency gains in industry could be incentivised by improving voluntary agreements, introducing energy savings and decarbonisation plans for the largest fossil fuel users, stimulating electrification and the deployment of industrial heat pumps and further embedding circular production methods. Belgium risks not reaching its renovation and energy efficiency targets for 2030. The challenge of reducing fossil fuel consumption in buildings is still considerable. The current investment efforts on energy renovations should therefore be stepped up and complemented with policy reforms such as a ban on fossil fuels in new buildings, mandatory energy-efficient renovations, phasing out fossil fuel-based heating and shifting incentives towards low carbon heating solutions such as heat pumps and heat networks supplied with recovered and renewable energy. This should be matched by adapting education and training to the relevant emerging green technical skills and ensuring sufficient and appropriately skilled technicians and construction workers. In transport, the high share of private car use accounts for a large part of oil consumption in Belgium. Promoting ‘soft mobility’ (for example, cycling and shared mobility) and the use of public transport would help reduce the use of private cars, together with road congestion costs. In 2022, cycling increased as a method of commuting to work, particularly in Flanders and Brussels, thanks to continuous investments in cycling infrastructure, promotion initiatives and targeted incentives. However, there is still scope to further encourage this form of soft mobility through investments in cycling infrastructure and in road safety for cyclists. The use of public transport has not yet fully recovered after the COVID-19 crisis and could be further promoted by improvements to suburban and intercity services, investments in fleet renewal and higher frequency of services. |
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(36)

Further policy reforms and additional investments to reduce greenhouse gas emissions in the energy, industry, building and transport sectors would help reduce Belgium’s high overall dependency on fossil fuel imports. Energy efficiency gains in industry could be incentivised by improving voluntary agreements, introducing energy savings and decarbonisation plans for the largest fossil fuel users, stimulating electrification and the deployment of industrial heat pumps and further embedding circular production methods. Belgium risks not reaching its renovation and energy efficiency targets for 2030. The challenge of reducing fossil fuel consumption in buildings is still considerable. The current investment efforts on energy renovations should therefore be stepped up and complemented with policy reforms such as a ban on fossil fuels in new buildings, mandatory energy-efficient renovations, phasing out fossil fuel-based heating and shifting incentives towards low carbon heating solutions such as heat pumps and heat networks supplied with recovered and renewable energy. This should be matched by adapting education and training to the relevant emerging green technical skills and ensuring sufficient and appropriately skilled technicians and construction workers. In transport, the high share of private car use accounts for a large part of oil consumption in Belgium. Promoting ‘soft mobility’ (for example, cycling and shared mobility) and the use of public transport would help reduce the use of private cars, together with road congestion costs. In 2022, cycling increased as a method of commuting to work, particularly in Flanders and Brussels, thanks to continuous investments in cycling infrastructure, promotion initiatives and targeted incentives. However, there is still scope to further encourage this form of soft mobility through investments in cycling infrastructure and in road safety for cyclists. The use of public transport has not yet fully recovered after the COVID-19 crisis and could be further promoted by improvements to suburban and intercity services, investments in fleet renewal and higher frequency of services.

| (37) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported for several occupations that require specific skills or knowledge for the green transition, including civil engineering functions and power-plant operators. |
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(37)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported for several occupations that require specific skills or knowledge for the green transition, including civil engineering functions and power-plant operators.

| (38) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (19) is reflected in recommendation (1). |
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(38)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (19) is reflected in recommendation (1).

| (39) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Belgium, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area, |
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(39)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Belgium, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Belgium take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 2 % (20).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Strengthen efforts to improve the efficiency of long-term care. Pursue the reform of the taxation and benefits system to reduce disincentives to work by shifting the tax burden away from labour and by simplifying the tax and benefits system. Review tax expenditures in order to reduce their economic, social and environmental harmful impact.

2.

Ensure effective governance in order 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 the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Address labour shortages and skills mismatches, in particular by strengthening activation policies (including guidance) in order to integrate disadvantaged groups into the labour market. Improve the performance and equity of the education and training systems, and continue reforms to strengthen the teaching profession.

4.

Reduce overall reliance on fossil fuels by stepping up energy efficiency improvements and the reduction of fossil fuel use in buildings, by further stimulating the decarbonisation of industry and by promoting the use and supply of public transport and soft mobility. Accelerate the deployment of renewable energies and related grid infrastructure by further streamlining permitting procedures, including by reducing the length of appeal procedures, and by adopting legal frameworks to further boost investments in renewable energy installations and facilitate energy sharing. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10161/21 INIT; ST 10161/21 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Belgium (OJ C 304, 29.7.2021, p. 1).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided a neutral contribution of 0 percentage points of GDP.

9

(10)  That figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as, where relevant, capital expenditure measures.

10

(11)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Belgium and delivering a Council opinion on the 2022 Stability Programme of Belgium (OJ C 334, 1.9.2022, p. 1).

11

(12)  On the basis of the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Belgium is estimated at 5,4 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,1 percentage points of GDP.

13

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  European Commission, 2021 Ageing Report. Belgium long-term care spending is projected to reach 6 % of GDP in the cost convergence scenario and in the cost and coverage convergence scenario.

16

(17)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

17

(18)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

18

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

19

(20)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,7 % of GDP for 2024, as described in recital 23.

20

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RECOMMENDATIONS

| 1.9.2023 | EN | Official Journal of the European Union | C 312/13 |
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1.9.2023

EN

Official Journal of the European Union

C 312/13

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Bulgaria and delivering a Council opinion on the 2023 Convergence Programme of Bulgaria

(2023/C 312/02)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

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

Having regard to the opinion of the Social Protection Committee,

Having regard to the opinion of the Economic Policy Committee,

Whereas:

| (1) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Bulgaria as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Bulgaria as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023-2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023-2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 15 October 2021, Bulgaria 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 set out in Annex V to that Regulation. On 4 May 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Bulgaria (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Bulgaria 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. |
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(9)

On 15 October 2021, Bulgaria 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 set out in Annex V to that Regulation. On 4 May 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Bulgaria (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Bulgaria 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 5 May 2023, Bulgaria 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 Bulgaria’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 5 May 2023, Bulgaria 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 Bulgaria’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Bulgaria. It assessed Bulgaria’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Bulgaria’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Bulgaria’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Bulgaria. It assessed Bulgaria’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Bulgaria’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Bulgaria’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Bulgaria’s general government deficit decreased from 3,9 % of GDP in 2021 to 2,8 % in 2022, while general government debt fell from 23,9 % of GDP at the end of 2021 to 22,9 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Bulgaria, as its general government deficit is planned to exceed 3 % of GDP in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Bulgaria should take account of this in the discussion and execution of its 2023 budget and in preparing its budget for 2024. |
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(12)

According to data validated by Eurostat, Bulgaria’s general government deficit decreased from 3,9 % of GDP in 2021 to 2,8 % in 2022, while general government debt fell from 23,9 % of GDP at the end of 2021 to 22,9 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Bulgaria, as its general government deficit is planned to exceed 3 % of GDP in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Bulgaria should take account of this in the discussion and 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 taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included reduced rates of value added tax for heating and gas and lower excise duty on electricity and natural and liquid gas, while such fiscal policy expenditure-increasing measures included subsidies to non-household consumers and electricity system distribution operators for the consumption of electricity, to households for the consumption of natural gas as well as to district heating companies. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely a temporary levy on State-owned enterprises in the energy sector. The Commission estimates the net budgetary cost of those measures at 1,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,0 % of GDP in 2022, from 3,7 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included reduced rates of value added tax for heating and gas and lower excise duty on electricity and natural and liquid gas, while such fiscal policy expenditure-increasing measures included subsidies to non-household consumers and electricity system distribution operators for the consumption of electricity, to households for the consumption of natural gas as well as to district heating companies. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely a temporary levy on State-owned enterprises in the energy sector. The Commission estimates the net budgetary cost of those measures at 1,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,0 % of GDP in 2022, from 3,7 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Bulgaria (7) pursue a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. Moreover, the Council recommended that Bulgaria keep the growth of nationally financed current expenditure under control. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Bulgaria (7) pursue a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. Moreover, the Council recommended that Bulgaria keep the growth of nationally financed current expenditure under control.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 1,2 % of GDP, as recommended by the Council. As recommended by the Council, Bulgaria continued to support the recovery with investments to be financed by the Facility and other Union funds. Expenditure financed by grants under the Facility and other Union funds amounted to 0,8 % of GDP in 2022 (0,9 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,5 percentage points to the fiscal stance (9). Bulgaria 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 0,8 percentage points to the fiscal stance. That expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,9 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Bulgaria therefore sufficiently kept under control the growth in nationally financed current expenditure. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 1,2 % of GDP, as recommended by the Council. As recommended by the Council, Bulgaria continued to support the recovery with investments to be financed by the Facility and other Union funds. Expenditure financed by grants under the Facility and other Union funds amounted to 0,8 % of GDP in 2022 (0,9 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,5 percentage points to the fiscal stance (9). Bulgaria 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 0,8 percentage points to the fiscal stance. That expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,9 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Bulgaria therefore sufficiently kept under control the growth in nationally financed current expenditure.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,8 % in 2023 and 3,3 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 1,5 % in 2023 and 2,4 % in 2024, mainly due to a more negative assumption on the evolution of inventories in the Commission’s 2023 spring forecast and despite its more favourable projection on exports and imports in 2023. For 2024 the lower real GDP growth in the Commission’s 2023 spring forecast is mainly due to large negative differences in the contributions of private consumption, investment and exports. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,8 % in 2023 and 3,3 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 1,5 % in 2023 and 2,4 % in 2024, mainly due to a more negative assumption on the evolution of inventories in the Commission’s 2023 spring forecast and despite its more favourable projection on exports and imports in 2023. For 2024 the lower real GDP growth in the Commission’s 2023 spring forecast is mainly due to large negative differences in the contributions of private consumption, investment and exports.

| (17) | In its 2023 Convergence Programme, the government expects that the general government deficit will increase to 6,1 % of GDP in 2023. According to the 2023 Convergence Programme, the increase in deficit in 2023 mainly reflects adopted measures to increase pensions and wages, the impact of pension indexation to inflation and average wage, higher expenditure on social, health and education policy and a higher national spending on public investment. The Programme does not include any other policy change or consolidation measures, as the 2023 budget that may include such fiscal policy measures was not adopted by the time of the submission of the Convergence Programme. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 22,9 % at the end of 2022 to 26,6 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,8 % of GDP for 2023. This is lower than the deficit projected in the 2023 Convergence Programme, mainly due to lower expected public investment and higher revenue both from taxes and the Union. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 25 % at the end of 2023. The difference is due to a lower projected deficit and different assumptions concerning the implementation of and payments from the Facility. |
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(17)

In its 2023 Convergence Programme, the government expects that the general government deficit will increase to 6,1 % of GDP in 2023. According to the 2023 Convergence Programme, the increase in deficit in 2023 mainly reflects adopted measures to increase pensions and wages, the impact of pension indexation to inflation and average wage, higher expenditure on social, health and education policy and a higher national spending on public investment. The Programme does not include any other policy change or consolidation measures, as the 2023 budget that may include such fiscal policy measures was not adopted by the time of the submission of the Convergence Programme. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 22,9 % at the end of 2022 to 26,6 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,8 % of GDP for 2023. This is lower than the deficit projected in the 2023 Convergence Programme, mainly due to lower expected public investment and higher revenue both from taxes and the Union. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 25 % at the end of 2023. The difference is due to a lower projected deficit and different assumptions concerning the implementation of and payments from the Facility.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the subsidies to non-household consumers. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers, namely solidary contribution under Council Regulation (EU) 2022/1854 (10). Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,8 % of GDP in 2023 (11). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not fully preserve the price signal to reduce energy demand and increase energy efficiency. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,0 % of GDP. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the subsidies to non-household consumers. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers, namely solidary contribution under Council Regulation (EU) 2022/1854 (10). Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,8 % of GDP in 2023 (11). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not fully preserve the price signal to reduce energy demand and increase energy efficiency. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,0 % of GDP.

| (19) | In its Recommendation of 12 July 2022 (12), the Council recommended that Bulgaria take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Bulgaria should stand ready to adjust current spending to the evolving situation. Bulgaria 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022 (12), the Council recommended that Bulgaria take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Bulgaria should stand ready to adjust current spending to the evolving situation. Bulgaria 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (– 3,1 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 1,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 1,9 % of GDP to the fiscal stance. The expansionary contribution of nationally financed net primary current expenditure is not due to a targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Bulgaria is projected to finance additional investment through the Facility and other Union funds, and to preserve nationally financed investment. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,9 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (14). |
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(20)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (– 3,1 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 1,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 1,9 % of GDP to the fiscal stance. The expansionary contribution of nationally financed net primary current expenditure is not due to a targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Bulgaria is projected to finance additional investment through the Facility and other Union funds, and to preserve nationally financed investment. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,9 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (14).

| (21) | According to the 2023 Convergence Programme the general government deficit is expected to decline to 4,7 % of GDP in 2024. The decrease in 2024 mainly reflects higher revenue from the Union and the phasing-out of the energy support measures. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase to 30,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,8 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 28,1 % at the end of 2024. |
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(21)

According to the 2023 Convergence Programme the general government deficit is expected to decline to 4,7 % of GDP in 2024. The decrease in 2024 mainly reflects higher revenue from the Union and the phasing-out of the energy support measures. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase to 30,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,8 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 28,1 % at the end of 2024.

| (22) | The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures by 2024. The Commission currently assumes net cost of energy support measures of 0,1 % of GDP in 2024, compared to 0,8 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear targeted to vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and increase energy efficiency. |
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(22)

The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures by 2024. The Commission currently assumes net cost of energy support measures of 0,1 % of GDP in 2024, compared to 0,8 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear targeted to vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and increase energy efficiency.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 4,6 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,8 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 4,6 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,8 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (24) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 5,4 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is mainly due to the annualised impact of pension increases and planned increases in some public-sector wages, which more than offset the positive impact of the phasing-out of energy support measures. |
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(24)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 5,4 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is mainly due to the annualised impact of pension increases and planned increases in some public-sector wages, which more than offset the positive impact of the phasing-out of energy support measures.

| (25) | According to the 2023 Convergence Programme, government investment is expected to increase from 4 % of GDP in 2023 to 4,6 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. |
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(25)

According to the 2023 Convergence Programme, government investment is expected to increase from 4 % of GDP in 2023 to 4,6 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility.

| (26) | The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to increase to 4,9 % of GDP in 2025 and to 5 % by 2026. Therefore, the general government deficit is not planned to return to below 3 % of GDP over the Programme horizon. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 30,7 % at the end of 2024 to 37,1 % by the end of 2026. |
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(26)

The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to increase to 4,9 % of GDP in 2025 and to 5 % by 2026. Therefore, the general government deficit is not planned to return to below 3 % of GDP over the Programme horizon. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 30,7 % at the end of 2024 to 37,1 % by the end of 2026.

| (27) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Bulgaria’s recovery and resilience plan is underway, albeit with increasing risk of delays. Bulgaria submitted one payment request, corresponding to 22 milestones and targets in the plan and resulting in an overall disbursement of EUR 1,37 billion. A high level of governmental instability has led to delays on key legislative reforms, such as those on public procurement, anti-corruption, and the accountability of the prosecutor-general. Lack of political stability and administrative capacity also translated into a slowdown in the implementation work on several important energy and transport investments and the questioning of key aspects of the plan, namely on decarbonisation of the energy sector. The second payment request has been delayed and is now planned for September 2023. However, there is a significant risk that several milestones and targets related to key reforms will not be fulfilled at the time of submission. Work on the addendum of the plan and the REPowerEU chapter is ongoing. The timeline for the finalisation of that work is still unclear because of the political situation. 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 Bulgaria’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(27)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Bulgaria’s recovery and resilience plan is underway, albeit with increasing risk of delays. Bulgaria submitted one payment request, corresponding to 22 milestones and targets in the plan and resulting in an overall disbursement of EUR 1,37 billion. A high level of governmental instability has led to delays on key legislative reforms, such as those on public procurement, anti-corruption, and the accountability of the prosecutor-general. Lack of political stability and administrative capacity also translated into a slowdown in the implementation work on several important energy and transport investments and the questioning of key aspects of the plan, namely on decarbonisation of the energy sector. The second payment request has been delayed and is now planned for September 2023. However, there is a significant risk that several milestones and targets related to key reforms will not be fulfilled at the time of submission. Work on the addendum of the plan and the REPowerEU chapter is ongoing. The timeline for the finalisation of that work is still unclear because of the political situation. 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 Bulgaria’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (28) | The Commission approved all Bulgaria’s cohesion policy programming documents in 2022 apart from the Just Transition Fund priority and Territorial Just Transition Plans, which are crucial to alleviate the impact of the transition of coal regions. Proceeding with the adoption of the cohesion policy programmes as well as their swift implementation in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Bulgaria. |
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(28)

The Commission approved all Bulgaria’s cohesion policy programming documents in 2022 apart from the Just Transition Fund priority and Territorial Just Transition Plans, which are crucial to alleviate the impact of the transition of coal regions. Proceeding with the adoption of the cohesion policy programmes as well as their swift implementation in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Bulgaria.

| (29) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Bulgaria faces a number of additional challenges related to the decarbonisation of the economy and of energy production. |
| --- | --- |

(29)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Bulgaria faces a number of additional challenges related to the decarbonisation of the economy and of energy production.

| (30) | Bulgaria continues to have the most carbon-intensive economy in the Union, with greenhouse gas intensity more than four times higher than the Union average. The 2021 share of fossil fuels in Bulgaria’s energy mix was 63 %, with coal representing 26 %, nuclear 22 % and renewables 15 % (lower than the Union renewables average of 18 %). Bulgaria’s recovery and resilience plan includes a reform of the strategic framework for decarbonisation of the economy, in particular of the energy sector. This includes the preparation of scenarios and recommendations by the Energy Transition Commission and the subsequent adoption of a roadmap towards climate neutrality by the National Assembly, with a final date for phasing out coal/lignite, at the latest by 2038. Although the Energy Transition Commission was established in 2022, its recommendation report has been delayed. Moreover, the National Assembly adopted a resolution in January 2023 obliging the government to renegotiate Bulgaria’s decarbonisation commitments, including an investment in electricity storage, under its recovery and resilience plan. |
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(30)

Bulgaria continues to have the most carbon-intensive economy in the Union, with greenhouse gas intensity more than four times higher than the Union average. The 2021 share of fossil fuels in Bulgaria’s energy mix was 63 %, with coal representing 26 %, nuclear 22 % and renewables 15 % (lower than the Union renewables average of 18 %). Bulgaria’s recovery and resilience plan includes a reform of the strategic framework for decarbonisation of the economy, in particular of the energy sector. This includes the preparation of scenarios and recommendations by the Energy Transition Commission and the subsequent adoption of a roadmap towards climate neutrality by the National Assembly, with a final date for phasing out coal/lignite, at the latest by 2038. Although the Energy Transition Commission was established in 2022, its recommendation report has been delayed. Moreover, the National Assembly adopted a resolution in January 2023 obliging the government to renegotiate Bulgaria’s decarbonisation commitments, including an investment in electricity storage, under its recovery and resilience plan.

| (31) | Bulgaria has shown a high level of security of gas supply in the face of challenging circumstances, in particular its gas supplies from Russia being cut shortly after the invasion of Ukraine. Bulgaria was able to secure short-term contracts for liquified natural gas (LNG) deliveries via Greece. The gas interconnector between Greece and Bulgaria (IGB) started operations in October 2022. This enabled Bulgaria to receive the full volumes of contracted supplies from Azerbaijan (1 bcm/year, covering roughly 30 % of domestic consumption). The share of gas in the energy mix was 14 %, lower than the Union average of 23 %. Industry remains the largest gas consumer, with a share of 42 %, including non-energy uses. District heating systems in the major towns of Sofia and Plovdiv rely on natural gas, accounting for approximately a third of Bulgaria’s total natural gas consumption. Bulgaria’s consumption of natural gas dropped by 22 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (17). Bulgaria is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (18). |
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(31)

Bulgaria has shown a high level of security of gas supply in the face of challenging circumstances, in particular its gas supplies from Russia being cut shortly after the invasion of Ukraine. Bulgaria was able to secure short-term contracts for liquified natural gas (LNG) deliveries via Greece. The gas interconnector between Greece and Bulgaria (IGB) started operations in October 2022. This enabled Bulgaria to receive the full volumes of contracted supplies from Azerbaijan (1 bcm/year, covering roughly 30 % of domestic consumption). The share of gas in the energy mix was 14 %, lower than the Union average of 23 %. Industry remains the largest gas consumer, with a share of 42 %, including non-energy uses. District heating systems in the major towns of Sofia and Plovdiv rely on natural gas, accounting for approximately a third of Bulgaria’s total natural gas consumption. Bulgaria’s consumption of natural gas dropped by 22 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (17). Bulgaria is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (18).

| (32) | On renewables, Bulgaria is yet to remove the barriers to installing renewable energy facilities and connecting them to the grid, part of a commitment under its recovery and resilience plan. In January 2023, the Commission referred Bulgaria to the Court of Justice of the European Union, in accordance with Article 260(3) Treaty on the Functioning of the European Union, for failing to transpose Directive (EU) 2018/2001 of the European Parliament and of the Council (19) into national law. Greater focus on energy storage would help accelerate the deployment of grid-scale renewables in Bulgaria. Furthermore, improving grid management to make it more flexible could facilitate the integration of additional renewable energy installations. At the same time, Bulgaria should continue developing energy interconnectors with sufficient capacity with neighbouring countries. Investment into fossil fuel infrastructure needs to be limited to the strictly necessary and be designed to be future-proof, to avoid lock-in into technologies that are not consistent with the climate objectives or increasing the cost of the energy transition. |
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(32)

On renewables, Bulgaria is yet to remove the barriers to installing renewable energy facilities and connecting them to the grid, part of a commitment under its recovery and resilience plan. In January 2023, the Commission referred Bulgaria to the Court of Justice of the European Union, in accordance with Article 260(3) Treaty on the Functioning of the European Union, for failing to transpose Directive (EU) 2018/2001 of the European Parliament and of the Council (19) into national law. Greater focus on energy storage would help accelerate the deployment of grid-scale renewables in Bulgaria. Furthermore, improving grid management to make it more flexible could facilitate the integration of additional renewable energy installations. At the same time, Bulgaria should continue developing energy interconnectors with sufficient capacity with neighbouring countries. Investment into fossil fuel infrastructure needs to be limited to the strictly necessary and be designed to be future-proof, to avoid lock-in into technologies that are not consistent with the climate objectives or increasing the cost of the energy transition.

| (33) | Bulgaria's recovery and resilience plan includes over EUR 1 billion of investments aimed at improving energy efficiency in both public and private buildings, with calls to deliver projects on the ground being put into action. The establishment of the national decarbonisation fund, expected in 2023, is crucial for the achievement of Bulgaria’s long-term strategy to renovate its building stock, along with attracting more private investment by adapting its approach to renovation programmes. Additional effort is needed to structurally address energy poverty, in particular through dedicated schemes and technical and administrative assistance to reflect the needs of vulnerable groups. For Bulgaria to be in line with the ‘Fit for 55’ objectives, greater ambition will be needed to reduce greenhouse gas emissions and increase renewables and energy efficiency targets. |
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(33)

Bulgaria's recovery and resilience plan includes over EUR 1 billion of investments aimed at improving energy efficiency in both public and private buildings, with calls to deliver projects on the ground being put into action. The establishment of the national decarbonisation fund, expected in 2023, is crucial for the achievement of Bulgaria’s long-term strategy to renovate its building stock, along with attracting more private investment by adapting its approach to renovation programmes. Additional effort is needed to structurally address energy poverty, in particular through dedicated schemes and technical and administrative assistance to reflect the needs of vulnerable groups. For Bulgaria to be in line with the ‘Fit for 55’ objectives, greater ambition will be needed to reduce greenhouse gas emissions and increase renewables and energy efficiency targets.

| (34) | Between 2005 and 2021 greenhouse gas emissions from domestic transport except aviation have grown by 19,5 % in Bulgaria, while declining by 7,5 % in the Union on average. About a quarter of the country’s greenhouse gas emissions are provided by that sector. The uptake of zero-emission passenger cars is low, as is the density of public electric charging points in Bulgaria. The development of the Bulgarian section of the Trans-European Transport Network has been facing delays, especially concerning rail infrastructure: this inhibits multimodality and the potential to improve efficiency and sustainability in transport. Air pollution constitutes a significant health risk to Bulgaria’s population. |
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(34)

Between 2005 and 2021 greenhouse gas emissions from domestic transport except aviation have grown by 19,5 % in Bulgaria, while declining by 7,5 % in the Union on average. About a quarter of the country’s greenhouse gas emissions are provided by that sector. The uptake of zero-emission passenger cars is low, as is the density of public electric charging points in Bulgaria. The development of the Bulgarian section of the Trans-European Transport Network has been facing delays, especially concerning rail infrastructure: this inhibits multimodality and the potential to improve efficiency and sustainability in transport. Air pollution constitutes a significant health risk to Bulgaria’s population.

| (35) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Bulgaria for a number of occupations that required specific skills or knowledge for the green transition (20). The European Social Fund Plus allocated EUR 152 million for measures to promote green skills and jobs for 2021–2027. The Just Transition Fund also provides an opportunity to address the social dimension of the green transition for the three eligible regions in the country. |
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(35)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Bulgaria for a number of occupations that required specific skills or knowledge for the green transition (20). The European Social Fund Plus allocated EUR 152 million for measures to promote green skills and jobs for 2021–2027. The Just Transition Fund also provides an opportunity to address the social dimension of the green transition for the three eligible regions in the country.

| (36) | In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (21) is reflected in recommendations (1), (2) and (3), |
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(36)

In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (21) is reflected in recommendations (1), (2) and (3),

HEREBY RECOMMENDS that Bulgaria take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 4,6 % (22).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

2.

Ensure an effective governance structure and strengthen the administrative capacity in order 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 the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Reduce reliance on fossil fuels and accelerate the energy transition through faster deployment of renewable energy sources, while ensuring storage capacities to increase the flexibility of the energy system. Strengthen the electricity grid infrastructure and improve the management thereof by streamlining the connection procedures and introducing smart grid elements. Continue efforts to increase interconnection with neighbouring countries. Accelerate building renovation in order to incentivise energy efficiency and address energy poverty. Promote new future-proof solutions in district heating and sustainable urban transport, and accelerate development of railway infrastructure. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 8091/2022 INIT; ST 8091/2022 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Convergence Programme of Bulgaria (OJ C 304, 29.7.2021, p. 6).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure is projected to provide a neutral contribution of zero percentage points of GDP.

9

(10)  Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices (OJ L 261I, 7.10.2022, p. 1).

10

(11)  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.

11

(12)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Bulgaria and delivering a Council opinion on the 2022 Convergence Programme of Bulgaria (OJ C 334, 1.9.2022, p. 11).

12

(13)  On the basis of the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Bulgaria, which is used to measure the fiscal stance, is estimated at 12,9 % in nominal terms.

13

(14)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,1 percentage points of GDP.

14

(15)  Article 5 of Regulation (EC) No 1466/97 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.

15

(16)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

16

(17)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

17

(18)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

18

(19)  Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (OJ L 328, 21.12.2018, p. 82).

19

(20)  Labour shortages report 2022 — European Labour Authority.

20

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

21

(22)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,5 % of GDP for 2024, as described in recital 23.

22

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/22 |
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1.9.2023

EN

Official Journal of the European Union

C 312/22

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Czechia and delivering a Council opinion on the 2023 Convergence Programme of Czechia

(2023/C 312/03)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

Having regard to the recommendation of the European Commission,

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 (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Unionand support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Unionand support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Czechia 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, and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Czechia 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, and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Unionstands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union'scompetitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Unionstands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union'scompetitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union'snet-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Unionand its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union'snet-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Unionand its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023 aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023 aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ Stability and Convergence Programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moroever, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investments and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ Stability and Convergence Programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moroever, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investments and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 1 June 2021, Czechia 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 set out in Annex V to that Regulation. On 8 September 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Czechia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Czechia 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. |
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(9)

On 1 June 2021, Czechia 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 set out in Annex V to that Regulation. On 8 September 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Czechia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Czechia 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 13 April 2023, Czechia submitted its 2023 National Reform Programme and, on 28 April 2023, 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 Czechia’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 13 April 2023, Czechia submitted its 2023 National Reform Programme and, on 28 April 2023, 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 Czechia’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Czechia. It assessed Czechia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Czechia’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Czechia’s progress in implementing the European Pillar of Social Rights and in achieving the Unionheadline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Czechia. It assessed Czechia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Czechia’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Czechia’s progress in implementing the European Pillar of Social Rights and in achieving the Unionheadline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Czechia and published its results on 24 May 2023. The Commission concluded that Czechia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relate to price competitiveness and house prices, but are likely to be limited in the future as household debt is contained and inflation is expected to decelerate significantly faster than the Union average. The economy was strongly affected by the energy price shock, with inflation rising fast. A loose fiscal stance since the COVID-19 pandemic has also contributed to the acceleration of inflation. While overall price pressures remain elevated, price competitiveness is projected to partially recover amid falling energy prices, and there are no immediate external sustainability challenges. Inflation is expected to decelerate significantly faster than the Union average. However, if inflation persists, that could pose some risks for Czechia’s competitiveness. The recent deterioration of the current account warrants close further monitoring. In recent years, demand for housing increased strongly, spurred by low interest rates, high income growth and loosened macroprudential measures, and supply of housing did not keep up. House prices grew more strongly during the pandemic but started to moderate in mid-2022 amid higher interest rates and stricter lending conditions. However, risks of a significant house price correction appear to be low, household debt is contained, and the banking sector is sound. A continued limited supply response over the medium-term would nonetheless continue to drive prices up. Continued efforts are needed to rein in inflation. Bringing inflation down quickly requires a strong deceleration in demand growth, which in turn can be achieved by sufficiently tight monetary and fiscal policy. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Czechia and published its results on 24 May 2023. The Commission concluded that Czechia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relate to price competitiveness and house prices, but are likely to be limited in the future as household debt is contained and inflation is expected to decelerate significantly faster than the Union average. The economy was strongly affected by the energy price shock, with inflation rising fast. A loose fiscal stance since the COVID-19 pandemic has also contributed to the acceleration of inflation. While overall price pressures remain elevated, price competitiveness is projected to partially recover amid falling energy prices, and there are no immediate external sustainability challenges. Inflation is expected to decelerate significantly faster than the Union average. However, if inflation persists, that could pose some risks for Czechia’s competitiveness. The recent deterioration of the current account warrants close further monitoring. In recent years, demand for housing increased strongly, spurred by low interest rates, high income growth and loosened macroprudential measures, and supply of housing did not keep up. House prices grew more strongly during the pandemic but started to moderate in mid-2022 amid higher interest rates and stricter lending conditions. However, risks of a significant house price correction appear to be low, household debt is contained, and the banking sector is sound. A continued limited supply response over the medium-term would nonetheless continue to drive prices up. Continued efforts are needed to rein in inflation. Bringing inflation down quickly requires a strong deceleration in demand growth, which in turn can be achieved by sufficiently tight monetary and fiscal policy.

| (13) | According to data validated by Eurostat, Czechia’s general government deficit decreased from 5,1 % of GDP in 2021 to 3,6 % in 2022, while general government debt rose from 42,0 % of GDP at the end of 2021 to 44,1 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Czechia, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Czechia should take account of this in the execution of its 2023 budget and in preparing its budget for 2024. |
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(13)

According to data validated by Eurostat, Czechia’s general government deficit decreased from 5,1 % of GDP in 2021 to 3,6 % in 2022, while general government debt rose from 42,0 % of GDP at the end of 2021 to 44,1 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Czechia, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Czechia should take account of this in the execution of its 2023 budget and in preparing its budget for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in the excise duties on petrol and diesel, the cancellation of the road tax for businesses and a reduction in the renewable energy surcharge paid by end-users; while such fiscal policy expenditure-increasing measures included a lump-sum contribution to the energy bills (the ‘savings tariff’), support for industry affected by high energy prices and a one-time allowance for children. The Commission estimates the net budgetary cost of those measures at 0,7 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,3 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,1 % of GDP in 2022, from 2,0 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in the excise duties on petrol and diesel, the cancellation of the road tax for businesses and a reduction in the renewable energy surcharge paid by end-users; while such fiscal policy expenditure-increasing measures included a lump-sum contribution to the energy bills (the ‘savings tariff’), support for industry affected by high energy prices and a one-time allowance for children. The Commission estimates the net budgetary cost of those measures at 0,7 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,3 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,1 % of GDP in 2022, from 2,0 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Czechia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Czechia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,1 % of GDP, as recommended by the Council. As recommended by the Council, Czechia continued to support the recovery including with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,1 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,3 percentage points to the fiscal stance. Czechia therefore kept the growth in nationally financed current expenditure sufficiently kept under control. Czechia therefore preserved nationally financed investment, as recommended by the Council. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,1 % of GDP, as recommended by the Council. As recommended by the Council, Czechia continued to support the recovery including with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,1 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,3 percentage points to the fiscal stance. Czechia therefore kept the growth in nationally financed current expenditure sufficiently kept under control. Czechia therefore preserved nationally financed investment, as recommended by the Council.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is in line with the Commission’s 2023 spring forecast. The government projects real GDP to grow by 0,1 % in 2023 and 3,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a similar real GDP growth of 0,2 % in 2023 and 2,6 % in 2024. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is in line with the Commission’s 2023 spring forecast. The government projects real GDP to grow by 0,1 % in 2023 and 3,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a similar real GDP growth of 0,2 % in 2023 and 2,6 % in 2024.

| (18) | In its 2023 Convergence Programme, the government expects that the general government deficit will decrease to 3,5 % of GDP in 2023. The marginal decrease in 2023 mainly reflects higher expenditures such as subsidies related to the energy support measures, or higher gross fixed capital formation, which are offset by lower growth in other expenditure items and higher revenues from the Union funds. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 44,1 % at the end of 2022 to 43,5 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 3,6 % of GDP for 2023. This is in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 42,9 % at the end of 2023. The difference is due to a projected higher nominal GDP growth. |
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(18)

In its 2023 Convergence Programme, the government expects that the general government deficit will decrease to 3,5 % of GDP in 2023. The marginal decrease in 2023 mainly reflects higher expenditures such as subsidies related to the energy support measures, or higher gross fixed capital formation, which are offset by lower growth in other expenditure items and higher revenues from the Union funds. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 44,1 % at the end of 2022 to 43,5 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 3,6 % of GDP for 2023. This is in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 42,9 % at the end of 2023. The difference is due to a projected higher nominal GDP growth.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: reduction in the renewable energy surcharge paid by end-users and in excise duties on diesel) and new measures such as a cap on electricity and gas prices and support in the heating sector. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely a levy that electricity producers pay on revenues above a certain price level and a windfall profit tax for companies active in production and trade of electricity and gas, fossil mining, fuels and petrochemicals. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to decrease by 0,1 percentage point of GDP compared to 2022. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: reduction in the renewable energy surcharge paid by end-users and in excise duties on diesel) and new measures such as a cap on electricity and gas prices and support in the heating sector. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely a levy that electricity producers pay on revenues above a certain price level and a windfall profit tax for companies active in production and trade of electricity and gas, fossil mining, fuels and petrochemicals. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to decrease by 0,1 percentage point of GDP compared to 2022.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Czechia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Czechia should stand ready to adjust current spending to the evolving situation. Czechia 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Czechia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Czechia should stand ready to adjust current spending to the evolving situation. Czechia 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 1,4 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (– 0,1 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 1,2 % of GDP to the fiscal stance. This includes the reduced 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 cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % of GDP). In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,6 % of GDP in 2023, while nationally financed investment is projected to provide a contractionary contribution to the fiscal stance of 0,5 percentage points (13). Therefore, Czechia plans to finance additional investment through the Facility and other Union 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 such as energy efficiency improvements in public buildings or investments in railways or digital services, which are partly funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 1,4 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (– 0,1 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 1,2 % of GDP to the fiscal stance. This includes the reduced 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 cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % of GDP). In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,6 % of GDP in 2023, while nationally financed investment is projected to provide a contractionary contribution to the fiscal stance of 0,5 percentage points (13). Therefore, Czechia plans to finance additional investment through the Facility and other Union 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 such as energy efficiency improvements in public buildings or investments in railways or digital services, which are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Convergence Programme the general government deficit is expected to decline to 2,9 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of energy support measures resulting in lower subsidies, and a lower growth in social payments compared to the growth in nominal GDP. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase to 44,0 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,0 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 43,1 % at the end of 2024. |
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(22)

According to the 2023 Convergence Programme the general government deficit is expected to decline to 2,9 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of energy support measures resulting in lower subsidies, and a lower growth in social payments compared to the growth in nominal GDP. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase to 44,0 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,0 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 43,1 % at the end of 2024.

| (23) | The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes that the net cost of energy support measures will be 0,0 % of GDP in 2024, compared to 1,3 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes that the net cost of energy support measures will be 0,0 % of GDP in 2024, compared to 1,3 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 6,0 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the Union average, and which could lead to competitiveness losses if it remains persistent. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,3 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 6,0 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the Union average, and which could lead to competitiveness losses if it remains persistent. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,3 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 3,0 % in 2024, which is below the recommended growth rate. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 3,0 % in 2024, which is below the recommended growth rate.

| (26) | According to the 2023 Convergence Programme, government investment is expected to decrease from 4,9 % of GDP in 2023 to 4,4 % of GDP in 2024. The lower investment reflects lower nationally financed investment and investment financed by the Union, other than the Facility. |
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(26)

According to the 2023 Convergence Programme, government investment is expected to decrease from 4,9 % of GDP in 2023 to 4,4 % of GDP in 2024. The lower investment reflects lower nationally financed investment and investment financed by the Union, other than the Facility.

| (27) | The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to gradually decline to 2,4 % of GDP in 2025 and to 2,2 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2024. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 44,0 % at the end of 2024 to 45,0 % by the end of 2026. |
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(27)

The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to gradually decline to 2,4 % of GDP in 2025 and to 2,2 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2024. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 44,0 % at the end of 2024 to 45,0 % by the end of 2026.

| (28) | Czechia faces fiscal sustainability risks in the medium and long term. A series of fiscal measures with permanent impact that have been taken in the last three years, including a reduction in the personal income tax base and several indexations of social security expenditure above the statutory minimum, have led to a deterioration in the structural balance. There is additional pressure on fiscal sustainability in the medium to long term due to increases in the cost of ageing. A projected doubling of the old-age dependency ratio (16) and capping of the retirement age after 2030 are expected to lead to an increase in pension expenditure from 8,8 % of GDP in 2030 to 11,4 % by 2050. In addition, public spending on healthcare and long-term care is projected to increase by 0,9 percentage points and 1,7 percentage points of GDP respectively by 2070 due to the ageing population. Possible measures to address fiscal sustainability in the long term include adjusting the retirement age in line with the increase in life expectancy, providing incentives to increase the participation rates of older people, limiting early retirements, adjusting pension indexation rates and increasing the labour supply in order to ensure higher revenues for the pension system. |
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(28)

Czechia faces fiscal sustainability risks in the medium and long term. A series of fiscal measures with permanent impact that have been taken in the last three years, including a reduction in the personal income tax base and several indexations of social security expenditure above the statutory minimum, have led to a deterioration in the structural balance. There is additional pressure on fiscal sustainability in the medium to long term due to increases in the cost of ageing. A projected doubling of the old-age dependency ratio (16) and capping of the retirement age after 2030 are expected to lead to an increase in pension expenditure from 8,8 % of GDP in 2030 to 11,4 % by 2050. In addition, public spending on healthcare and long-term care is projected to increase by 0,9 percentage points and 1,7 percentage points of GDP respectively by 2070 due to the ageing population. Possible measures to address fiscal sustainability in the long term include adjusting the retirement age in line with the increase in life expectancy, providing incentives to increase the participation rates of older people, limiting early retirements, adjusting pension indexation rates and increasing the labour supply in order to ensure higher revenues for the pension system.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Czechia’s recovery and resilience plan is underway, albeit with risks of some delays. Czechia submitted one payment request, corresponding to 37 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of around EUR 928 million. Further improvements to administrative capacity and prioritisation of the key reforms and investments are needed to ensure a timely implementation of the plan. The plan is expected to be revised in 2023 with addenda to cover the new REPowerEU chapter and to accommodate the increase of non-repayable support. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 30 March 2023, Czechia expressed its intention to request up to EUR 11 billion of additional loan support under the 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 Czechia’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Czechia’s recovery and resilience plan is underway, albeit with risks of some delays. Czechia submitted one payment request, corresponding to 37 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of around EUR 928 million. Further improvements to administrative capacity and prioritisation of the key reforms and investments are needed to ensure a timely implementation of the plan. The plan is expected to be revised in 2023 with addenda to cover the new REPowerEU chapter and to accommodate the increase of non-repayable support. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 30 March 2023, Czechia expressed its intention to request up to EUR 11 billion of additional loan support under the 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 Czechia’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Czechia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Czechia. |
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(30)

The Commission approved all Czechia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Czechia.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Czechia faces a number of additional challenges related to housing, energy policy and the green transition. |
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(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Czechia faces a number of additional challenges related to housing, energy policy and the green transition.

| (32) | Housing affordability in Czechia has been among the lowest in the Union in the past five years, with large differences between regions. High house price growth has made it difficult for middle-income groups to buy property. This has fed the demand for rental property, which in turn has made it less affordable. Moreover, the low social housing stock cannot meet the demand of all low-income and vulnerable households (it accounted for 0,4 % of total housing stock in 2020 versus 7-8 % on average in the Union (17)), and existing housing allowances are underutilised, partly due to administrative burden, stigma, and a lack of awareness. As a result, the number of families in need of housing has been growing in recent years, which entails increasing costs for the public budget and healthcare system. The COVID-19 pandemic and influx of people fleeing the war in Ukraine have further exacerbated these pre-existing challenges. Cohesion policy funding remains an important source of piloting and funding investments in social housing, thus contributing to social protection and inclusion. However, other funding sources are necessary to significantly improve the situation. Czechia lacks legislation and a comprehensive framework on social housing, which makes it difficult to coordinate the fragmented housing policies and define responsibilities among national and regional bodies. Stable and sustainable financing from national sources, together with the adoption of incentives for rental or cooperative housing, would help to increase the supply of affordable housing and ensure continuity and scale-up to such efforts. Effective coordination would be crucial for increasing the housing supply, the reconstruction and refurbishment of existing housing units and utilisation of vacant dwellings. |
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(32)

Housing affordability in Czechia has been among the lowest in the Union in the past five years, with large differences between regions. High house price growth has made it difficult for middle-income groups to buy property. This has fed the demand for rental property, which in turn has made it less affordable. Moreover, the low social housing stock cannot meet the demand of all low-income and vulnerable households (it accounted for 0,4 % of total housing stock in 2020 versus 7-8 % on average in the Union (17)), and existing housing allowances are underutilised, partly due to administrative burden, stigma, and a lack of awareness. As a result, the number of families in need of housing has been growing in recent years, which entails increasing costs for the public budget and healthcare system. The COVID-19 pandemic and influx of people fleeing the war in Ukraine have further exacerbated these pre-existing challenges. Cohesion policy funding remains an important source of piloting and funding investments in social housing, thus contributing to social protection and inclusion. However, other funding sources are necessary to significantly improve the situation. Czechia lacks legislation and a comprehensive framework on social housing, which makes it difficult to coordinate the fragmented housing policies and define responsibilities among national and regional bodies. Stable and sustainable financing from national sources, together with the adoption of incentives for rental or cooperative housing, would help to increase the supply of affordable housing and ensure continuity and scale-up to such efforts. Effective coordination would be crucial for increasing the housing supply, the reconstruction and refurbishment of existing housing units and utilisation of vacant dwellings.

| (33) | Since the start of the Russian invasion of Ukraine, Czechia has responded to its major reliance on fossil fuel imports from Russia by diversifying its supplies of gas. For example, Czechia has moved from being wholly dependent on Russian gas supplies to mainly using diversified gas supplies from Norway and liquefied natural gas (LNG) imports. However, the country has not seen a reduction in the consumption of fossil fuels, leaving it exposed to a high risk of supply disruption and price spikes, with major negative effects for households and industry. Czechia’s consumption of natural gas dropped by 17 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding 5 years, beyond the 15 % reduction target. Czechia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (18). |
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(33)

Since the start of the Russian invasion of Ukraine, Czechia has responded to its major reliance on fossil fuel imports from Russia by diversifying its supplies of gas. For example, Czechia has moved from being wholly dependent on Russian gas supplies to mainly using diversified gas supplies from Norway and liquefied natural gas (LNG) imports. However, the country has not seen a reduction in the consumption of fossil fuels, leaving it exposed to a high risk of supply disruption and price spikes, with major negative effects for households and industry. Czechia’s consumption of natural gas dropped by 17 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding 5 years, beyond the 15 % reduction target. Czechia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (18).

| (34) | The deployment of renewable energy in Czechia has been hampered mainly by regulatory limitations, permitting procedures and constrained distribution grid capacity. Czechia has moved forward in addressing a number of regulatory challenges such as abolishing the need for a licence to generate electricity and a building permit for smaller photovoltaics (up to 50 kWp), and making regulatory changes to facilitate installation. However, further efforts are needed to empower energy communities and renewables self-consumers, introduce a one-stop shop for renewables, and introduce go-to areas to boost the deployment of renewables by encouraging grid expansion, flexibility of the power system (such as demand response or storage), the installation of small systems and smart metering will be key. The regulatory reforms in grids should be matched by investments in expanding grid capacity, incentivising flexibility and deploying renewables. Moreover, Czechia has a solid industrial potential for the manufacturing of green technologies and could speed up investments in the development and scaling-up of climate-friendly solutions and decarbonisation solutions in order to reach net-zero emissions by 2050. |
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(34)

The deployment of renewable energy in Czechia has been hampered mainly by regulatory limitations, permitting procedures and constrained distribution grid capacity. Czechia has moved forward in addressing a number of regulatory challenges such as abolishing the need for a licence to generate electricity and a building permit for smaller photovoltaics (up to 50 kWp), and making regulatory changes to facilitate installation. However, further efforts are needed to empower energy communities and renewables self-consumers, introduce a one-stop shop for renewables, and introduce go-to areas to boost the deployment of renewables by encouraging grid expansion, flexibility of the power system (such as demand response or storage), the installation of small systems and smart metering will be key. The regulatory reforms in grids should be matched by investments in expanding grid capacity, incentivising flexibility and deploying renewables. Moreover, Czechia has a solid industrial potential for the manufacturing of green technologies and could speed up investments in the development and scaling-up of climate-friendly solutions and decarbonisation solutions in order to reach net-zero emissions by 2050.

| (35) | The spike in energy prices resulting from the Russian war of aggression against Ukraine has highlighted the need to improve the energy efficiency of Czech building stock and tackle energy poverty. Czechia has responded by launching programmes for residential buildings and helping older people and low-income households. However, more efforts are needed to improve energy efficiency by making it more accessible. This is possible by easing administrative access to subsidies for both households and industry, including through building capacity and skills in public authorities. Information campaigns and country-wide dedicated advisory services are also required to ensure that the population is aware of the need and benefits associated with reducing energy consumption and to help individuals and industry easily access subsidies. Moreover, Czechia has to accelerate the upskilling and reskilling of workers who currently lack the skills needed for building renovations. |
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(35)

The spike in energy prices resulting from the Russian war of aggression against Ukraine has highlighted the need to improve the energy efficiency of Czech building stock and tackle energy poverty. Czechia has responded by launching programmes for residential buildings and helping older people and low-income households. However, more efforts are needed to improve energy efficiency by making it more accessible. This is possible by easing administrative access to subsidies for both households and industry, including through building capacity and skills in public authorities. Information campaigns and country-wide dedicated advisory services are also required to ensure that the population is aware of the need and benefits associated with reducing energy consumption and to help individuals and industry easily access subsidies. Moreover, Czechia has to accelerate the upskilling and reskilling of workers who currently lack the skills needed for building renovations.

| (36) | Reducing Czechia’s exposure to fossil fuels can also be achieved by switching to zero-emission rail and other forms of zero-emission mobility. However, the deployment of zero-emission vehicles and forward-looking high-capacity charging and refuelling infrastructure has been lacklustre. On the regulatory side, the revision of the National Action Plan for Clean Mobility and associated regulatory changes should be a starting point to provide enabling conditions for and remove barriers to the transition to zero-emission mobility. |
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(36)

Reducing Czechia’s exposure to fossil fuels can also be achieved by switching to zero-emission rail and other forms of zero-emission mobility. However, the deployment of zero-emission vehicles and forward-looking high-capacity charging and refuelling infrastructure has been lacklustre. On the regulatory side, the revision of the National Action Plan for Clean Mobility and associated regulatory changes should be a starting point to provide enabling conditions for and remove barriers to the transition to zero-emission mobility.

| (37) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Czechia for seven occupations that require specific skills related to the green transition (for example, plumbers, pipe-fitters, electricians and electrical mechanics) (19). |
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(37)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Czechia for seven occupations that require specific skills related to the green transition (for example, plumbers, pipe-fitters, electricians and electrical mechanics) (19).

| (38) | In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (20) is reflected in recommendation (1), |
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(38)

In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (20) is reflected in recommendation (1),

HEREBY RECOMMENDS that Czechia take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 6,0 % (21).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Take measures to ensure the long-term fiscal sustainability of public finances, including the sustainability of the pension system.

2.

Accelerate the implementation of its recovery and resilience plan, also by ensuring adequate administrative capacity, and swiftly finalise the addendum, including the REPowerEU chapter, with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Strengthen the provision of social and affordable housing, including by adopting a specific legislative framework, improving coordination between different public bodies, and incentivising the construction of new housing units as well as the refurbishment of existing ones.

4.

Reduce reliance on fossil fuels. Increase the deployment of renewables with additional investments in electricity grids and direct deployment of renewable capacity. Streamline permitting procedures for renewables and make the grid fit to accommodate access to renewables through additional reforms, removing restrictions for small-scale renewables and setting up a one-stop shop, boosting grid flexibility and creating conducive conditions for energy communities. Increase the energy efficiency of district heating systems and of the building stock by incentivising deep renovations and renewable heat sources, easing administrative access to subsidies for both households and industry, and building capacity and improving skills in public authorities. Promote the uptake of zero-emission vehicles and boost the availability of high-capacity charging and refuelling infrastructure through new reforms to create enabling conditions for and remove existing barriers to the deployment of vehicles and infrastructure. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 11047/2021 INIT; ST 11047/2021 ADD 1; ST 11047/2021 ADD 1 COR 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Convergence Programme of Czechia (OJ C 304, 29.7.2021, p. 10).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,4 percentage points of GDP, driven among others by payments to the Czech Post for the provision of universal postal services for the period 2018-2022.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Czechia and delivering a Council opinion on the 2022 Convergence Programme of Czechia (OJ C 334, 1.9.2022, p. 19).

11

(12)  Based on the Commission spring 2023 forecast, potential output growth of Czechia, which is used to measure the fiscal stance, in the medium-term (10-year average), is estimated at 13,3 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,1 percentage point of GDP.

13

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  According to the 2021 Ageing Report issued by the Commission in May 2021.

16

(17)  Affordable Housing Database of the Organisation for Economic Co-operation and Development (OECD), http://oe.cd/ahd.

17

(18)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

18

(19)  Based on the European network of employment services (EURES) Report on labour shortages and surpluses 2022 prepared by the European Labour Authority, i.e. data submitted by the EURES national coordination offices. Skills and knowledge requirements are based on the European Skills Competences and Occupations (ESCO) taxonomy on skills for the green transition. Examples are analysed on the basis of the share of ESCO skills for the green transition in relevant sectors. Data is not comparable across countries and covers a wide variety of sectors.

19

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

20

(21)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,5 % of GDP for 2024, as described in recital 24.

21

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/31 |
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1.9.2023

EN

Official Journal of the European Union

C 312/31

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Denmark

(2023/C 312/04)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

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

Having regard to the opinion of the Social Protection Committee,

Having regard to the opinion of the Economic Policy Committee,

Whereas:

| (1) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Denmark as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Denmark as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Gren Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Gren Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 30 April 2021, Denmark 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 set out in Annex V to that Regulation. On 6 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Denmark (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Denmark 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. |
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(9)

On 30 April 2021, Denmark 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 set out in Annex V to that Regulation. On 6 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Denmark (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Denmark 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 1 May 2023, Denmark submitted its 2023 National Reform Programme. In accordance with Article 27 of Regulation (EU) 2021/241, the 2023 National Reform Programme also reflects Denmark's biannual reporting on the progress made in achieving its recovery and resilience plan. Given that Denmark did not submit its 2023 Convergence Programme in a timely manner, the Commission was not able to assess it. |
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(10)

On 1 May 2023, Denmark submitted its 2023 National Reform Programme. In accordance with Article 27 of Regulation (EU) 2021/241, the 2023 National Reform Programme also reflects Denmark's biannual reporting on the progress made in achieving its recovery and resilience plan. Given that Denmark did not submit its 2023 Convergence Programme in a timely manner, the Commission was not able to assess it.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Denmark. It assessed Denmark's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Denmark's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Denmark's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Denmark. It assessed Denmark's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Denmark's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Denmark's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Denmark's general government surplus decreased from 3,6 % of GDP in 2021 to 3,3 % in 2022, while general government debt fell from 36,7 % of GDP at the end of 2021 to 30,1 % at the end of 2022. |
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(12)

According to data validated by Eurostat, Denmark's general government surplus decreased from 3,6 % of GDP in 2021 to 3,3 % in 2022, while general government debt fell from 36,7 % of GDP at the end of 2021 to 30,1 % at the end of 2022.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in the electricity levy, while such fiscal policy expenditure-increasing measures included social benefits aimed at lower-income households to compensate for high energy costs. The Commission estimates the budgetary cost of those measures at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,0 % of GDP in 2022, from 4,0 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in the electricity levy, while such fiscal policy expenditure-increasing measures included social benefits aimed at lower-income households to compensate for high energy costs. The Commission estimates the budgetary cost of those measures at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,0 % of GDP in 2022, from 4,0 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Denmark (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Denmark (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was contractionary, at 0,6 % of GDP which was appropriate in a context of high inflation. As recommended by the Council, Denmark continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,3 % of GDP in 2022 (0,3 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,2 percentage points to the fiscal stance (9). Denmark therefore did not preserve 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 a contractionary contribution of 0,7 percentage points to the fiscal stance. Denmark therefore kept the growth in nationally financed current expenditure sufficiently under control. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was contractionary, at 0,6 % of GDP which was appropriate in a context of high inflation. As recommended by the Council, Denmark continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,3 % of GDP in 2022 (0,3 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,2 percentage points to the fiscal stance (9). Denmark therefore did not preserve 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 a contractionary contribution of 0,7 percentage points to the fiscal stance. Denmark therefore kept the growth in nationally financed current expenditure sufficiently under control.

| (16) | The Commission's 2023 spring forecast projects a real GDP growth of 0,3 % in 2023 and 1,5 % in 2024. |
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(16)

The Commission's 2023 spring forecast projects a real GDP growth of 0,3 % in 2023 and 1,5 % in 2024.

| (17) | The Commission's 2023 spring forecast projects a government surplus of 2,3 % of GDP for 2023 and a general government debt-to-GDP ratio of 30,1 % at the end of 2023. |
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(17)

The Commission's 2023 spring forecast projects a government surplus of 2,3 % of GDP for 2023 and a general government debt-to-GDP ratio of 30,1 % at the end of 2023.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular certain social benefits aimed a low-income households, and new measures, such as a temporarily lower electricity levy. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular certain social benefits aimed a low-income households, and new measures, such as a temporarily lower electricity levy. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,1 % of GDP in 2022).

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Denmark take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Denmark should stand ready to adjust current spending to the evolving situation. Denmark 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Denmark take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Denmark should stand ready to adjust current spending to the evolving situation. Denmark 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 0,4 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (0,6 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,6 % of GDP to the fiscal stance. The expansionary contribution of nationally financed net primary current expenditure is not due to the targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. It is due to the cost of untargeted energy measures and increases in public sector wages and social benefits and higher spending on healthcare. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,3 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Denmark plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as energy efficiency measures, a green tax reform and green mobility measures, which are partly funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 0,4 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (0,6 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,6 % of GDP to the fiscal stance. The expansionary contribution of nationally financed net primary current expenditure is not due to the targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. It is due to the cost of untargeted energy measures and increases in public sector wages and social benefits and higher spending on healthcare. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,3 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Denmark plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as energy efficiency measures, a green tax reform and green mobility measures, which are partly funded by the Facility and other Union funds.

| (21) | On the basis of policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government surplus of 1,3 % of GDP in 2024 and a debt-to-GDP ratio of 28,8 % at the end of 2024. The Commission currently assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(21)

On the basis of policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government surplus of 1,3 % of GDP in 2024 and a debt-to-GDP ratio of 28,8 % at the end of 2024. The Commission currently assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (22) | Denmark is likely to continue to meet the minimum medium-term budgetary objective of – 1,0 % of GDP, as estimated by the Commission for the period 2023-2025, in 2023 and 2024. Based on the Commission's 2023 spring forecast, the structural balance is forecast at 3,5 % of GDP in 2023 and 2,1 % of GDP in 2024, above the medium-term budgetary objective. |
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(22)

Denmark is likely to continue to meet the minimum medium-term budgetary objective of – 1,0 % of GDP, as estimated by the Commission for the period 2023-2025, in 2023 and 2024. Based on the Commission's 2023 spring forecast, the structural balance is forecast at 3,5 % of GDP in 2023 and 2,1 % of GDP in 2024, above the medium-term budgetary objective.

| (23) | Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 4,6 % in 2024. |
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(23)

Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 4,6 % in 2024.

| (24) | At present, recurrent property taxes in Denmark are capped, which means they do not increase with market prices. They are therefore unable to dampen house price cycles and entail adverse distributional effects. The Danish Parliament approved a new property tax system to abolish the cap in 2017, which is now expected to come into operation from 1 January 2024. Finding affordable housing remains a major challenge for many people. The combination of high house prices and long waiting times for social housing has led to a shortage of affordable housing in major urban areas. Denmark shows an increasing share of variable-rate and deferred amortisation mortgages, which increases the vulnerability of heavily indebted mortgage holders to further potential declines in house prices and/or hikes in interest rates. |
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(24)

At present, recurrent property taxes in Denmark are capped, which means they do not increase with market prices. They are therefore unable to dampen house price cycles and entail adverse distributional effects. The Danish Parliament approved a new property tax system to abolish the cap in 2017, which is now expected to come into operation from 1 January 2024. Finding affordable housing remains a major challenge for many people. The combination of high house prices and long waiting times for social housing has led to a shortage of affordable housing in major urban areas. Denmark shows an increasing share of variable-rate and deferred amortisation mortgages, which increases the vulnerability of heavily indebted mortgage holders to further potential declines in house prices and/or hikes in interest rates.

| (25) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Denmark's recovery and resilience plan is well underway. Denmark submitted one payment request, corresponding to 25 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 301 million. Beyond the first payment request, the implementation of the recovery and resilience plan is on track, with an expected submission of the second payment as scheduled by the end of 2023. On 31 May 2023, Denmark submitted an amendment to its recovery and resilience plan, including a REPowerEU chapter. 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 Denmark'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(25)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Denmark's recovery and resilience plan is well underway. Denmark submitted one payment request, corresponding to 25 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 301 million. Beyond the first payment request, the implementation of the recovery and resilience plan is on track, with an expected submission of the second payment as scheduled by the end of 2023. On 31 May 2023, Denmark submitted an amendment to its recovery and resilience plan, including a REPowerEU chapter. 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 Denmark'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (26) | The Commission approved all Denmark's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in Denmark. |
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(26)

The Commission approved all Denmark's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in Denmark.

| (27) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Denmark faces a number of additional challenges related to decarbonising the economy and strengthening the circular economy to support the green transition. |
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(27)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Denmark faces a number of additional challenges related to decarbonising the economy and strengthening the circular economy to support the green transition.

| (28) | Denmark's progress towards a circular economy is insufficient and needs accelerating to meet the Union's circular economy goals. Despite some policy measures that were introduced such as the Climate Plan from 2020, progress has been limited. The action plan for the circular economy from 2021 shows that of the 129 initiatives in the plan, 27 have been completed, 88 are on schedule and 14 have been delayed. The available statistics show that Denmark made no progress on waste generation, recycling and the circular economy in 2022. Its circular use of material barely declined, from 8 % in 2016 to 7,8 % in 2021, falling below the Union average of 11,7 % in 2021. While the circular economy action plan aims to significantly decrease the Union's material footprint, Denmark's material footprint in 2020 was 25,6 tonnes/capita, well above the 2020 Union average (13,7 tonnes/capita). Denmark continues to underperform in several aspects of the circular economy, in particular municipal waste generation, recycling rates and food waste. On municipal waste, Denmark still has the highest amount of municipal waste per head in the Union, with 786 kg/year/head in 2021 (Union average 530 kg/year/head in 2021), in a context where there is no national target for overall waste reduction. On recycling, Denmark needs to make substantial efforts to meet the Union 2025 recycling target for municipal and packaging waste and ranks below the Union average of 49,6 %, with a rate of 34,3 % (14) in 2021. Lastly, Denmark performs poorly in the Union on food waste indicators. It relies heavily on waste incineration, with over 50 % of its municipal waste being incinerated compared to the Union average of around 26 %. |
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(28)

Denmark's progress towards a circular economy is insufficient and needs accelerating to meet the Union's circular economy goals. Despite some policy measures that were introduced such as the Climate Plan from 2020, progress has been limited. The action plan for the circular economy from 2021 shows that of the 129 initiatives in the plan, 27 have been completed, 88 are on schedule and 14 have been delayed. The available statistics show that Denmark made no progress on waste generation, recycling and the circular economy in 2022. Its circular use of material barely declined, from 8 % in 2016 to 7,8 % in 2021, falling below the Union average of 11,7 % in 2021. While the circular economy action plan aims to significantly decrease the Union's material footprint, Denmark's material footprint in 2020 was 25,6 tonnes/capita, well above the 2020 Union average (13,7 tonnes/capita). Denmark continues to underperform in several aspects of the circular economy, in particular municipal waste generation, recycling rates and food waste. On municipal waste, Denmark still has the highest amount of municipal waste per head in the Union, with 786 kg/year/head in 2021 (Union average 530 kg/year/head in 2021), in a context where there is no national target for overall waste reduction. On recycling, Denmark needs to make substantial efforts to meet the Union 2025 recycling target for municipal and packaging waste and ranks below the Union average of 49,6 %, with a rate of 34,3 % (14) in 2021. Lastly, Denmark performs poorly in the Union on food waste indicators. It relies heavily on waste incineration, with over 50 % of its municipal waste being incinerated compared to the Union average of around 26 %.

| (29) | Denmark has committed to ambitious decarbonisation objectives and is a front runner in the uptake of renewable energy, in particular wind production. Denmark's consumption of natural gas dropped by 25,2 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (15). Denmark could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (16). In order to reach its decarbonisation objectives and increase the share of renewables in the energy mix, faster commissioning of projects and simplified permitting rules are essential to achieve national ambitions for the roll-out of offshore and onshore wind energy capacity. Additional capacities, including energy islands in the Baltic Sea and North Sea, will require sufficient grid expansion planning at transmission and distribution level. Meanwhile, investments in energy efficiency can reduce the need for energy infrastructure investments. Boosting energy efficiency measures in buildings, combining insulation measures and the roll-out of decarbonised heating sources could further reduce dependency on fossil fuels and reduce energy demand. Energy efficiency improvements in public buildings could be further supported by removing the budget limitations on green projects for municipalities and regions. Additional measures that support energy efficiency in private buildings would help reduce high energy costs in Denmark, which had the second highest average household energy bills in 2022. Domestic industrial activities offer potential for energy efficiency improvements, especially by exploiting surplus heat in district heating. |
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(29)

Denmark has committed to ambitious decarbonisation objectives and is a front runner in the uptake of renewable energy, in particular wind production. Denmark's consumption of natural gas dropped by 25,2 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (15). Denmark could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (16). In order to reach its decarbonisation objectives and increase the share of renewables in the energy mix, faster commissioning of projects and simplified permitting rules are essential to achieve national ambitions for the roll-out of offshore and onshore wind energy capacity. Additional capacities, including energy islands in the Baltic Sea and North Sea, will require sufficient grid expansion planning at transmission and distribution level. Meanwhile, investments in energy efficiency can reduce the need for energy infrastructure investments. Boosting energy efficiency measures in buildings, combining insulation measures and the roll-out of decarbonised heating sources could further reduce dependency on fossil fuels and reduce energy demand. Energy efficiency improvements in public buildings could be further supported by removing the budget limitations on green projects for municipalities and regions. Additional measures that support energy efficiency in private buildings would help reduce high energy costs in Denmark, which had the second highest average household energy bills in 2022. Domestic industrial activities offer potential for energy efficiency improvements, especially by exploiting surplus heat in district heating.

| (30) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Denmark for 60 occupations that required specific skills or knowledge for the green transition, including environmental engineers, environmental protection professionals and building architects. Although the demand for skills for the green transition is increasing, the number of workers in energy-intensive industries taking part in education and training has declined markedly over the past decade, from 24,6 % in 2015 to 15,6 % in 2021, |
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(30)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Denmark for 60 occupations that required specific skills or knowledge for the green transition, including environmental engineers, environmental protection professionals and building architects. Although the demand for skills for the green transition is increasing, the number of workers in energy-intensive industries taking part in education and training has declined markedly over the past decade, from 24,6 % in 2015 to 15,6 % in 2021,

HEREBY RECOMMENDS that Denmark take action in 2023 and 2024 to:

1.

While maintaining a sound fiscal position in 2024, preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union funds, in particular to foster the green and digital transitions.

For the period beyond 2024, continue to pursue investment and reforms conducive to higher sustainable growth and preserve a prudent medium-term fiscal position.

Implement the new property tax system in order to restore the link between market prices and taxes and ensure fairer taxation. Accelerate investment in the construction of affordable housing to alleviate the most pressing needs.

2.

Continue the steady implementation of its recovery and resilience plan and, following the recent submission of the addendum, including the REPowerEU chapter, rapidly start the implementation of the related measures. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Strengthen circular economy and waste management policies, including by accelerating the implementation of Denmark's national action plan for circular economy, promoting waste prevention and reuse of municipal and other waste, increasing recycling rates, reducing food waste, and shifting away from the incineration of municipal waste to greener sources of heat generation.

4.

Reduce reliance on fossil fuels and increase the share of renewables in the energy supply. Address increasing demand and flexibility needs by incentivising the necessary electricity network developments at transmission and distribution level. Streamline the applicable permitting rules for renewable energy. Implement additional measures that support energy efficiency in private and public buildings to reduce energy bills and energy system costs. Ensure a better roll-out of decarbonised heating sources. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10154/2021 INIT.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Convergence Programme of Denmark (OJ C 304, 29.7.2021, p 14).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,3 percentage points of GDP.

9

(10)  That figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as, where relevant, capital expenditure measures.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Denmark and delivering a Council opinion on the 2022 Convergence Programme of Denmark (OJ C 334, 1.9.2022, p. 27).

11

(12)  On the basis of the Commission's spring 2023 forecast, the medium-term (10-year average) potential output growth of Denmark, which is used to measure the fiscal stance, is estimated at 1,9 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,2 percentage points of GDP.

13

(14)  Denmark has informed the Commission that the 2021 reported recycling rate was based on incorrect data and will be subject to revisions.

14

(15)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

15

(16)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

16

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/38 |
| --- | --- | --- | --- |

1.9.2023

EN

Official Journal of the European Union

C 312/38

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Germany and delivering a Council opinion on the 2023 Stability Programme of Germany

(2023/C 312/05)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Germany 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. On the same date, the Commission also adopted an opinion on Germany’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Germany 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. On the same date, the Commission also adopted an opinion on Germany’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
| --- | --- |

(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
| --- | --- |

(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 28 April 2021, Germany 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Germany (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Germany 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. |
| --- | --- |

(9)

On 28 April 2021, Germany 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Germany (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Germany 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 24 April 2023, Germany submitted its 2023 National Reform Programme and, on 26 April 2023, its 2023 Stability Programme, in line with Article 4(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 Germany’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
| --- | --- |

(10)

On 24 April 2023, Germany submitted its 2023 National Reform Programme and, on 26 April 2023, its 2023 Stability Programme, in line with Article 4(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 Germany’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Germany. It assessed Germany’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Germany’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Germany’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
| --- | --- |

(11)

On 24 May 2023, the Commission published the 2023 country report for Germany. It assessed Germany’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Germany’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Germany’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Germany and published its results on 24 May 2023. The Commission concluded that Germany is experiencing macroeconomic imbalances. In particular, the persistent large current account surplus, reflecting also subdued investment relative to savings, which has cross-border relevance, has been gradually reduced, most recently amid the energy crisis, but is expected to increase markedly. The current account surplus receded slowly until 2019 with a gently increasing domestic investment ratio and a falling trade balance and has since been marked by unusual economic circumstances. It decreased markedly in 2022 on the back of higher import energy prices, along with a narrowing of the non-energy trade surplus and a recovery in tourism imports. In 2022, the surplus remained above the levels suggested by the country's fundamentals and it is expected to rebound markedly in 2023 and remain almost unchanged in 2024. It is projected to stay below the threshold for the macroeconomic imbalance procedure. Wages are forecast to grow strongly, supporting domestic demand, while unit labour costs may grow faster than in the rest of the euro area. Nonetheless, consumption and investment are temporarily dampened by high inflation. In recent years, house prices have shown sharp increases, even if easing somewhat since mid-2022. Housing supply cannot catch up with demand amid weak residential investment, which may add to continuing risks of overvaluation. A further reduction of vulnerabilities would benefit from the timely and effective implementation of the public investment initiatives and the removal of obstacles to investment. |
| --- | --- |

(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Germany and published its results on 24 May 2023. The Commission concluded that Germany is experiencing macroeconomic imbalances. In particular, the persistent large current account surplus, reflecting also subdued investment relative to savings, which has cross-border relevance, has been gradually reduced, most recently amid the energy crisis, but is expected to increase markedly. The current account surplus receded slowly until 2019 with a gently increasing domestic investment ratio and a falling trade balance and has since been marked by unusual economic circumstances. It decreased markedly in 2022 on the back of higher import energy prices, along with a narrowing of the non-energy trade surplus and a recovery in tourism imports. In 2022, the surplus remained above the levels suggested by the country's fundamentals and it is expected to rebound markedly in 2023 and remain almost unchanged in 2024. It is projected to stay below the threshold for the macroeconomic imbalance procedure. Wages are forecast to grow strongly, supporting domestic demand, while unit labour costs may grow faster than in the rest of the euro area. Nonetheless, consumption and investment are temporarily dampened by high inflation. In recent years, house prices have shown sharp increases, even if easing somewhat since mid-2022. Housing supply cannot catch up with demand amid weak residential investment, which may add to continuing risks of overvaluation. A further reduction of vulnerabilities would benefit from the timely and effective implementation of the public investment initiatives and the removal of obstacles to investment.

| (13) | According to data validated by Eurostat, Germany’s general government deficit decreased from 3,7 % of GDP in 2021 to 2,6 % in 2022, while general government debt fell from 69,3 % of GDP at the end of 2021 to 66,3 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Germany, as its deficit is planned to exceed 3 % of GDP in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Germany should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
| --- | --- |

(13)

According to data validated by Eurostat, Germany’s general government deficit decreased from 3,7 % of GDP in 2021 to 2,6 % in 2022, while general government debt fell from 69,3 % of GDP at the end of 2021 to 66,3 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Germany, as its deficit is planned to exceed 3 % of GDP in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Germany should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction of the energy tax on fuels and a reduction of the value added tax on gas and district heating, while such fiscal policy expenditure-increasing measures included an energy lump-sum bonus and the takeover of the December bill for private gas consumers. The Commission estimates the net budgetary cost of those measures at 1,2 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 4,2 % in 2021. |
| --- | --- |

(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction of the energy tax on fuels and a reduction of the value added tax on gas and district heating, while such fiscal policy expenditure-increasing measures included an energy lump-sum bonus and the takeover of the December bill for private gas consumers. The Commission estimates the net budgetary cost of those measures at 1,2 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 4,2 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Germany (7) maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. |
| --- | --- |

(15)

On 18 June 2021, the Council recommended that in 2022 Germany (7) maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 2,7 % of GDP, as recommended by the Council. As recommended by the Council, Germany continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,3 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). Germany 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 2,4 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,2 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). At the same time, tax reductions in income taxation lowered government revenues and also contributed (0,1 % of GDP) to the growth in net primary current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine. Germany therefore did not sufficiently keep under control the growth in nationally financed current expenditure. |
| --- | --- |

(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 2,7 % of GDP, as recommended by the Council. As recommended by the Council, Germany continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,3 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). Germany 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 2,4 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,2 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). At the same time, tax reductions in income taxation lowered government revenues and also contributed (0,1 % of GDP) to the growth in net primary current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine. Germany therefore did not sufficiently keep under control the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast. The government projects real GDP to grow by 0,2 % in 2023 and 1,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a similar real GDP growth of 0,2 % in 2023 and 1,4 % in 2024. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast. The government projects real GDP to grow by 0,2 % in 2023 and 1,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a similar real GDP growth of 0,2 % in 2023 and 1,4 % in 2024.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 41⁄4 % of GDP in 2023. The increase in 2023 mainly reflects the additional expenditure for the energy price brakes regarding gas and electricity. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 66,3 % at the end of 2022 to 673⁄4 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 2,3 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to assumed lower expenditure for the energy price brakes. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 65,2 % at the end of 2023. The difference is due to a lower deficit. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 41⁄4 % of GDP in 2023. The increase in 2023 mainly reflects the additional expenditure for the energy price brakes regarding gas and electricity. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 66,3 % at the end of 2022 to 673⁄4 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 2,3 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to assumed lower expenditure for the energy price brakes. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 65,2 % at the end of 2023. The difference is due to a lower deficit.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of new measures compared to 2022, in particular the energy price brakes for gas and electricity. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely a levy on extraordinary profits. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 2,0 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, although many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,5 % of GDP in 2023 (compared to 0,3 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of new measures compared to 2022, in particular the energy price brakes for gas and electricity. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely a levy on extraordinary profits. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 2,0 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, although many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,5 % of GDP in 2023 (compared to 0,3 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Germany take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Germany should stand ready to adjust current spending to the evolving situation. Germany 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Germany take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Germany should stand ready to adjust current spending to the evolving situation. Germany 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 0,5 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2,7 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 % 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 0,2 % of GDP. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,2 % of GDP in 2023, while nationally financed investment is projected to provide a neutral contribution to the fiscal stance (13). Therefore, Germany plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as energetic renovation of buildings, improvement of a charging infrastructure for electric cars and equipping schools for the digital age, which are partly funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 0,5 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2,7 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 % 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 0,2 % of GDP. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,2 % of GDP in 2023, while nationally financed investment is projected to provide a neutral contribution to the fiscal stance (13). Therefore, Germany plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as energetic renovation of buildings, improvement of a charging infrastructure for electric cars and equipping schools for the digital age, which are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 13⁄4 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of the energy price brakes. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 661⁄2 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 1,2 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to lower estimations for the energy support measures. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 64,1 % at the end of 2024, mainly due to a lower deficit. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 13⁄4 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of the energy price brakes. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 661⁄2 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 1,2 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to lower estimations for the energy support measures. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 64,1 % at the end of 2024, mainly due to a lower deficit.

| (23) | The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,3 % of GDP in 2024. Those estimates are based on 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. Most of them preserve the price signal to reduce energy demand and increase energy efficiency. |
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(23)

The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,3 % of GDP in 2024. Those estimates are based on 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. Most of them preserve the price signal to reduce energy demand and increase energy efficiency.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,5 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 2,0 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,5 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 2,0 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,4 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is due to some of such measures remaining in force in 2024 and to revenue decreasing discretionary measures such as various reductions in income tax. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,4 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is due to some of such measures remaining in force in 2024 and to revenue decreasing discretionary measures such as various reductions in income tax.

| (26) | According to the 2023 Stability Programme, government investment is expected to remain stable at 21⁄2 % of GDP in 2023 and in 2024. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. These include various reforms of the income tax system as well as of the pension system. |
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(26)

According to the 2023 Stability Programme, government investment is expected to remain stable at 21⁄2 % of GDP in 2023 and in 2024. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. These include various reforms of the income tax system as well as of the pension system.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 3⁄4 % of GDP in 2025 and 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2024. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 661⁄2 % at the end of 2024 to 651⁄2 % by the end of 2026. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 3⁄4 % of GDP in 2025 and 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2024. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 661⁄2 % at the end of 2024 to 651⁄2 % by the end of 2026.

| (28) | While employment performance remains robust, in a context of rapid population ageing, labour and skills shortages are expected to increase further. The working age population is expected to shrink by 3,7 million in the 2020s due to the baby boomer generation retiring. This will significantly increase the financing needs of the mandatory pay-as-you-go system (first pension pillar), and possibly challenge the adequacy of pensions. A net migration balance of around 400 000 people a year would be needed to offset a decreasing level of potential labour force. The statutory retirement age will gradually rise to 67 years in 2031. Although the employment rate of workers aged 55–64 is among the highest in the Union, the increase in the effective retirement age has slowed in recent years, and employment in the age group above 65 years lags behind the Union’s top performers. This is also due to early retirement options, adding further pressure on the sustainability of the pension system. People who have worked at least 35 years can retire early, with a relatively small reduction in pension benefits. Those who have worked at least 45 working years can retire without losing pension entitlements (Rente nach 45 Beitragsjahren). The state-subsidised private pension schemes (third-pillar personal pension schemes – Riester Rente) have been underused so far. Despite efforts to increase the use of occupational pensions (second pillar), coverage remains at about 56 %. |
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(28)

While employment performance remains robust, in a context of rapid population ageing, labour and skills shortages are expected to increase further. The working age population is expected to shrink by 3,7 million in the 2020s due to the baby boomer generation retiring. This will significantly increase the financing needs of the mandatory pay-as-you-go system (first pension pillar), and possibly challenge the adequacy of pensions. A net migration balance of around 400 000 people a year would be needed to offset a decreasing level of potential labour force. The statutory retirement age will gradually rise to 67 years in 2031. Although the employment rate of workers aged 55–64 is among the highest in the Union, the increase in the effective retirement age has slowed in recent years, and employment in the age group above 65 years lags behind the Union’s top performers. This is also due to early retirement options, adding further pressure on the sustainability of the pension system. People who have worked at least 35 years can retire early, with a relatively small reduction in pension benefits. Those who have worked at least 45 working years can retire without losing pension entitlements (Rente nach 45 Beitragsjahren). The state-subsidised private pension schemes (third-pillar personal pension schemes – Riester Rente) have been underused so far. Despite efforts to increase the use of occupational pensions (second pillar), coverage remains at about 56 %.

| (29) | The tax mix in Germany continues to rely heavily on labour tax revenues, while tax bases that can support inclusive and sustainable growth remain underused. The labour tax wedge is one of the highest in the Union, and the interplay of the tax and transfer system results in weak incentives to increase hours worked for low-wage and second earners, often women. This weighs on the labour supply and aggravates labour shortages. Germany’s share of environmental taxes is below the Union average for both energy and transport taxation. Vehicle taxation does not encourage more environmentally friendly transport. Environmentally harmful subsidies such as fossil fuel subsidies (including tax exemptions and tax reductions) remain substantial, hampering the green transition. |
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(29)

The tax mix in Germany continues to rely heavily on labour tax revenues, while tax bases that can support inclusive and sustainable growth remain underused. The labour tax wedge is one of the highest in the Union, and the interplay of the tax and transfer system results in weak incentives to increase hours worked for low-wage and second earners, often women. This weighs on the labour supply and aggravates labour shortages. Germany’s share of environmental taxes is below the Union average for both energy and transport taxation. Vehicle taxation does not encourage more environmentally friendly transport. Environmentally harmful subsidies such as fossil fuel subsidies (including tax exemptions and tax reductions) remain substantial, hampering the green transition.

| (30) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. Proceeding swiftly with the implementation of the plan is essential due to the temporary nature of the Facility in place until 2026. Still, while the implementation of Germany’s recovery and resilience plan is underway, there are significant delays. Limited resources attached to the implementation of the plan and insufficient prioritisation have led Germany to fall behind on the implementation process. Germany still needs to sign its operational arrangements and submit its first payment request. Germany’s recovery and resilience plan was already revised once on 14 February 2023, adjusting two investment measures that could not be fully completed because of objective circumstances (16). The plan is expected to be revised again in 2023 with another addendum, to cover the REPowerEU chapter and to accommodate the increase of non-repayable support. However, negotiations on the REPowerEU chapter and to accommodate the increase of non-repayable support are ongoing. 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 Germany’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(30)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. Proceeding swiftly with the implementation of the plan is essential due to the temporary nature of the Facility in place until 2026. Still, while the implementation of Germany’s recovery and resilience plan is underway, there are significant delays. Limited resources attached to the implementation of the plan and insufficient prioritisation have led Germany to fall behind on the implementation process. Germany still needs to sign its operational arrangements and submit its first payment request. Germany’s recovery and resilience plan was already revised once on 14 February 2023, adjusting two investment measures that could not be fully completed because of objective circumstances (16). The plan is expected to be revised again in 2023 with another addendum, to cover the REPowerEU chapter and to accommodate the increase of non-repayable support. However, negotiations on the REPowerEU chapter and to accommodate the increase of non-repayable support are ongoing. 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 Germany’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (31) | The Commission approved all Germany’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Germany. |
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(31)

The Commission approved all Germany’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Germany.

| (32) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Germany faces a number of additional challenges related to digitalisation, energy policy and the green transition. |
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(32)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Germany faces a number of additional challenges related to digitalisation, energy policy and the green transition.

| (33) | While Germany has made efforts to improve the digitalisation of public services, implementation remains slow. Only a few of the objectives in the Online Access Act, which makes the continuous digitalisation of the front end of all administrative services mandatory, were achieved by the target date (end of 2022). The Commission’s eGovernment Benchmark shows that the country is also underperforming on digitalising the back office, which is crucial for effective service delivery beyond the scope of the Online Access Act. In connection to this, modernising registers as part of the Register Modernisation Act to implement the Union’s ‘once-only’ principle – where individuals and businesses only have to provide standard information once to authorities – has been declared a priority. However, there has been little progress since the law entered into force in 2021. Moreover, there is a low take-up of services that have been digitalised: Germany scores below the Union average in terms of the proportion of people using e-government services. Germany also performs below the Union average in various aspects of the eGovernment Benchmark indicators such as transparency, the existence of key enablers and the accessibility of digital public services to individuals from abroad. The National Regulatory Control Council considers the implementation of the Online Access Act inadequate and has identified projected labour shortages as a key risk in the absence of efficiency gains through digitalisation. The bottlenecks identified in the digitalisation of public services equally apply to corresponding measures in Germany’s recovery and resilience plan. |
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(33)

While Germany has made efforts to improve the digitalisation of public services, implementation remains slow. Only a few of the objectives in the Online Access Act, which makes the continuous digitalisation of the front end of all administrative services mandatory, were achieved by the target date (end of 2022). The Commission’s eGovernment Benchmark shows that the country is also underperforming on digitalising the back office, which is crucial for effective service delivery beyond the scope of the Online Access Act. In connection to this, modernising registers as part of the Register Modernisation Act to implement the Union’s ‘once-only’ principle – where individuals and businesses only have to provide standard information once to authorities – has been declared a priority. However, there has been little progress since the law entered into force in 2021. Moreover, there is a low take-up of services that have been digitalised: Germany scores below the Union average in terms of the proportion of people using e-government services. Germany also performs below the Union average in various aspects of the eGovernment Benchmark indicators such as transparency, the existence of key enablers and the accessibility of digital public services to individuals from abroad. The National Regulatory Control Council considers the implementation of the Online Access Act inadequate and has identified projected labour shortages as a key risk in the absence of efficiency gains through digitalisation. The bottlenecks identified in the digitalisation of public services equally apply to corresponding measures in Germany’s recovery and resilience plan.

| (34) | Improving digital skills is crucial for the digital transition to address skilled worker shortages and raise productivity. At 49 % in 2021, Germany is below the Union average of 54 % of those aged 16–74 with at least basic digital skills, hampering the digital transition. Of all 16–19-year-olds, only 50 % had at least basic digital skills in 2021, 19 percentage points below the Union average. Although Germany scores above the Union average on the percentage of ICT specialists in employment and matches the Union average for female ICT specialists, there is a high number of unfilled vacancies, reflecting further needs. Further efforts at tackling teacher shortages and training teachers better in digitalisation at all educational levels would be key to improving digital skills. The integration of digital technology in business activities is only around the Union average, including the share of small and medium-sized businesses with at least a basic level of digital intensity and the uptake by businesses of advanced technologies such as cloud, big data and artificial intelligence. Germany’s recovery and resilience plan includes several measures that support digital skills, and in particular digital education, such as investment in digital devices for teachers, an education platform and educational centres of excellence. Moreover, Germany is implementing measures to help upskill and reskill its workforce. This includes focusing on the digitalisation of businesses (e.g. European Digital Innovation Hubs or the Digital Now (Digital Jetzt) investment support scheme). |
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(34)

Improving digital skills is crucial for the digital transition to address skilled worker shortages and raise productivity. At 49 % in 2021, Germany is below the Union average of 54 % of those aged 16–74 with at least basic digital skills, hampering the digital transition. Of all 16–19-year-olds, only 50 % had at least basic digital skills in 2021, 19 percentage points below the Union average. Although Germany scores above the Union average on the percentage of ICT specialists in employment and matches the Union average for female ICT specialists, there is a high number of unfilled vacancies, reflecting further needs. Further efforts at tackling teacher shortages and training teachers better in digitalisation at all educational levels would be key to improving digital skills. The integration of digital technology in business activities is only around the Union average, including the share of small and medium-sized businesses with at least a basic level of digital intensity and the uptake by businesses of advanced technologies such as cloud, big data and artificial intelligence. Germany’s recovery and resilience plan includes several measures that support digital skills, and in particular digital education, such as investment in digital devices for teachers, an education platform and educational centres of excellence. Moreover, Germany is implementing measures to help upskill and reskill its workforce. This includes focusing on the digitalisation of businesses (e.g. European Digital Innovation Hubs or the Digital Now (Digital Jetzt) investment support scheme).

| (35) | Overall, only 19,3 % of households have access to a fibre broadband connection, placing Germany among the Member States with the lowest fibre coverage (second lowest in the Union, with the top five Union performers having fibre coverage of at least 85 %). The lack of fibre connections and very-high-capacity networks in general is particularly pronounced in rural areas. This holds back productivity growth, especially by small and medium-sized businesses. The target of connecting 50 % of households and businesses to the network via fibre optics by 2025 (and 100 % by 2030) might not be achieved on time. Corresponding measures were included in the Gigabit Strategy of July 2022. Improving framework conditions, for example by increasing planning and implementation capacity in the public sector, is crucial to the acceleration of fibre coverage. Meeting the network targets will also require improvements to the administrative procedures involved in applying for and granting permits and the standardisation of alternative, less time-consuming installation methods. |
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(35)

Overall, only 19,3 % of households have access to a fibre broadband connection, placing Germany among the Member States with the lowest fibre coverage (second lowest in the Union, with the top five Union performers having fibre coverage of at least 85 %). The lack of fibre connections and very-high-capacity networks in general is particularly pronounced in rural areas. This holds back productivity growth, especially by small and medium-sized businesses. The target of connecting 50 % of households and businesses to the network via fibre optics by 2025 (and 100 % by 2030) might not be achieved on time. Corresponding measures were included in the Gigabit Strategy of July 2022. Improving framework conditions, for example by increasing planning and implementation capacity in the public sector, is crucial to the acceleration of fibre coverage. Meeting the network targets will also require improvements to the administrative procedures involved in applying for and granting permits and the standardisation of alternative, less time-consuming installation methods.

| (36) | Germany managed to reduce its high dependence on Russian gas and oil effectively in 2022 compared to 2021 (from 65 % to nearly zero for gas, and from 34,12 % to below 25 % for oil (17)). It has planned and started implementing natural gas infrastructure that would replace Russian gas imports completely in the medium term. Germany fulfilled its gas storage obligations last winter, reaching 99,2 % by 1 November 2022. Thanks to interconnected gas markets, liquefied natural gas (LNG) imported by Germany would contribute to Union’s security of supply, provided the relevant infrastructure is implemented without further delays. At the same time, the country is still dependent on imported fossil fuels. Germany’s consumption of natural gas dropped by 16 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Germany is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19). |
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(36)

Germany managed to reduce its high dependence on Russian gas and oil effectively in 2022 compared to 2021 (from 65 % to nearly zero for gas, and from 34,12 % to below 25 % for oil (17)). It has planned and started implementing natural gas infrastructure that would replace Russian gas imports completely in the medium term. Germany fulfilled its gas storage obligations last winter, reaching 99,2 % by 1 November 2022. Thanks to interconnected gas markets, liquefied natural gas (LNG) imported by Germany would contribute to Union’s security of supply, provided the relevant infrastructure is implemented without further delays. At the same time, the country is still dependent on imported fossil fuels. Germany’s consumption of natural gas dropped by 16 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Germany is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19).

| (37) | Renewable electricity is vital for the successful roll-out of Germany’s green transition plans, including for renewable hydrogen production, electric vehicles and heat pumps as well as for achieving energy security in the medium term. However, a three-fold acceleration in the deployment of renewable energy (from + 67 % over the past eight years to + 196 % in the coming eight years) would be necessary to meet national deployment targets. Complex and lengthy permitting procedures have been holding back the roll-out of renewable energy sources and additional net-zero technologies, while recently adopted legislation to improve the processes has yet to be implemented. Beyond the challenges addressed, permitting is hampered by the lack of digitalisation and related skills as well as understaffed authorities, including courts. Bottlenecks remain with regard to grid flexibility, including storage, and the expansion of high voltage transmission grids, including the implementation of Projects of Common Interest. Moreover, Germany’s distribution grids have not been sufficiently digitalised and upgraded to accommodate the many new manufacturers and consumers of electric vehicles, solar photovoltaic systems and heat pumps, while electricity storage could be expanded. Efforts on energy efficiency, including in transport, domestic heating and industry, and the roll-out of heat pumps in an affordable way face challenges in terms of scale-up and timely implementation to allow Germany to meet its climate and energy targets, reduce its reliance on fossil fuels and boost competitiveness and job creation, including in the clean tech manufacturing sector. Reaching climate targets requires further action to decarbonise the transport and building sectors, which have failed to meet national sector-specific emission targets for 2022 despite the introduction of measures such as a national carbon price to bring down emissions in those two sectors. The natural carbon sink in Germany has declined since 2016, so action on forest and peatland restoration is necessary. Stronger efforts on climate adaptation, the circular economy and environmental protection reduce the risks from global challenges and contribute to climate resilience, securing natural resources and reducing the industry’s dependence on critical raw materials. |
| --- | --- |

(37)

Renewable electricity is vital for the successful roll-out of Germany’s green transition plans, including for renewable hydrogen production, electric vehicles and heat pumps as well as for achieving energy security in the medium term. However, a three-fold acceleration in the deployment of renewable energy (from + 67 % over the past eight years to + 196 % in the coming eight years) would be necessary to meet national deployment targets. Complex and lengthy permitting procedures have been holding back the roll-out of renewable energy sources and additional net-zero technologies, while recently adopted legislation to improve the processes has yet to be implemented. Beyond the challenges addressed, permitting is hampered by the lack of digitalisation and related skills as well as understaffed authorities, including courts. Bottlenecks remain with regard to grid flexibility, including storage, and the expansion of high voltage transmission grids, including the implementation of Projects of Common Interest. Moreover, Germany’s distribution grids have not been sufficiently digitalised and upgraded to accommodate the many new manufacturers and consumers of electric vehicles, solar photovoltaic systems and heat pumps, while electricity storage could be expanded. Efforts on energy efficiency, including in transport, domestic heating and industry, and the roll-out of heat pumps in an affordable way face challenges in terms of scale-up and timely implementation to allow Germany to meet its climate and energy targets, reduce its reliance on fossil fuels and boost competitiveness and job creation, including in the clean tech manufacturing sector. Reaching climate targets requires further action to decarbonise the transport and building sectors, which have failed to meet national sector-specific emission targets for 2022 despite the introduction of measures such as a national carbon price to bring down emissions in those two sectors. The natural carbon sink in Germany has declined since 2016, so action on forest and peatland restoration is necessary. Stronger efforts on climate adaptation, the circular economy and environmental protection reduce the risks from global challenges and contribute to climate resilience, securing natural resources and reducing the industry’s dependence on critical raw materials.

| (38) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Improving the education outcomes of disadvantaged groups provides a better basis for continued education. Adult learning is essential to tackling persistent skills shortages. However, in the last 10 years the participation rate of adults in learning over the past four weeks has been roughly stable and below the Union average (8,1 % in 2022; Union average 11,9 %), and was only 4 % for low-qualified workers. In addition, in energy-intensive industries, workers’ participation in education and training declined from 9,8 % in 2015 to 7,6 % in 2021 and is below the Union average (8,9 %). Promoting participation in initial and continuous vocational education and learning programmes to support the green transition would be in line with Germany’s target of having 65 % of adults in learning every year by 2030. |
| --- | --- |

(38)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Improving the education outcomes of disadvantaged groups provides a better basis for continued education. Adult learning is essential to tackling persistent skills shortages. However, in the last 10 years the participation rate of adults in learning over the past four weeks has been roughly stable and below the Union average (8,1 % in 2022; Union average 11,9 %), and was only 4 % for low-qualified workers. In addition, in energy-intensive industries, workers’ participation in education and training declined from 9,8 % in 2015 to 7,6 % in 2021 and is below the Union average (8,9 %). Promoting participation in initial and continuous vocational education and learning programmes to support the green transition would be in line with Germany’s target of having 65 % of adults in learning every year by 2030.

| (39) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1). |
| --- | --- |

(39)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1).

| (40) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Germany, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area. |
| --- | --- |

(40)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Germany, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area.

| (41) | In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to the persistent large current account surplus. Recommendations (2), (3) and (4) contribute to addressing recommendation (1) in as much as higher investment is concerned. Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 40, |
| --- | --- |

(41)

In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to the persistent large current account surplus. Recommendations (2), (3) and (4) contribute to addressing recommendation (1) in as much as higher investment is concerned. Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 40,

HEREBY RECOMMENDS that Germany take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 2,5 % (21).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union funds, in particular to foster the green and digital transitions. Implement public investment initiatives as planned.

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, in order to achieve a prudent medium-term fiscal position.

Improve the tax mix in order to achieve more inclusive and sustainable growth, in particular by improving tax incentives in order to increase hours worked. Safeguard the long-term sustainability of the pension system.

2.

Significantly accelerate the implementation of its revised recovery and resilience plan, including by ensuring sufficient resources, and swiftly finalise the addendum and the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Speed up the digitalisation of the entire service chain for public services and improve people’s digital skills. Remove investment obstacles and boost investment in very-high-capacity digital communication networks.

4.

Increase efforts to further reduce the overall reliance on fossil fuels by boosting investment in and accelerating the deployment of renewable energy and electricity networks through improved administrative capacity and streamlined processes, including permitting procedures. Step up energy efficiency efforts in transport, building and industry, including through investments in heating systems, and further policy measures aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10158/2021 INIT; ST 10158/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Germany (OJ C 304, 29.7.2021, p. 18).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,4 percentage points of GDP. This contribution is mainly related to the nationalisation and recapitalisation of wholesale gas suppliers in Germany for guaranteeing energy security.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Germany and delivering a Council opinion on the 2022 Stability Programme of Germany (OJ C 334, 1.9.2022, p. 35).

11

(12)  On the basis of the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Germany, which is used to measure the fiscal stance, is estimated at 7,1 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,3 percentage points of GDP. This contribution is mainly related to the discontinuation of the measure to nationalise and recapitalise wholesale gas suppliers in Germany for guaranteeing energy security of the year before.

13

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

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Council Implementing Decision of 14 February 2023 amending the Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and resilience plan for Germany (ST 5536/2023).

16

(17)  Germany has not imported any Russian gas since August 2022 and oil since February 2023.

17

(18)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

18

(19)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

19

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

20

(21)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 24.

21

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/49 |
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1.9.2023

EN

Official Journal of the European Union

C 312/49

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Estonia and delivering a Council opinion on the 2023 Stability Programme of Estonia

(2023/C 312/06)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Estonia 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. On the same date, the Commission also adopted an opinion on Estonia’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Estonia 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. On the same date, the Commission also adopted an opinion on Estonia’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability, and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability, and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission also issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission also issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic prodcut (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
| --- | --- |

(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic prodcut (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 18 June 2021, Estonia 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 set out in Annex V to that Regulation. On 29 October 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Estonia (6). The release of instalments is conditional on the adoption of a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Estonia 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. On 9 March 2023, Estonia submitted a revised national recovery and resilience plan, including a REPowerEU chapter, to the Commission, in accordance with Article 21c of Regulation (EU) 2021/241. The revised recovery and resilience plan also takes into account the updated maximum financial contribution in accordance with Article 18(2) of that Regulation and includes a reasoned request to the Commission to amend the Council Implementing Decision of 3 November 2021 in accordance with Article 21(1) of Regulation (EU) 2021/241, considering the recovery and resilience plan to be partially no longer achievable due to objective circumstances. On 12 May 2023, the Commission adopted its proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Estonia. On 16 June 2023, the Council adopted its Implementing Decision amending the Council Implementing Decision of 29 October 2021 on the approval of the assessment of the recovery and resilience plan for Estonia (7). |
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(9)

On 18 June 2021, Estonia 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 set out in Annex V to that Regulation. On 29 October 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Estonia (6). The release of instalments is conditional on the adoption of a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Estonia 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. On 9 March 2023, Estonia submitted a revised national recovery and resilience plan, including a REPowerEU chapter, to the Commission, in accordance with Article 21c of Regulation (EU) 2021/241. The revised recovery and resilience plan also takes into account the updated maximum financial contribution in accordance with Article 18(2) of that Regulation and includes a reasoned request to the Commission to amend the Council Implementing Decision of 3 November 2021 in accordance with Article 21(1) of Regulation (EU) 2021/241, considering the recovery and resilience plan to be partially no longer achievable due to objective circumstances. On 12 May 2023, the Commission adopted its proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Estonia. On 16 June 2023, the Council adopted its Implementing Decision amending the Council Implementing Decision of 29 October 2021 on the approval of the assessment of the recovery and resilience plan for Estonia (7).

| (10) | On 11 May 2023, Estonia submitted its 2023 National Reform Programme and, on 28 April 2023, Estonia submitted its 2023 Stability Programme, in line with Article 4(1) of Regulation (EC) No 1466/97. To take account of their interlinkages, the two programmes have been assessed together. |
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(10)

On 11 May 2023, Estonia submitted its 2023 National Reform Programme and, on 28 April 2023, Estonia submitted its 2023 Stability Programme, in line with Article 4(1) of Regulation (EC) No 1466/97. To take account of their interlinkages, the two programmes have been assessed together.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Estonia. It assessed Estonia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Estonia’s implementation of the recovery and resilience plan. On the basis of thatanalysis, the country report identified gaps with regard 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 Estonia’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Estonia. It assessed Estonia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Estonia’s implementation of the recovery and resilience plan. On the basis of thatanalysis, the country report identified gaps with regard 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 Estonia’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Estonia and published its results on 24 May 2023. The Commission concluded that Estonia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to competitiveness and house price developments have recently increased but overall seem to be contained at present. Wages and especially prices grew strongly in 2022, but the competitiveness losses seem limited, while the current account has recorded only a small deficit and is forecast to come close to balance in 2023 and 2024. Nonetheless, inflation and wage pressures, if persistent, risk impairing Estonia’s competitiveness, particularly as core inflation is well above the euro area average. House prices have grown strongly since the COVID-19 pandemic, but do not show strong signs of overvaluation. House prices are likely to moderate, given the interest rate rises and the recent economic recession. Moreover, household debt and borrowing are relatively moderate and the financial sector is sound. The policy setting is overall favourable, although some additional efforts could help to address the risks from the identified vulnerabilities. Continued counter-cyclical fiscal and macroprudential policies, reinforced when needed, would be important in that respect. Fostering competition in the domestic market could help to manage price pressures. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Estonia and published its results on 24 May 2023. The Commission concluded that Estonia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to competitiveness and house price developments have recently increased but overall seem to be contained at present. Wages and especially prices grew strongly in 2022, but the competitiveness losses seem limited, while the current account has recorded only a small deficit and is forecast to come close to balance in 2023 and 2024. Nonetheless, inflation and wage pressures, if persistent, risk impairing Estonia’s competitiveness, particularly as core inflation is well above the euro area average. House prices have grown strongly since the COVID-19 pandemic, but do not show strong signs of overvaluation. House prices are likely to moderate, given the interest rate rises and the recent economic recession. Moreover, household debt and borrowing are relatively moderate and the financial sector is sound. The policy setting is overall favourable, although some additional efforts could help to address the risks from the identified vulnerabilities. Continued counter-cyclical fiscal and macroprudential policies, reinforced when needed, would be important in that respect. Fostering competition in the domestic market could help to manage price pressures.

| (13) | According to data validated by Eurostat, Estonia’s general government deficit decreased from 2,4 % of GDP in 2021 to 0,9 % in 2022, while general government debt rose from 17,6 % of GDP at the end of 2021 to 18,4 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Estonia, as its general government deficit is planned to exceed 3 %-of-GDP Treaty reference value in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Estonia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(13)

According to data validated by Eurostat, Estonia’s general government deficit decreased from 2,4 % of GDP in 2021 to 0,9 % in 2022, while general government debt rose from 17,6 % of GDP at the end of 2021 to 18,4 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Estonia, as its general government deficit is planned to exceed 3 %-of-GDP Treaty reference value in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Estonia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included lower excise for agricultural fuel; while such fiscal policy expenditure-increasing measures included a partial compensation of energy bills for households earning less than the median income, reduced network charges for electricity and gas for households and corporates, electricity and gas price caps for households, and a one-time EUR 50 social transfer to pensioners and families with children. The Commission estimates the net budgetary cost of those measures at 0,8 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,6 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0 % of GDP in 2022, from 2,3 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included lower excise for agricultural fuel; while such fiscal policy expenditure-increasing measures included a partial compensation of energy bills for households earning less than the median income, reduced network charges for electricity and gas for households and corporates, electricity and gas price caps for households, and a one-time EUR 50 social transfer to pensioners and families with children. The Commission estimates the net budgetary cost of those measures at 0,8 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,6 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0 % of GDP in 2022, from 2,3 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Estonia (8) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Estonia (8) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (9) in 2022 was contractionary, at 1,3 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Estonia continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,4 % of GDP in 2022 (1,6 % of GDP in 2021). The decrease in expenditures financed by grants under the Facility and other Union funds in 2022 was due to the rapid and unforeseen rise in construction prices. Nationally financed investment provided a contractionary contribution of 0,6 percentage points to the fiscal stance (10). Estonia therefore did not preserve nationally financed investment, which is not in line with the Council Recommendation of 18 June 2021. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,8 percentage points to the fiscal stance. Estonia therefore sufficiently limited the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (9) in 2022 was contractionary, at 1,3 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Estonia continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,4 % of GDP in 2022 (1,6 % of GDP in 2021). The decrease in expenditures financed by grants under the Facility and other Union funds in 2022 was due to the rapid and unforeseen rise in construction prices. Nationally financed investment provided a contractionary contribution of 0,6 percentage points to the fiscal stance (10). Estonia therefore did not preserve nationally financed investment, which is not in line with the Council Recommendation of 18 June 2021. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,8 percentage points to the fiscal stance. Estonia therefore sufficiently limited the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is cautious in 2023 and in line with that of the Commission’s 2023 spring forecast thereafter. The government projects real GDP to decrease by 1,5 % in 2023 and to grow by 3,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP contraction of 0,1 % in 2023 and a similar growth of 3,0 % in 2024. The difference in 2023 is mainly due to the Commission expecting more favourable private consumption developments, together with a slightly lower inflation (measured by the harmonised index of consumer prices (HICP)) and higher wage growth projections. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is cautious in 2023 and in line with that of the Commission’s 2023 spring forecast thereafter. The government projects real GDP to decrease by 1,5 % in 2023 and to grow by 3,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP contraction of 0,1 % in 2023 and a similar growth of 3,0 % in 2024. The difference in 2023 is mainly due to the Commission expecting more favourable private consumption developments, together with a slightly lower inflation (measured by the harmonised index of consumer prices (HICP)) and higher wage growth projections.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 4,3 % of GDP in 2023. The increase in 2023 mainly reflects discretionary measures, such as additional spending on family benefits, pensions, defence and education, and the adjustment of tax brackets in order to reduce income tax, as well as an assumed rise in expenditure by local governments. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 18,4 % at the end of 2022 to 20,2 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 3,1 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the denominator effect from higher nominal GDP projection and higher estimated growth of tax bases, tax revenues and non-tax revenues. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 4,3 % of GDP in 2023. The increase in 2023 mainly reflects discretionary measures, such as additional spending on family benefits, pensions, defence and education, and the adjustment of tax brackets in order to reduce income tax, as well as an assumed rise in expenditure by local governments. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 18,4 % at the end of 2022 to 20,2 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 3,1 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the denominator effect from higher nominal GDP projection and higher estimated growth of tax bases, tax revenues and non-tax revenues.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the reimbursement of a share of all households’ heating, electricity and gas bills. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,3 % of GDP in 2023 (11). The measures in 2023 do not appear to be targeted at 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 Council Recommendation of 12 July 2022 (12), is estimated in the Commission’s 2023 spring forecast at 0 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to increase by 0,1 percentage point of GDP compared to 2022. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the reimbursement of a share of all households’ heating, electricity and gas bills. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,3 % of GDP in 2023 (11). The measures in 2023 do not appear to be targeted at 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 Council Recommendation of 12 July 2022 (12), is estimated in the Commission’s 2023 spring forecast at 0 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to increase by 0,1 percentage point of GDP compared to 2022.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Estonia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Estonia should stand ready to adjust current spending to the evolving situation. Estonia 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Estonia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Estonia should stand ready to adjust current spending to the evolving situation. Estonia 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 0,8 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (+ 1,3 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 1,2 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. This also includes higher cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % 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 (net of discretionary revenue measures) is mainly driven by social spending, public wages, education and defence expenditure. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by Facility and other Union funds is projected 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 0,3 percentage points. Therefore, Estonia plans to finance additional investment through the Facility and other Union funds, and it is not projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, such as energy efficiency of housing, strengthening the electricity transmission networks to allow more green energy production, internet broadband, digital services, upskilling and retraining modules for skills for the green transition. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 0,8 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (+ 1,3 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 1,2 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. This also includes higher cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % 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 (net of discretionary revenue measures) is mainly driven by social spending, public wages, education and defence expenditure. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by Facility and other Union funds is projected 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 0,3 percentage points. Therefore, Estonia plans to finance additional investment through the Facility and other Union funds, and it is not projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, such as energy efficiency of housing, strengthening the electricity transmission networks to allow more green energy production, internet broadband, digital services, upskilling and retraining modules for skills for the green transition.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline marginally to 4,2 % of GDP in 2024. The decrease in 2024 mainly reflects a decrease in expenditure as a share of GDP. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 23,6 % at the end of 2024. However, as stated in the Programme, those projections do not yet include the planned fiscal consolidation measures of the new government that took office on 17 April 2023, because the measures are not yet specified in legal acts. The new government is planning to raise the value added tax, environmental taxes, excise duties on alcohol and tobacco and to institute a car tax. On the expenditure side, the government is planning to cut certain child benefits. Overall, the 2023 Stability Programme estimates that those measures would improve the budget balance by 1,3 % of GDP in 2024. Based on policy measures known with sufficient detail at the cut-off date of the forecast (i.e. without the planned fiscal consolidation measures of the new government), the Commission’s 2023 spring forecast projects a government deficit for 2024 of 2,7 % of GDP. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the lower deficit base projected for 2023 and a more favourable GDP and tax revenue outlook for 2024 in the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast likewise projects a lower general government debt-to-GDP ratio of 21,3 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline marginally to 4,2 % of GDP in 2024. The decrease in 2024 mainly reflects a decrease in expenditure as a share of GDP. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 23,6 % at the end of 2024. However, as stated in the Programme, those projections do not yet include the planned fiscal consolidation measures of the new government that took office on 17 April 2023, because the measures are not yet specified in legal acts. The new government is planning to raise the value added tax, environmental taxes, excise duties on alcohol and tobacco and to institute a car tax. On the expenditure side, the government is planning to cut certain child benefits. Overall, the 2023 Stability Programme estimates that those measures would improve the budget balance by 1,3 % of GDP in 2024. Based on policy measures known with sufficient detail at the cut-off date of the forecast (i.e. without the planned fiscal consolidation measures of the new government), the Commission’s 2023 spring forecast projects a government deficit for 2024 of 2,7 % of GDP. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the lower deficit base projected for 2023 and a more favourable GDP and tax revenue outlook for 2024 in the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast likewise projects a lower general government debt-to-GDP ratio of 21,3 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations, and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 4,9 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if persistent. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,3 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. However, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations, and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 4,9 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if persistent. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,3 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. However, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 4,5 % in 2024, which is below the recommended rate. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 4,5 % in 2024, which is below the recommended rate.

| (26) | According to the 2023 Stability Programme, government investment is expected to remain at 5,3 % of GDP in 2024 compared to an average of 5,3 % of GDP in 2018–2023. In terms of funding sources, nationally financed investment is projected to decline and investment financed by the Union to increase, namely through the Facility. |
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(26)

According to the 2023 Stability Programme, government investment is expected to remain at 5,3 % of GDP in 2024 compared to an average of 5,3 % of GDP in 2018–2023. In terms of funding sources, nationally financed investment is projected to decline and investment financed by the Union to increase, namely through the Facility.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to amount to 4,0 % of GDP in 2025, 4,5 % at 2026 and 4,2 % by 2027. Therefore, the general government deficit is not planned to return to below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 23,6 % at the end of 2024 to 33 % by the end of 2027. However, as noted above, these projections do not yet include the planned fiscal consolidation measures of the new government. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to amount to 4,0 % of GDP in 2025, 4,5 % at 2026 and 4,2 % by 2027. Therefore, the general government deficit is not planned to return to below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 23,6 % at the end of 2024 to 33 % by the end of 2027. However, as noted above, these projections do not yet include the planned fiscal consolidation measures of the new government.

| (28) | Estonia submitted a revision of its recovery and resilience plan together with a REPowerEU chapter on 9 March 2023. On 12 May 2023, the Commission proposed its positive assessment and it is subject to the Council approval. Due to high inflation and disruptions in supply chains caused by the war in Ukraine, a few investments have been delayed or discontinued, which resulted in the revision of the initial recovery and resilience plan. Estonia is the first Member State to have included a REPowerEU chapter in the revision of the plan and intends to submit the first and second payment requests as soon as the revised plan has been approved by the Council. |
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(28)

Estonia submitted a revision of its recovery and resilience plan together with a REPowerEU chapter on 9 March 2023. On 12 May 2023, the Commission proposed its positive assessment and it is subject to the Council approval. Due to high inflation and disruptions in supply chains caused by the war in Ukraine, a few investments have been delayed or discontinued, which resulted in the revision of the initial recovery and resilience plan. Estonia is the first Member State to have included a REPowerEU chapter in the revision of the plan and intends to submit the first and second payment requests as soon as the revised plan has been approved by the Council.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Estonia’s strategic objectives in the field of energy and green transition. The systematic and effective involvement of local and regional authorities, social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Estonia’s strategic objectives in the field of energy and green transition. The systematic and effective involvement of local and regional authorities, social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Estonia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Estonia. |
| --- | --- |

(30)

The Commission approved all Estonia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Estonia.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Estonia faces a number of additional challenges related to the adequacy of the social safety net, in particular for the unemployed and older people, to long-term care and healthcare and to energy and the green transition. |
| --- | --- |

(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Estonia faces a number of additional challenges related to the adequacy of the social safety net, in particular for the unemployed and older people, to long-term care and healthcare and to energy and the green transition.

| (32) | The adequacy of the social safety net has been improved, but the risk of poverty or social exclusion remains high among some groups, in particular older people (41,6 % in Estonia against 19,5 % in the Union in 2021) and persons with disabilities (with 40,4 % in Estonia against 28,9 % in the Union in 2021). For older people (65+) the risks of poverty or social exclusion are high largely due to the average pension being low. In addition, a gender gap in poverty among older people persists (the at-risk-of-poverty rate for older women is 47,9 %, almost 21 percentage points higher than for men). Restrictive criteria for receiving unemployment benefits, in particular the high thresholds for employment and income before unemployment, continue to expose unemployed people to the risk of falling into poverty. People in work for short spells and in non-standard forms of work are not eligible for unemployment benefits when they become unemployed. In 2022, only 29 % of the newly registered unemployed received unemployment insurance benefits and 39 % received the fixed unemployment allowance. Extending the coverage of unemployment benefits and relaxing the minimum criteria to access them, in particular for those in work for short spells and in non-standard forms of work, and increasing the adequacy of pensions could help strengthen social protection. |
| --- | --- |

(32)

The adequacy of the social safety net has been improved, but the risk of poverty or social exclusion remains high among some groups, in particular older people (41,6 % in Estonia against 19,5 % in the Union in 2021) and persons with disabilities (with 40,4 % in Estonia against 28,9 % in the Union in 2021). For older people (65+) the risks of poverty or social exclusion are high largely due to the average pension being low. In addition, a gender gap in poverty among older people persists (the at-risk-of-poverty rate for older women is 47,9 %, almost 21 percentage points higher than for men). Restrictive criteria for receiving unemployment benefits, in particular the high thresholds for employment and income before unemployment, continue to expose unemployed people to the risk of falling into poverty. People in work for short spells and in non-standard forms of work are not eligible for unemployment benefits when they become unemployed. In 2022, only 29 % of the newly registered unemployed received unemployment insurance benefits and 39 % received the fixed unemployment allowance. Extending the coverage of unemployment benefits and relaxing the minimum criteria to access them, in particular for those in work for short spells and in non-standard forms of work, and increasing the adequacy of pensions could help strengthen social protection.

| (33) | Estonia has taken steps to improve the accessibility and affordability of long-term care, but challenges remain. Public expenditure on healthcare and long-term care are low compared to the Union average, hampering timely and equal access to health and long-term care. A high proportion of the population aged 65 and over and in need of long-term care has no help with personal care or household activities. The need for home care services is one of the highest in the Union. Furthermore, while the population is ageing and life expectancy in Estonia is one of the lowest in the Union, the rate of self-reported unmet needs for medical care is high, although it has fallen compared with previous years (13 % in 2020 and 8,1 % in 2021, compared to a Union average of 2 %). This high rate is in particular linked to waiting lists and a shortage and uneven distribution of health workers in the country. Although out-of-pocket payments have fallen slightly, they are high both for healthcare and long-term care and far above the Union average. Ensuring sustainable funding of healthcare and long-term care could help address the challenges in these areas. |
| --- | --- |

(33)

Estonia has taken steps to improve the accessibility and affordability of long-term care, but challenges remain. Public expenditure on healthcare and long-term care are low compared to the Union average, hampering timely and equal access to health and long-term care. A high proportion of the population aged 65 and over and in need of long-term care has no help with personal care or household activities. The need for home care services is one of the highest in the Union. Furthermore, while the population is ageing and life expectancy in Estonia is one of the lowest in the Union, the rate of self-reported unmet needs for medical care is high, although it has fallen compared with previous years (13 % in 2020 and 8,1 % in 2021, compared to a Union average of 2 %). This high rate is in particular linked to waiting lists and a shortage and uneven distribution of health workers in the country. Although out-of-pocket payments have fallen slightly, they are high both for healthcare and long-term care and far above the Union average. Ensuring sustainable funding of healthcare and long-term care could help address the challenges in these areas.

| (34) | Following Russia's invasion of Ukraine, Estonia has successfully abandoned imports of gas from Russia by redirecting energy imports through the liquified natural gas (LNG) terminal in Klaipėda, Lithuania and the LNG terminal in Inkoo, Finland. Estonia’s consumption of natural gas dropped by 36 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Estonia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (17). While Estonia is making progress in the deployment of renewable energy, the share of oil shale in its energy mix remains significant. The share of renewable energy in gross final energy consumption grew from 30,1 % in 2020 to 37,6 % in 2021. The share of oil shale accounted for 58 % of the energy mix in 2021, which is a decrease of 5 percentage points since 2018, but an increase of 2 percentage points since 2020. In the REPowerEU chapter of the recently revised recovery and resilience plan, Estonia has committed to reform the permitting process and improve the capacity building of local permitting authorities. These reforms are expected to enable further progress towards the use of renewable energy. Insufficient grid capacity to accommodate more renewables continues to hamper further progress. Estonia also needs to continue its efforts to synchronise its electricity network with that of the rest of the Union in order to phase out its dependency on the BRELL (Belarus, Russia, Estonia, Lithuania and Latvia) power grid. Progress is being made, but the transition still needs to be completed. To that end, cooperation with Latvia and Lithuania is necessary. Energy efficiency is key to Estonia’s green transition. Increasing the energy efficiency of the economy, including of the building stock, will require more ambitious energy efficiency targets and an increase in the renovation capacity of smaller municipalities by better targeting support measures. Estonia has focused on increasing the sustainability of its transport sector by adopting the 2021–2035 Transport and Mobility Development Plan, but more appropriate measures should be taken to accelarate the shift to a less polluting transport sector.
  Although Estonia invests in the electrification of the rail network, its implementation has not yet been assessed. A shift to sustainable transport also needs to happen in the area of private vehicles, where wider use of zero- and low-emission vehicles is needed. Relevant incentives such as environmental taxes, including an emission-based annual road vehicle tax, could help accelerate the shift towards less polluting transport options. |
| --- | --- |

(34)

Following Russia's invasion of Ukraine, Estonia has successfully abandoned imports of gas from Russia by redirecting energy imports through the liquified natural gas (LNG) terminal in Klaipėda, Lithuania and the LNG terminal in Inkoo, Finland. Estonia’s consumption of natural gas dropped by 36 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Estonia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (17). While Estonia is making progress in the deployment of renewable energy, the share of oil shale in its energy mix remains significant. The share of renewable energy in gross final energy consumption grew from 30,1 % in 2020 to 37,6 % in 2021. The share of oil shale accounted for 58 % of the energy mix in 2021, which is a decrease of 5 percentage points since 2018, but an increase of 2 percentage points since 2020. In the REPowerEU chapter of the recently revised recovery and resilience plan, Estonia has committed to reform the permitting process and improve the capacity building of local permitting authorities. These reforms are expected to enable further progress towards the use of renewable energy. Insufficient grid capacity to accommodate more renewables continues to hamper further progress. Estonia also needs to continue its efforts to synchronise its electricity network with that of the rest of the Union in order to phase out its dependency on the BRELL (Belarus, Russia, Estonia, Lithuania and Latvia) power grid. Progress is being made, but the transition still needs to be completed. To that end, cooperation with Latvia and Lithuania is necessary. Energy efficiency is key to Estonia’s green transition. Increasing the energy efficiency of the economy, including of the building stock, will require more ambitious energy efficiency targets and an increase in the renovation capacity of smaller municipalities by better targeting support measures. Estonia has focused on increasing the sustainability of its transport sector by adopting the 2021–2035 Transport and Mobility Development Plan, but more appropriate measures should be taken to accelarate the shift to a less polluting transport sector.

Although Estonia invests in the electrification of the rail network, its implementation has not yet been assessed. A shift to sustainable transport also needs to happen in the area of private vehicles, where wider use of zero- and low-emission vehicles is needed. Relevant incentives such as environmental taxes, including an emission-based annual road vehicle tax, could help accelerate the shift towards less polluting transport options.

| (35) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Estonia for 68 occupations that require specific skills or knowledge for the green transition, including refuse sorters, civil engineering technicians and civil engineers. Furthermore, labour shortages were reported as a factor that limits production in industry and construction. |
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(35)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Estonia for 68 occupations that require specific skills or knowledge for the green transition, including refuse sorters, civil engineering technicians and civil engineers. Furthermore, labour shortages were reported as a factor that limits production in industry and construction.

| (36) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1). |
| --- | --- |

(36)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1).

| (37) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Estonia, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area, |
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(37)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Estonia, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Estonia take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 4,9 % (19).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

2.

Proceed with the steady implementation of its recovery and resilience plan including its REPowerEU chapter. Proceed with the swift implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Strengthen social protection by extending the coverage of unemployment benefits, in particular for those in work for short spells and in non-standard forms of work, in order to address, inter alia, old-age poverty. Improve access to and the affordability of healthcare and long-term care, in particular by ensuring their sustainable funding.

4.

Reduce overall reliance on fossil fuels, accelerate the deployment of renewable energy sources, including by strengthening the domestic electricity grid capacity. Ensure sufficient capacity of electricity interconnections to increase the security of supply and continue the synchronisation with the Union electricity grid. Strengthen energy efficiency through new financing and support measures to meet the targets of the long-term renovation strategy. Continue efforts to increase the share of sustainable transport by electrifying the rail network and through taxation that incentivises the gradual renewal of the vehicle stock towards zero- or low-emission vehicles. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 12532/2021 INIT; ST 12532/2021 ADD 1; ST 12532/2021 ADD 1 COR 1; ST 12532/2021 ADD 1 COR 1 REV 1.

6

(7)  ST 9367/2023 INIT; ST 9367/2023 ADD 1; ST 9367/2023 ADD 1 REV 1.

7

(8)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Estonia (OJ C 304, 29.7.2021, p. 23).

8

(9)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

9

(10)  The decline in investments reflects the delays in the completion of some projects caused by the sharp rise in construction costs, which is linked to supply-chain disruptions due to the war in Ukraine. At the same time, other nationally financed capital expenditure provided an expansionary contribution of 0,4 percentage points of GDP, reflecting the acquisition of gas and fuel reserves.

10

(11)  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.

11

(12)  Council Recommendation of 12 July 2022 on the National Reform Programme of Estonia and delivering a Council opinion on the 2022 Stability Programme of Estonia (OJ C 334, 1.9.2022, p. 44).

12

(13)  Based on the Commission spring 2023 forecast, potential output growth of Estonia, which is used to measure the fiscal stance, in the medium-term (10-year average), is estimated at 13,3 % in nominal terms.

13

(14)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,3 percentage points of GDP, reflecting the base effect from 2022 when large gas reserves were acquired.

14

(15)  Article 5 of Regulation (EC) No 1466/97 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.

15

(16)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

16

(17)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

17

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

18

(19)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 24.

19

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/58 |
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1.9.2023

EN

Official Journal of the European Union

C 312/58

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Ireland and delivering a Council opinion on the 2023 Stability Programme of Ireland

(2023/C 312/07)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Ireland as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Ireland’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Ireland as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Ireland’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 28 May 2021, Ireland 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 set out in Annex V to that Regulation. On 8 September 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Ireland (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Ireland 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. |
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(9)

On 28 May 2021, Ireland 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 set out in Annex V to that Regulation. On 8 September 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Ireland (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Ireland 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 4 May 2023, Ireland submitted its 2023 National Reform Programme and, on 2 May 2023, its 2023 Stability Programme, in line with Article 4(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 Ireland’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 4 May 2023, Ireland submitted its 2023 National Reform Programme and, on 2 May 2023, its 2023 Stability Programme, in line with Article 4(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 Ireland’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Ireland. It assessed Ireland’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Ireland’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Ireland's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Ireland. It assessed Ireland’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Ireland’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Ireland's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Ireland’s general government balance improved from a deficit of 1,6 % of GDP in 2021 to a surplus of 1,6 % in 2022, while general government debt fell from 55,4 % of GDP at the end of 2021 to 44,7 % at the end of 2022. |
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(12)

According to data validated by Eurostat, Ireland’s general government balance improved from a deficit of 1,6 % of GDP in 2021 to a surplus of 1,6 % in 2022, while general government debt fell from 55,4 % of GDP at the end of 2021 to 44,7 % at the end of 2022.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in excise duty on fuels and value-added tax cuts on gas and electricity, while such fiscal policy expenditure-increasing measures included payments to all domestic electricity accounts and a range of social transfers. The Commission estimates the net budgetary cost of those measures at 0,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,7 % of GDP in 2022, from 2,8 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in excise duty on fuels and value-added tax cuts on gas and electricity, while such fiscal policy expenditure-increasing measures included payments to all domestic electricity accounts and a range of social transfers. The Commission estimates the net budgetary cost of those measures at 0,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,7 % of GDP in 2022, from 2,8 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Ireland (7) pursue a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Ireland (7) pursue a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,2 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Ireland continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,04 % of GDP in 2022 (0,1 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,1 percentage point to the fiscal stance (9). Ireland 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 a broadly neutral contribution of – 0,2 percentage point to the fiscal stance. Ireland therefore sufficiently limited the growth in nationally financed current expenditure. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,2 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Ireland continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,04 % of GDP in 2022 (0,1 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,1 percentage point to the fiscal stance (9). Ireland 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 a broadly neutral contribution of – 0,2 percentage point to the fiscal stance. Ireland therefore sufficiently limited the growth in nationally financed current expenditure.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and cautious thereafter. The government projects real GDP to grow by 5,6 % in 2023 and 4,1 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 5,5 % in 2023 and a higher real GDP growth of 5,0 % in 2024. The comparatively higher growth rate in 2024 projected by the Commission is mainly due to a more sustained pace of growth in net exports. However, in the case of Ireland net exports are subject to large fluctuations as they are driven by a small number of large multinational companies, which have been commercially very successful in recent years. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and cautious thereafter. The government projects real GDP to grow by 5,6 % in 2023 and 4,1 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 5,5 % in 2023 and a higher real GDP growth of 5,0 % in 2024. The comparatively higher growth rate in 2024 projected by the Commission is mainly due to a more sustained pace of growth in net exports. However, in the case of Ireland net exports are subject to large fluctuations as they are driven by a small number of large multinational companies, which have been commercially very successful in recent years.

| (17) | In its 2023 Stability Programme, the government expects that the general government surplus will increase to 1,8 % of GDP in 2023. The increase in 2023 mainly reflects buoyant revenue growth. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 44,7 % at the end of 2022 to 40,5 % at the end of 2023. The Commission’s 2023 spring forecast projects a government surplus of 1,7 % of GDP for 2023. This is in line with the surplus projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 40,4 % at the end of 2023. |
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(17)

In its 2023 Stability Programme, the government expects that the general government surplus will increase to 1,8 % of GDP in 2023. The increase in 2023 mainly reflects buoyant revenue growth. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 44,7 % at the end of 2022 to 40,5 % at the end of 2023. The Commission’s 2023 spring forecast projects a government surplus of 1,7 % of GDP for 2023. This is in line with the surplus projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 40,4 % at the end of 2023.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a second round of two payments to all domestic electricity accounts, as well as a new set of social transfers. The cost of those measures is expected to be partly offset by taxes on windfall profits of energy suppliers, namely a cap on revenues from the production of electricity. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, but do 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to increase by 0,1 percentage point of GDP compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,7 % of GDP. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a second round of two payments to all domestic electricity accounts, as well as a new set of social transfers. The cost of those measures is expected to be partly offset by taxes on windfall profits of energy suppliers, namely a cap on revenues from the production of electricity. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, but do 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to increase by 0,1 percentage point of GDP compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,7 % of GDP.

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Ireland take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Ireland should stand ready to adjust current spending to the evolving situation. Ireland 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Ireland take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Ireland should stand ready to adjust current spending to the evolving situation. Ireland 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be broadly neutral (0,2 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (– 0,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. This also includes the higher cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % of GDP). In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,1 % of GDP in 2023, while nationally financed investment is projected to provide a neutral contribution to the fiscal stance of 0,0 percentage points (13). Therefore, Ireland plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as facilitating a deployment of renewables, as well as enabling the electrification of other technologies, which are partly funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be broadly neutral (0,2 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (– 0,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. This also includes the higher cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % of GDP). In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,1 % of GDP in 2023, while nationally financed investment is projected to provide a neutral contribution to the fiscal stance of 0,0 percentage points (13). Therefore, Ireland plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as facilitating a deployment of renewables, as well as enabling the electrification of other technologies, which are partly funded by the Facility and other Union funds.

| (21) | According to the 2023 Stability Programme the general government surplus is expected to increase to 2,8 % of GDP in 2024. The increase in 2024 mainly reflects the reduction of expenditure as temporary spending measures are discontinued. According to the 2023 Stability programme, the general government debt-to-GDP ratio is expected to decrease to 38,2 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government surplus of 2,2 % of GDP in 2024. This is lower than the surplus projected in the 2023 Stability Programme, mainly due to higher expenditure in the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 38,3 % at the end of 2024. |
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(21)

According to the 2023 Stability Programme the general government surplus is expected to increase to 2,8 % of GDP in 2024. The increase in 2024 mainly reflects the reduction of expenditure as temporary spending measures are discontinued. According to the 2023 Stability programme, the general government debt-to-GDP ratio is expected to decrease to 38,2 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government surplus of 2,2 % of GDP in 2024. This is lower than the surplus projected in the 2023 Stability Programme, mainly due to higher expenditure in the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 38,3 % at the end of 2024.

| (22) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increase. |
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(22)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increase.

| (23) | In the programme, Ireland plans to meet the medium-term budgetary objective — a structural budget balance of – 0,5 % of GDP (14) — in 2023 and 2024 and to maintain it throughout the rest of the programme period. On the basis of the Commission’s 2023 spring forecast, the structural balance is forecast to experience a deficit of 0,1 % of GDP in 2023 and a surplus of 1,0 % of GDP in 2024, above the medium-term budgetary objective. |
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(23)

In the programme, Ireland plans to meet the medium-term budgetary objective — a structural budget balance of – 0,5 % of GDP (14) — in 2023 and 2024 and to maintain it throughout the rest of the programme period. On the basis of the Commission’s 2023 spring forecast, the structural balance is forecast to experience a deficit of 0,1 % of GDP in 2023 and a surplus of 1,0 % of GDP in 2024, above the medium-term budgetary objective.

| (24) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure (15) to grow at 1,9 % in 2024. |
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(24)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure (15) to grow at 1,9 % in 2024.

| (25) | According to the 2023 Stability Programme, government investment is expected to increase from 2,0 % of GDP in 2023 to 2,1 % in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include an update of the climate action plan and the building of a data centre facility, which are also part of the recovery and resilience plan. |
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(25)

According to the 2023 Stability Programme, government investment is expected to increase from 2,0 % of GDP in 2023 to 2,1 % in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include an update of the climate action plan and the building of a data centre facility, which are also part of the recovery and resilience plan.

| (26) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government surplus is expected to increase to 2,9 % of GDP in 2025 and to 3,1 % by 2026. Therefore, the general government balance is planned to meet the relevant Treaty reference value over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 38,2 % at the end of 2024 to 32,0 % by the end of 2026. |
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(26)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government surplus is expected to increase to 2,9 % of GDP in 2025 and to 3,1 % by 2026. Therefore, the general government balance is planned to meet the relevant Treaty reference value over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 38,2 % at the end of 2024 to 32,0 % by the end of 2026.

| (27) | The share of the population older than 64 relative to that of the working age population (20–64) is projected to more than double by 2070, when there would be fewer than two potential contributors for every retiree compared to nearly four contributors in 2022. This ageing of the population requires the pension system to be protected against rising costs. The pension reform announced in September 2022 keeps the pension age at 66. The government therefore intends to address the sustainability of the pension system on the contributions side. In 2023, the government is expected to present a roadmap for a gradual increase in social insurance contributions between 2024 and 2034. This would add clarity to how it plans to set out the financing arrangements of the State pension system. |
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(27)

The share of the population older than 64 relative to that of the working age population (20–64) is projected to more than double by 2070, when there would be fewer than two potential contributors for every retiree compared to nearly four contributors in 2022. This ageing of the population requires the pension system to be protected against rising costs. The pension reform announced in September 2022 keeps the pension age at 66. The government therefore intends to address the sustainability of the pension system on the contributions side. In 2023, the government is expected to present a roadmap for a gradual increase in social insurance contributions between 2024 and 2034. This would add clarity to how it plans to set out the financing arrangements of the State pension system.

| (28) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Ireland’s recovery and resilience plan is underway, albeit with significant delays. Limited resources and insufficient prioritisation have led Ireland to fall behind in the implementation process. Ireland submitted an amendment of its recovery and resilience plan in May 2023. Ireland has yet to submit its first payment request. Preparation of a REPowerEU chapter is ongoing. 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 Ireland’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(28)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Ireland’s recovery and resilience plan is underway, albeit with significant delays. Limited resources and insufficient prioritisation have led Ireland to fall behind in the implementation process. Ireland submitted an amendment of its recovery and resilience plan in May 2023. Ireland has yet to submit its first payment request. Preparation of a REPowerEU chapter is ongoing. 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 Ireland’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (29) | The Commission approved all Ireland’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Ireland. |
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(29)

The Commission approved all Ireland’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Ireland.

| (30) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Ireland faces a number of additional challenges related to the circular economy, drinking water supply and wastewater treatment, as well as to the electricity system, energy infrastructure and smart grid technologies, permitting framework, energy efficiency, sustainable transport and skills needed for the green transition. |
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(30)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Ireland faces a number of additional challenges related to the circular economy, drinking water supply and wastewater treatment, as well as to the electricity system, energy infrastructure and smart grid technologies, permitting framework, energy efficiency, sustainable transport and skills needed for the green transition.

| (31) | Ireland’s waste generation continues to rise and remains significantly above the Union average. Its recycling performance has been stagnating for several years. The circular use of materials slightly increased to 2 % in 2021, but remains well below the Union average of 11,7 %. While improvements in waste management are being made, the impact of the 2020 waste action plan for a circular economy and the whole-of-government circular economy strategy published in December 2021 has yet to be felt. More investments are needed to reach the Union’s circular economy objectives. This involves improving separate waste collection and treatment infrastructure to divert waste from landfilling and incineration, with a particular focus on plastic and biowaste. On water management and quality, Ireland is confronted with an ageing and outdated infrastructure, resulting in one of the highest pipe leakage rates in the Union. The quality of drinking water also remains a problem in certain areas. Degradation of water quality from agricultural expansion is not sufficiently addressed. Infrastructure investment is also needed in river restoration as well as a more comprehensive approach to controlling water contamination from agricultural activities. |
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(31)

Ireland’s waste generation continues to rise and remains significantly above the Union average. Its recycling performance has been stagnating for several years. The circular use of materials slightly increased to 2 % in 2021, but remains well below the Union average of 11,7 %. While improvements in waste management are being made, the impact of the 2020 waste action plan for a circular economy and the whole-of-government circular economy strategy published in December 2021 has yet to be felt. More investments are needed to reach the Union’s circular economy objectives. This involves improving separate waste collection and treatment infrastructure to divert waste from landfilling and incineration, with a particular focus on plastic and biowaste. On water management and quality, Ireland is confronted with an ageing and outdated infrastructure, resulting in one of the highest pipe leakage rates in the Union. The quality of drinking water also remains a problem in certain areas. Degradation of water quality from agricultural expansion is not sufficiently addressed. Infrastructure investment is also needed in river restoration as well as a more comprehensive approach to controlling water contamination from agricultural activities.

| (32) | Ireland’s power system showed signs of vulnerability in 2022 as electricity supply issues required emergency support measures. Its climate action plan includes the ambitious goal of transforming the country’s energy system by 2030 with the aim of increasing its share of electricity from renewable sources to 80 %. This will result in large volumes of variable generation. Current flexibility in the system and its integration are insufficient to cope with such large volumes of variable generation and with the growing energy demand, in particular from data centres, which could make it difficult to achieve the renewables target. Demand-side flexibility and major upgrades to the transmission, distribution and storage infrastructure will be key elements in reducing Ireland’s dependence on fossil fuel imports and in facilitating and accelerating its transition towards a climate-neutral energy system. The key challenges in the development of demand-side flexibility include the lack of a coordinated strategy covering the whole energy system, including heating and cooling, as well as the lack of smart metering infrastructure. Improving the efficiency of the planning and permitting system for renewables, storage and grid connectors by ensuring that appropriate staffing with adequate skills is available at all stages of planning processes and by streamlining the overall framework could speed up large-scale developments, thereby accelerating the green transition. |
| --- | --- |

(32)

Ireland’s power system showed signs of vulnerability in 2022 as electricity supply issues required emergency support measures. Its climate action plan includes the ambitious goal of transforming the country’s energy system by 2030 with the aim of increasing its share of electricity from renewable sources to 80 %. This will result in large volumes of variable generation. Current flexibility in the system and its integration are insufficient to cope with such large volumes of variable generation and with the growing energy demand, in particular from data centres, which could make it difficult to achieve the renewables target. Demand-side flexibility and major upgrades to the transmission, distribution and storage infrastructure will be key elements in reducing Ireland’s dependence on fossil fuel imports and in facilitating and accelerating its transition towards a climate-neutral energy system. The key challenges in the development of demand-side flexibility include the lack of a coordinated strategy covering the whole energy system, including heating and cooling, as well as the lack of smart metering infrastructure. Improving the efficiency of the planning and permitting system for renewables, storage and grid connectors by ensuring that appropriate staffing with adequate skills is available at all stages of planning processes and by streamlining the overall framework could speed up large-scale developments, thereby accelerating the green transition.

| (33) | Ireland’s consumption of natural gas dropped by 0,2 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, well below the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). Even though Ireland qualifies for an exemption from that target, it is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17). Energy efficiency measures will play a key role in reducing energy consumption and helping achieve the Union-wide target of reducing net greenhouse gas emissions by at least 55 %. Residential energy upgrades, retrofitting and the fast deployment of renewable heating will be key to achieving climate objectives. Despite ambitious targets to retrofit the equivalent of 500 000 homes so they achieve a Building Energy Rating (BER) of B2, as well as installing 400 000 heat pumps in existing homes to replace older, less efficient heating systems by the end of 2030, challenges remain, largely due to the shortage of skilled labour. The number of zero-emission vehicles in the Irish fleet is growing rapidly from a very low base, but the density of public charging points struggles to keep pace. Only around 100 kilometres of railway lines are electrified, making Ireland the Union country with the lowest share of electrified railways. In addition, road congestion puts a high burden on air quality and commuters’ time. |
| --- | --- |

(33)

Ireland’s consumption of natural gas dropped by 0,2 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, well below the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). Even though Ireland qualifies for an exemption from that target, it is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17). Energy efficiency measures will play a key role in reducing energy consumption and helping achieve the Union-wide target of reducing net greenhouse gas emissions by at least 55 %. Residential energy upgrades, retrofitting and the fast deployment of renewable heating will be key to achieving climate objectives. Despite ambitious targets to retrofit the equivalent of 500 000 homes so they achieve a Building Energy Rating (BER) of B2, as well as installing 400 000 heat pumps in existing homes to replace older, less efficient heating systems by the end of 2030, challenges remain, largely due to the shortage of skilled labour. The number of zero-emission vehicles in the Irish fleet is growing rapidly from a very low base, but the density of public charging points struggles to keep pace. Only around 100 kilometres of railway lines are electrified, making Ireland the Union country with the lowest share of electrified railways. In addition, road congestion puts a high burden on air quality and commuters’ time.

| (34) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Ireland for 12 occupations that require specific skills or knowledge for the green transition, including environmental protection professionals, engineering professionals and electrical engineers. In addition, labour shortages were reported as a factor that constrained production in industry (46,8 % of firms) and construction (60,3 % of firms). |
| --- | --- |

(34)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Ireland for 12 occupations that require specific skills or knowledge for the green transition, including environmental protection professionals, engineering professionals and electrical engineers. In addition, labour shortages were reported as a factor that constrained production in industry (46,8 % of firms) and construction (60,3 % of firms).

| (35) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1). |
| --- | --- |

(35)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1).

| (36) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Ireland, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, and third recommendations set out in the 2023 Recommendation on the euro area, |
| --- | --- |

(36)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Ireland, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Ireland take action in 2023 and 2024 to:

1.

For the period beyond 2024, continue to pursue investments and reforms conducive to higher sustainable growth and preserve a prudent medium-term fiscal position.

Ensure the fiscal sustainability of the State pension system by specifying its financing arrangements.

2.

Significantly accelerate the implementation of its recovery and resilience plan, including by ensuring sufficient resources, and swiftly finalise the addendum and the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Accelerate investments to speed up the circular economy. Further develop both waste treatment infrastructure associated with the higher steps of the waste hierarchy and economic instruments to prevent waste and to increase reused, remanufactured and recycled content. Develop a more effective system for the separate collection of recyclable waste, including biodegradable waste. Divert waste, in particular plastic and biowaste, from landfilling and incineration. Increase efforts to accelerate investments in the drinking-water and wastewater infrastructure.

4.

Reduce overall reliance on fossil fuels. Focus efforts on improving flexibility in the electricity system and on improving energy system integration. Design and implement a dedicated strategy for the development of demand-side response and accelerate the roll-out of smart metering infrastructure and smart grid technologies. Streamline the planning and permitting framework for renewables, storage and grid connectors. Implement additional measures that support energy efficiency in private and public buildings in order to reduce energy bills and energy system costs. Accelerate the installation of public charging points for zero-emission vehicles. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 11046/21; ST 11046/21 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Ireland (OJ C 304, 29.7.2021, p. 28).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided a neutral contribution of 0,0 percentage points of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Ireland and delivering a Council opinion on the 2022 Stability Programme of Ireland (OJ C 334, 1.9.2022, p. 52).

11

(12)  Based on the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Ireland, which is used to measure the fiscal stance, is estimated at 12,3 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,1 percentage point of GDP.

13

(14)  The structural balance (cyclically-adjusted balance net of one-off and temporary measures) recalculated by the Commission using the commonly agreed methodology points to a structural deficit of 0,9 % of GDP in 2023 and a surplus of 0,1 % in 2024.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

16

(17)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

17

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

18

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/67 |
| --- | --- | --- | --- |

1.9.2023

EN

Official Journal of the European Union

C 312/67

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Greece and delivering a Council opinion on the 2023 Stability Programme of Greece

(2023/C 312/08)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Greece 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. On the same date, the Commission also adopted an opinion on Greece's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Greece 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. On the same date, the Commission also adopted an opinion on Greece's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
| --- | --- |

(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
| --- | --- |

(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
| --- | --- |

(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 27 April 2021, Greece 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Greece (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Greece 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. |
| --- | --- |

(9)

On 27 April 2021, Greece 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Greece (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Greece 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 2 May 2023, Greece submitted its 2023 National Reform Programme and, on 29 April 2023, its 2023 Stability Programme, in line with Article 4(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 Greece's biannual reporting on the progress made in achieving its recovery and resilience plan. |
| --- | --- |

(10)

On 2 May 2023, Greece submitted its 2023 National Reform Programme and, on 29 April 2023, its 2023 Stability Programme, in line with Article 4(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 Greece's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Greece. It assessed Greece's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Greece's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Greece's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Greece. It assessed Greece's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Greece's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Greece's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Greece and published its results on 24 May 2023. The Commission concluded that Greece is experiencing excessive macroeconomic imbalances. In particular, vulnerabilities relating to high government debt and a high stock of non-performing loans in the context of high unemployment have been receding, but its external position has deteriorated. A key concern is that the current account deficit markedly widened in 2022, also due to the Union-wide sharp rise in energy prices, despite the recovery in tourism revenue. Even though it is forecast to narrow this year and next, the external deficit is set to stay well above the level that is required to ensure a lasting improvement in the net international investment position. While the government debt-to-GDP ratio remains the highest in the Union, it improved markedly in 2022, largely thanks to strong nominal GDP growth, and it is expected to recede further in 2023 and 2024. Non-performing loans recorded a sharp fall last year building on large reductions in earlier years, yet remain high relative to the Union average, and continue to weigh on banks' profitability and lending capacity, which in turn impinges on the capital deepening and on the productivity growth of the economy. The policy response has contributed to the unwinding of imbalances and the implementation of the recovery and resilience plan represents a major opportunity to tackle remaining structural weaknesses. Yet more efforts are needed, in particular to ensure that external balances are put on a firmly improving path, and that non-performing loans decline further including through increasing the effectiveness of debt enforcement and improving the secondary non-performing loans market. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Greece and published its results on 24 May 2023. The Commission concluded that Greece is experiencing excessive macroeconomic imbalances. In particular, vulnerabilities relating to high government debt and a high stock of non-performing loans in the context of high unemployment have been receding, but its external position has deteriorated. A key concern is that the current account deficit markedly widened in 2022, also due to the Union-wide sharp rise in energy prices, despite the recovery in tourism revenue. Even though it is forecast to narrow this year and next, the external deficit is set to stay well above the level that is required to ensure a lasting improvement in the net international investment position. While the government debt-to-GDP ratio remains the highest in the Union, it improved markedly in 2022, largely thanks to strong nominal GDP growth, and it is expected to recede further in 2023 and 2024. Non-performing loans recorded a sharp fall last year building on large reductions in earlier years, yet remain high relative to the Union average, and continue to weigh on banks' profitability and lending capacity, which in turn impinges on the capital deepening and on the productivity growth of the economy. The policy response has contributed to the unwinding of imbalances and the implementation of the recovery and resilience plan represents a major opportunity to tackle remaining structural weaknesses. Yet more efforts are needed, in particular to ensure that external balances are put on a firmly improving path, and that non-performing loans decline further including through increasing the effectiveness of debt enforcement and improving the secondary non-performing loans market.

| (13) | According to data validated by Eurostat, Greece's general government deficit decreased from 7,1 % of GDP in 2021 to 2,3 % in 2022, while general government debt fell from 194,6 % of GDP at the end of 2021 to 171,3 % at the end of 2022. |
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(13)

According to data validated by Eurostat, Greece's general government deficit decreased from 7,1 % of GDP in 2021 to 2,3 % in 2022, while general government debt fell from 194,6 % of GDP at the end of 2021 to 171,3 % at the end of 2022.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy expenditure-increasing measures included electricity subsidies to households and businesses and increased social benefits to vulnerable households. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely the price cap on electricity producers and the extraordinary levy on electricity producers for the period October 2021 to June 2022. The Commission estimates the net budgetary cost of those measures at 2,5 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,5 % of GDP in 2022, from 6,5 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy expenditure-increasing measures included electricity subsidies to households and businesses and increased social benefits to vulnerable households. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely the price cap on electricity producers and the extraordinary levy on electricity producers for the period October 2021 to June 2022. The Commission estimates the net budgetary cost of those measures at 2,5 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,5 % of GDP in 2022, from 6,5 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Greece (7) use the Recovery and Resilience Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Greece preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Greece (7) use the Recovery and Resilience Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Greece preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 1,0 % of GDP. As recommended by the Council, Greece continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 2,1 % of GDP in 2022 (2,6 % of GDP in 2021). The decrease in expenditures financed by grants under the Facility and other Union funds in 2022 was due to the phasing-out of the previous programming period while investment expenditure in the new programming period has not yet picked up. Nationally financed investment provided an expansionary contribution of 0,6 percentage points to the fiscal stance (9). Greece 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 0,6 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 2 % of GDP). Greece therefore sufficiently limited the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 1,0 % of GDP. As recommended by the Council, Greece continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 2,1 % of GDP in 2022 (2,6 % of GDP in 2021). The decrease in expenditures financed by grants under the Facility and other Union funds in 2022 was due to the phasing-out of the previous programming period while investment expenditure in the new programming period has not yet picked up. Nationally financed investment provided an expansionary contribution of 0,6 percentage points to the fiscal stance (9). Greece 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 0,6 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 2 % of GDP). Greece therefore sufficiently limited the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for 2023 and more favourable thereafter. The government projects real GDP to grow by 2,3 % in 2023 and 3 % in 2024. By comparison, the Commission's 2023 spring forecast projects a higher real GDP growth of 2,4 % in 2023 and a lower 1,9 % in 2024, mainly due to differences in the assumptions on investment activity and contributions from the external sector. The 2023 Stability Programme forecasts higher contributions from gross fixed capital formation, especially in 2024, and the Commission expects goods' imports to remain more elevated than in the authorities' projections. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for 2023 and more favourable thereafter. The government projects real GDP to grow by 2,3 % in 2023 and 3 % in 2024. By comparison, the Commission's 2023 spring forecast projects a higher real GDP growth of 2,4 % in 2023 and a lower 1,9 % in 2024, mainly due to differences in the assumptions on investment activity and contributions from the external sector. The 2023 Stability Programme forecasts higher contributions from gross fixed capital formation, especially in 2024, and the Commission expects goods' imports to remain more elevated than in the authorities' projections.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 1,8 % of GDP in 2023. The decrease in 2023 mainly reflects the phasing-out of the pandemic-related fiscal measures and the reduction of the cost of the energy-related measures as well as the increasing revenues due to economic growth. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 171,3 % at the end of 2022 to 162,6 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 1,3 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to more favourable evolution of tax bases driven by the macroeconomic assumptions, including the composition of growth and lower expenditures of the social budget in line with the systematic underspending observed in the past years. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 160,2 % at the end of 2023. The difference is mainly due to a higher nominal GDP growth and, to a smaller extent, a lower general government deficit forecast by the Commission. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 1,8 % of GDP in 2023. The decrease in 2023 mainly reflects the phasing-out of the pandemic-related fiscal measures and the reduction of the cost of the energy-related measures as well as the increasing revenues due to economic growth. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 171,3 % at the end of 2022 to 162,6 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 1,3 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to more favourable evolution of tax bases driven by the macroeconomic assumptions, including the composition of growth and lower expenditures of the social budget in line with the systematic underspending observed in the past years. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 160,2 % at the end of 2023. The difference is mainly due to a higher nominal GDP growth and, to a smaller extent, a lower general government deficit forecast by the Commission.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the electricity subsidies to households and businesses. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers, namely the price cap on electricity producers and the solidarity contribution from refineries. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,2 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,5 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,5 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the electricity subsidies to households and businesses. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers, namely the price cap on electricity producers and the solidarity contribution from refineries. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,2 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,5 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,5 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Greece ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Greece should stand ready to adjust current spending to the evolving situation. Greece 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Greece ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Greece should stand ready to adjust current spending to the evolving situation. Greece 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be broadly neutral (‒ 0,2 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 1,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected contractionary contribution of nationally financed primary current expenditure is due, in substance, to the reduced costs of the (targeted and untargeted) support measures to households and firms in response to energy price hikes (by 2,3 % of GDP). The increase in social spending is the main driver of growth in nationally financed primary current expenditure (net of new revenue measures). Expenditure financed by grants under the Facility and other Union funds amounted to 2,5 % of GDP in 2023, while nationally financed investment provided a neutral contribution to the fiscal stance of 0,0 percentage points (13). Therefore, Greece plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as the installation of 8 000 publicly accessible charging points for electric vehicles in key urban and suburban locations, digitalisation of public administration and improving the electricity interconnection of islands. |
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(21)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be broadly neutral (‒ 0,2 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 1,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected contractionary contribution of nationally financed primary current expenditure is due, in substance, to the reduced costs of the (targeted and untargeted) support measures to households and firms in response to energy price hikes (by 2,3 % of GDP). The increase in social spending is the main driver of growth in nationally financed primary current expenditure (net of new revenue measures). Expenditure financed by grants under the Facility and other Union funds amounted to 2,5 % of GDP in 2023, while nationally financed investment provided a neutral contribution to the fiscal stance of 0,0 percentage points (13). Therefore, Greece plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as the installation of 8 000 publicly accessible charging points for electric vehicles in key urban and suburban locations, digitalisation of public administration and improving the electricity interconnection of islands.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 0,8 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of the remaining energy and other measures and the increase in revenues on the back of solid economic growth. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 150,8 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 0,6 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the assumptions on the execution of the social budget, most notably lower spending on social benefits and on pensions. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 154,5 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 0,8 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of the remaining energy and other measures and the increase in revenues on the back of solid economic growth. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 150,8 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 0,6 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the assumptions on the execution of the social budget, most notably lower spending on social benefits and on pensions. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 154,5 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,6 %, as reflected in this Recommendation. This will also contribute to strengthening the external position. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,2 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,6 %, as reflected in this Recommendation. This will also contribute to strengthening the external position. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,2 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit.

| (25) | Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 0,7 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is more than the savings from the full phasing-out of energy support measures. |
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(25)

Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 0,7 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is more than the savings from the full phasing-out of energy support measures.

| (26) | According to the 2023 Stability Programme, government investment is expected to increase from 4,8 % of GDP in 2023 to 5,4 % of GDP in 2024. The higher investment reflects slightly lower nationally financed investment and higher investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include high-value-added investments and structural reforms towards the green, digital and energy transitions, which are also part of the recovery and resilience plan. |
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(26)

According to the 2023 Stability Programme, government investment is expected to increase from 4,8 % of GDP in 2023 to 5,4 % of GDP in 2024. The higher investment reflects slightly lower nationally financed investment and higher investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include high-value-added investments and structural reforms towards the green, digital and energy transitions, which are also part of the recovery and resilience plan.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 0,5 % of GDP in 2025 and to 0,1 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 150,8 % at the end of 2024 to 135,2 % by the end of 2026. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 0,5 % of GDP in 2025 and to 0,1 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 150,8 % at the end of 2024 to 135,2 % by the end of 2026.

| (28) | Building on best practices and reforms undertaken as part of the recovery and resilience plan, modifications to Greece's tax policy framework could help address the investment gap. More specifically, the introduction of a wider advance tax-ruling system could strengthen legal certainty for investors and increase ongoing efforts to simplify the tax system. A review of the tax system could also help enlarge the tax base as regards the self-employed and support investment. Tax compliance could be improved by extending the application of electronic payments and making increased use of the information that originates from electronic payments, considering in particular recent evidence of a growing disparity between declared low incomes and the apparently rapidly rising turnover of the self-employed. This could be done, in particular, by making better use of the information that originates from electronic payments for targeted professions. The ongoing digital transformation of the Independent Authority for Public Revenue is expected to contribute to that objective. However, it is essential that the authority's operational autonomy to manage and develop its HR and IT infrastructure be further increased given the ongoing challenges to tax systems worldwide. |
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(28)

Building on best practices and reforms undertaken as part of the recovery and resilience plan, modifications to Greece's tax policy framework could help address the investment gap. More specifically, the introduction of a wider advance tax-ruling system could strengthen legal certainty for investors and increase ongoing efforts to simplify the tax system. A review of the tax system could also help enlarge the tax base as regards the self-employed and support investment. Tax compliance could be improved by extending the application of electronic payments and making increased use of the information that originates from electronic payments, considering in particular recent evidence of a growing disparity between declared low incomes and the apparently rapidly rising turnover of the self-employed. This could be done, in particular, by making better use of the information that originates from electronic payments for targeted professions. The ongoing digital transformation of the Independent Authority for Public Revenue is expected to contribute to that objective. However, it is essential that the authority's operational autonomy to manage and develop its HR and IT infrastructure be further increased given the ongoing challenges to tax systems worldwide.

| (29) | Greece has continued to take steps to modernise its public administration, but its overall performance remains relatively low. Following a significant adjustment after 2010, the size and cost of public administration has been broadly aligned with the Union average. Greece's wage bill remained stable in 2022 at 10,8 % of GDP, slightly above the Union average (10,2 % of GDP). Ensuring continued application of the unified wage grid, while maintaining current staffing levels through the continued application of the one-in-one-out hiring rule for permanent staff and of the ceiling for temporary staff that was introduced in 2022, will be key to safeguarding those gains. The recovery and resilience plan contains measures to improve the effectiveness of public administration, with a particular focus on improving its digital services. At the same time, attracting and maintaining high-calibre staff remains a challenge. This could be addressed in a structural manner through special/supplementary wage grids for specific functions or bodies as well as a well-defined system of allowances introduced as an integral part of the new HR management system, while safeguarding the integrity of the unified wage grid and the overall size of the wage bill. |
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(29)

Greece has continued to take steps to modernise its public administration, but its overall performance remains relatively low. Following a significant adjustment after 2010, the size and cost of public administration has been broadly aligned with the Union average. Greece's wage bill remained stable in 2022 at 10,8 % of GDP, slightly above the Union average (10,2 % of GDP). Ensuring continued application of the unified wage grid, while maintaining current staffing levels through the continued application of the one-in-one-out hiring rule for permanent staff and of the ceiling for temporary staff that was introduced in 2022, will be key to safeguarding those gains. The recovery and resilience plan contains measures to improve the effectiveness of public administration, with a particular focus on improving its digital services. At the same time, attracting and maintaining high-calibre staff remains a challenge. This could be addressed in a structural manner through special/supplementary wage grids for specific functions or bodies as well as a well-defined system of allowances introduced as an integral part of the new HR management system, while safeguarding the integrity of the unified wage grid and the overall size of the wage bill.

| (30) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Greece's recovery and resilience plan has so far been well underway. Going forward, it will be important to maintain the implementation momentum. Greece submitted three payment requests (16) for non-repayable financial support and two payment requests for loan support, corresponding to 85 milestones and targets in the plan. To date, Greece has received an overall disbursement of EUR 7 126 million (17). In accordance with Article 14(6) of Regulation (EU) 2021/241, on 29 March 2023, Greece expressed its intention to request EUR 5 000 million of additional loan support under the Facility. Greece has made a solid start to implementing its plan and has established a management and control system to monitor and coordinate the timely completion of the reforms and investments. Going forward, it will be important to maintain and enhance those efforts considering the significant number of reforms and investments that are planned to be implemented, in particular as the completion of a number of those reforms and investments will require timely progress with various preparatory steps, including public procurement procedures. The continued implementation of the plan depends on the administrative and implementation capacity of the assigned implementing bodies, including the regional and local administration. 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 Greece'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(30)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Greece's recovery and resilience plan has so far been well underway. Going forward, it will be important to maintain the implementation momentum. Greece submitted three payment requests (16) for non-repayable financial support and two payment requests for loan support, corresponding to 85 milestones and targets in the plan. To date, Greece has received an overall disbursement of EUR 7 126 million (17). In accordance with Article 14(6) of Regulation (EU) 2021/241, on 29 March 2023, Greece expressed its intention to request EUR 5 000 million of additional loan support under the Facility. Greece has made a solid start to implementing its plan and has established a management and control system to monitor and coordinate the timely completion of the reforms and investments. Going forward, it will be important to maintain and enhance those efforts considering the significant number of reforms and investments that are planned to be implemented, in particular as the completion of a number of those reforms and investments will require timely progress with various preparatory steps, including public procurement procedures. The continued implementation of the plan depends on the administrative and implementation capacity of the assigned implementing bodies, including the regional and local administration. 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 Greece'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (31) | The Commission approved all Greece's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Greece. |
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(31)

The Commission approved all Greece's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Greece.

| (32) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Greece faces a number of additional challenges related to healthcare and long-term care, cadastral mapping, energy policy and the green transition. |
| --- | --- |

(32)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Greece faces a number of additional challenges related to healthcare and long-term care, cadastral mapping, energy policy and the green transition.

| (33) | Public healthcare spending is below the Union average, while the out-of-pocket payments made by patients in Greece are the second highest in the Union as a share of GDP. The healthcare system is still hospital-centric, with curative care spending focused on hospitalisation. In addition, Greece ranks first among all Member States for public spending on medicines as a share of GDP. Public expenditure on long-term and preventive care is significantly below the Union average, and there is no comprehensive national strategy for long-term care in place. To tackle this, Greece is implementing a newly adopted primary healthcare system to reduce the reliance on hospital care and increase the efficiency of access to healthcare goods and services. The full roll-out of the primary healthcare reform is hindered by the shortage of family doctors. The number of family doctors is not sufficient to cover the entire population. Sufficient coverage will be necessary for the full introduction of an effective and comprehensive gatekeeping-based system legislated to start from 1 September 2023. To this end, stronger incentives to expand the number of family doctors to achieve full population coverage and population registration will be key to ensuring adequate and equal access to healthcare for the population. |
| --- | --- |

(33)

Public healthcare spending is below the Union average, while the out-of-pocket payments made by patients in Greece are the second highest in the Union as a share of GDP. The healthcare system is still hospital-centric, with curative care spending focused on hospitalisation. In addition, Greece ranks first among all Member States for public spending on medicines as a share of GDP. Public expenditure on long-term and preventive care is significantly below the Union average, and there is no comprehensive national strategy for long-term care in place. To tackle this, Greece is implementing a newly adopted primary healthcare system to reduce the reliance on hospital care and increase the efficiency of access to healthcare goods and services. The full roll-out of the primary healthcare reform is hindered by the shortage of family doctors. The number of family doctors is not sufficient to cover the entire population. Sufficient coverage will be necessary for the full introduction of an effective and comprehensive gatekeeping-based system legislated to start from 1 September 2023. To this end, stronger incentives to expand the number of family doctors to achieve full population coverage and population registration will be key to ensuring adequate and equal access to healthcare for the population.

| (34) | The completion of the national cadastre — a long-standing project — will further improve Greece's business climate. By the end of May 2023, 72 % of cadastral mapping had been completed, and another 25 % of property rights had been collected and are currently being processed. The processing of the collected rights is expected to be completed by the end of 2023, which would complete the cadastre by the end of the year. On the transition to the new agency 'Hellenic Cadastre', 12 cadastral offices and 49 branches have opened and are operational. The Hellenic Cadastre Agency plans to fully digitalise the services to citizens and the Facility provides support for the digitalisation of all registrations and deeds of property rights that are currently in paper form. |
| --- | --- |

(34)

The completion of the national cadastre — a long-standing project — will further improve Greece's business climate. By the end of May 2023, 72 % of cadastral mapping had been completed, and another 25 % of property rights had been collected and are currently being processed. The processing of the collected rights is expected to be completed by the end of 2023, which would complete the cadastre by the end of the year. On the transition to the new agency 'Hellenic Cadastre', 12 cadastral offices and 49 branches have opened and are operational. The Hellenic Cadastre Agency plans to fully digitalise the services to citizens and the Facility provides support for the digitalisation of all registrations and deeds of property rights that are currently in paper form.

| (35) | Despite the efforts made by Greece also in the context of the energy crisis, Greece remains highly dependent on fossil fuels, with oil and gas making up 52 % and 24 % respectively of its energy mix in 2021. To accelerate decarbonisation efforts, a number of measures could be further pursued that build on and go beyond the investments and reforms that are part of Greece's recovery and resilience plan. Greece could accelerate the expansion of renewable energy by establishing and completing the legal frameworks to promote the development of renewable hydrogen infrastructure and offshore wind. Further efforts are needed to speed up the development of a legislative and regulatory framework for biomethane and turn the available sustainable biomethane potential into actual production capacity to offset natural gas imports. |
| --- | --- |

(35)

Despite the efforts made by Greece also in the context of the energy crisis, Greece remains highly dependent on fossil fuels, with oil and gas making up 52 % and 24 % respectively of its energy mix in 2021. To accelerate decarbonisation efforts, a number of measures could be further pursued that build on and go beyond the investments and reforms that are part of Greece's recovery and resilience plan. Greece could accelerate the expansion of renewable energy by establishing and completing the legal frameworks to promote the development of renewable hydrogen infrastructure and offshore wind. Further efforts are needed to speed up the development of a legislative and regulatory framework for biomethane and turn the available sustainable biomethane potential into actual production capacity to offset natural gas imports.

| (36) | As more renewables are integrated, further investments to expand the storage and network capacity will be essential to safeguarding the electricity grid's balance. Common remuneration schemes and the promotion of behind-the-meter systems could be important tools to promote the timely and viable expansion of storage capacity. To avoid the need for curtailment of renewables, additional electricity interconnections with neighbouring countries could be developed. On the further deployment of renewable energy sources, it will be important to fully enforce the new legal framework adopted in 2022, which simplifies and accelerates the licensing process for renewable and storage projects. In addition, promotion of self-consumption schemes, including expanding support for the installation of solar photovoltaic systems with batteries, and energy communities could help boost the social acceptability of deployment of renewables. |
| --- | --- |

(36)

As more renewables are integrated, further investments to expand the storage and network capacity will be essential to safeguarding the electricity grid's balance. Common remuneration schemes and the promotion of behind-the-meter systems could be important tools to promote the timely and viable expansion of storage capacity. To avoid the need for curtailment of renewables, additional electricity interconnections with neighbouring countries could be developed. On the further deployment of renewable energy sources, it will be important to fully enforce the new legal framework adopted in 2022, which simplifies and accelerates the licensing process for renewable and storage projects. In addition, promotion of self-consumption schemes, including expanding support for the installation of solar photovoltaic systems with batteries, and energy communities could help boost the social acceptability of deployment of renewables.

| (37) | Greece could also expand the scope and ambition of existing energy saving measures and reduce the high level of energy poverty. Greece's consumption of natural gas dropped by 22 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, above the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Greece could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19). |
| --- | --- |

(37)

Greece could also expand the scope and ambition of existing energy saving measures and reduce the high level of energy poverty. Greece's consumption of natural gas dropped by 22 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, above the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Greece could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19).

| (38) | Introducing new financial instruments such as energy efficiency auctions could target the coverage of existing renovation support programmes towards energy-poor households more efficiently. Greece's share of smart meters is well behind the Union average (3 % compared to 54 %, 2021 figures) and could be increased as it enables consumers to actively participate in the market and support demand-side response. In addition, specific sectors like transport and water have considerable scope for energy savings as they are still heavily reliant on oil. |
| --- | --- |

(38)

Introducing new financial instruments such as energy efficiency auctions could target the coverage of existing renovation support programmes towards energy-poor households more efficiently. Greece's share of smart meters is well behind the Union average (3 % compared to 54 %, 2021 figures) and could be increased as it enables consumers to actively participate in the market and support demand-side response. In addition, specific sectors like transport and water have considerable scope for energy savings as they are still heavily reliant on oil.

| (39) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In Greece, green skills shortages are currently most evident in the construction sector, which is highly relevant for the green transition, and for specific technical occupations. Finally, there remains scope for further action to increase the employability of young people and women. Increasing the administrative capacities of public employment services while expanding the use of the individualised approach on jobseekers, has the potential to boost employment outcomes for those groups and support a smooth and fair transition. |
| --- | --- |

(39)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In Greece, green skills shortages are currently most evident in the construction sector, which is highly relevant for the green transition, and for specific technical occupations. Finally, there remains scope for further action to increase the employability of young people and women. Increasing the administrative capacities of public employment services while expanding the use of the individualised approach on jobseekers, has the potential to boost employment outcomes for those groups and support a smooth and fair transition.

| (40) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1). |
| --- | --- |

(40)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1).

| (41) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Greece, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third, fourth and fifth recommendations set out in the 2023 Recommendation on the euro area. |
| --- | --- |

(41)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Greece, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third, fourth and fifth recommendations set out in the 2023 Recommendation on the euro area.

| (42) | In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to government debt, external position and non-performing loans. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 41, |
| --- | --- |

(42)

In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to government debt, external position and non-performing loans. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 41,

HEREBY RECOMMENDS that Greece take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 2,6 % (21).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Building on reforms undertaken as part of the recovery and resilience plan, improve the investment friendliness of the taxation system by introducing a wider advance tax-ruling system, enlarge the tax base, including by reviewing the current taxation structure for the self-employed, and strengthen tax compliance by extending the use of electronic payments. Preserve and increase the operational autonomy of the tax authority. Safeguard the efficiency of public administration while ensuring that it can attract the right skills and preserving consistency with the unified wage grid. Pursue the ongoing reduction of non-performing loans and further improve the functioning of the secondary non-performing loans market.

2.

Maintain the momentum in the steady implementation of its recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Ensure continued sufficient administrative capacity in view of the size of the plan. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

To ensure adequate and equal access to healthcare, complete the roll-out of the primary healthcare framework and adopt stronger incentives for the enrolment of an adequate number of family doctors in order to achieve full population coverage and population registration. Finalise cadastral reform by completing cadastral mapping and through the establishment and operation of the Hellenic Cadastre Agency.

4.

Reduce reliance on fossil fuels and further accelerate the diversification of energy supply routes. Further expand the deployment of renewable energy by completing and enforcing the new legal frameworks for the licensing process and for offshore wind farms, increasing electricity network and storage capacity, promoting the decentralised production of renewable energy and putting in place legislative frameworks for the production of renewable hydrogen and biomethane. Step up the delivery of measures that improve energy efficiency, including targeted measures for energy-poor households and the installation of smart meters, and policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition. Support the decarbonisation of the transport sector, in particular by promoting electric vehicles.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

---

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10152/2021 INIT; ST 10152/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Greece (OJ C 304, 29.7.2021, p. 33).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided a neutral contribution of 0,0 percentage points of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Greece and delivering a Council opinion on the 2022 Stability Programme of Greece (OJ C 334, 1.9.2022, p. 60).

11

(12)  On the basis of the Commission's 2023 spring forecast, the medium-term (10-year average) potential output growth of Greece is estimated at 4,8 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,1 percentage point of GDP.

13

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

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Greece submitted its third payment request for grants on 16 May 2023 and the assessment by the Commission is ongoing.

16

(17)  For grants, the disbursed amount for non-repayable financial support (excluding pre-financing) is EUR 3 436 million and the disbursed amount for loan support (excluding pre-financing) is EUR 3 690 million.

17

(18)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

18

(19)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

19

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

20

(21)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 24.

21

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/77 |
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1.9.2023

EN

Official Journal of the European Union

C 312/77

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Spain and delivering a Council opinion on the 2023 Stability Programme of Spain

(2023/C 312/09)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Spain 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. On the same date, the Commission also adopted an opinion on Spain’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Spain 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. On the same date, the Commission also adopted an opinion on Spain’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, by properly exploiting geological resources in Member States and by maximising the recycling raw material. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, by properly exploiting geological resources in Member States and by maximising the recycling raw material. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ Stability and Convergence Programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and to ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ Stability and Convergence Programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and to ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 30 April 2021, Spain 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Spain (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Spain 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. |
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(9)

On 30 April 2021, Spain 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Spain (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Spain 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 28 April 2023, Spain submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Spain’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 28 April 2023, Spain submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Spain’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Spain. It assessed Spain’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Spain’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Spain’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Spain. It assessed Spain’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Spain’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Spain’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Spain and published its results on 24 May 2023. The Commission concluded that Spain is experiencing macroeconomic imbalances. In particular, vulnerabilities related to high private, government and external debt, which have cross-border relevance, are receding but remain present. External debt and especially private debt ratios declined over the 2010s and, after a temporary interruption in 2020, resumed their decline in 2021 and are expected to continue declining favoured by economic growth. However, they remain at still elevated levels. The external position has benefited from a current account that has been in surplus for a decade even if it has narrowed more recently reflecting the impact of the COVID-19 pandemic on tourism exports and of the higher energy prices in 2022. The government debt remains high. In 2022, it has resumed the downward trajectory that delivered improvements before the COVID-19 pandemic driven by strong nominal GDP growth, but remains above pre-COVID-19 pandemic levels. At a more moderate pace, prospects are for a continuation of this reduction in 2023 and 2024, underpinned by policy measures in the recovery and resilience plan. The financial system showed resilience in face of the recent shocks induced by the COVID-19 pandemic and the energy crisis. Unemployment has been decreasing again, but it still stands high and pockets of vulnerability remain, including very high long-term and youth unemployment. Potential risks affecting the further narrowing of vulnerabilities relate mainly to the impact of the tightening of financial conditions on households’ and firms’ financial positions as well as on the medium- to long-term sustainability of government debt in face of the current market conditions and population ageing. Policy progress has been favourable and continuing implementing the recovery and resilience plan should deliver further improvements. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Spain and published its results on 24 May 2023. The Commission concluded that Spain is experiencing macroeconomic imbalances. In particular, vulnerabilities related to high private, government and external debt, which have cross-border relevance, are receding but remain present. External debt and especially private debt ratios declined over the 2010s and, after a temporary interruption in 2020, resumed their decline in 2021 and are expected to continue declining favoured by economic growth. However, they remain at still elevated levels. The external position has benefited from a current account that has been in surplus for a decade even if it has narrowed more recently reflecting the impact of the COVID-19 pandemic on tourism exports and of the higher energy prices in 2022. The government debt remains high. In 2022, it has resumed the downward trajectory that delivered improvements before the COVID-19 pandemic driven by strong nominal GDP growth, but remains above pre-COVID-19 pandemic levels. At a more moderate pace, prospects are for a continuation of this reduction in 2023 and 2024, underpinned by policy measures in the recovery and resilience plan. The financial system showed resilience in face of the recent shocks induced by the COVID-19 pandemic and the energy crisis. Unemployment has been decreasing again, but it still stands high and pockets of vulnerability remain, including very high long-term and youth unemployment. Potential risks affecting the further narrowing of vulnerabilities relate mainly to the impact of the tightening of financial conditions on households’ and firms’ financial positions as well as on the medium- to long-term sustainability of government debt in face of the current market conditions and population ageing. Policy progress has been favourable and continuing implementing the recovery and resilience plan should deliver further improvements.

| (13) | According to data validated by Eurostat, Spain’s general government deficit decreased from 6,9 % of GDP in 2021 to 4,8 % in 2022, while general government debt fell from 118,3 % of GDP at the end of 2021 to 113,2 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Spain, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Spain should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(13)

According to data validated by Eurostat, Spain’s general government deficit decreased from 6,9 % of GDP in 2021 to 4,8 % in 2022, while general government debt fell from 118,3 % of GDP at the end of 2021 to 113,2 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Spain, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Spain should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of VAT on electricity and gas, the reduction of the special tax on electricity and the suspension of the tax on the value of electricity production, while such fiscal policy expenditure-increasing measures included the generalised vehicle fuel rebate of 20 cents per litre, income support to households and energy-intensive industries, higher benefits through the energy social voucher and price discounts for using public transport. The Commission estimates the net budgetary cost of those measures at 1,6 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,5 % of GDP in 2022, from 3,1 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of VAT on electricity and gas, the reduction of the special tax on electricity and the suspension of the tax on the value of electricity production, while such fiscal policy expenditure-increasing measures included the generalised vehicle fuel rebate of 20 cents per litre, income support to households and energy-intensive industries, higher benefits through the energy social voucher and price discounts for using public transport. The Commission estimates the net budgetary cost of those measures at 1,6 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,5 % of GDP in 2022, from 3,1 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Spain (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Spain preserve nationally financed investment. The Council also recommended Spain to limit the growth of nationally financed current expenditure. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Spain (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Spain preserve nationally financed investment. The Council also recommended Spain to limit the growth of nationally financed current expenditure.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 2,5 % of GDP. As recommended by the Council, Spain continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,2 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,3 percentage points to the fiscal stance (9). Spain 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 2,7 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,5 % of GDP). At the same time, higher spending on intermediate consumption and social transfers in kind also contributed to the growth in net primary current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices. Spain therefore did not sufficiently limit the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 2,5 % of GDP. As recommended by the Council, Spain continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,2 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,3 percentage points to the fiscal stance (9). Spain 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 2,7 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,5 % of GDP). At the same time, higher spending on intermediate consumption and social transfers in kind also contributed to the growth in net primary current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices. Spain therefore did not sufficiently limit the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and more favourable thereafter. The government projects real GDP to grow by 2,1 % in 2023 and 2,4 % in 2024. By comparison, the Commission’s 2023 spring forecast projects slightly lower real GDP growth of 1,9 % in 2023 and 2,0 % in 2024, mainly due to a lower expected contribution from private consumption in both 2023 and 2024, as well as more moderate investment growth in 2024. The more favourable outlook set out in the 2023 Stability Programme reflects also a stronger projected impact of the recovery and resilience plan on activity over the forecast horizon. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and more favourable thereafter. The government projects real GDP to grow by 2,1 % in 2023 and 2,4 % in 2024. By comparison, the Commission’s 2023 spring forecast projects slightly lower real GDP growth of 1,9 % in 2023 and 2,0 % in 2024, mainly due to a lower expected contribution from private consumption in both 2023 and 2024, as well as more moderate investment growth in 2024. The more favourable outlook set out in the 2023 Stability Programme reflects also a stronger projected impact of the recovery and resilience plan on activity over the forecast horizon.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 3,9 % of GDP in 2023. The decrease in 2023 mainly reflects the lower cost of measures taken in response to the increase in energy prices compared to 2022. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 113,2 % at the end of 2022 to 111,9 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,1 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio of 110,6 % at the end of 2023, due to a lower stock-flow adjustment. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 3,9 % of GDP in 2023. The decrease in 2023 mainly reflects the lower cost of measures taken in response to the increase in energy prices compared to 2022. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 113,2 % at the end of 2022 to 111,9 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,1 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio of 110,6 % at the end of 2023, due to a lower stock-flow adjustment.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the reduction of VAT on electricity and gas, the reduction of the special tax on electricity, the suspension of the tax on the value of electricity production income support to households and energy-intensive industries, higher benefits through the energy social voucher and price discounts for using public transport, as well as new measures, such as the vehicle fuel rebate of 20 cents per litre now targeted to road and maritime transport and to the agriculture and fishing sectors, and a lump sum subsidy of EUR 200 for low-income households. The cost of those measures is partly offset by a levy on windfall profits of large energy suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,6 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,2 % of GDP in 2023 (compared to 0,5 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,5 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the reduction of VAT on electricity and gas, the reduction of the special tax on electricity, the suspension of the tax on the value of electricity production income support to households and energy-intensive industries, higher benefits through the energy social voucher and price discounts for using public transport, as well as new measures, such as the vehicle fuel rebate of 20 cents per litre now targeted to road and maritime transport and to the agriculture and fishing sectors, and a lump sum subsidy of EUR 200 for low-income households. The cost of those measures is partly offset by a levy on windfall profits of large energy suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,6 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,2 % of GDP in 2023 (compared to 0,5 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,5 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Spain ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Spain should stand ready to adjust current spending to the evolving situation. Spain 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Spain ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Spain should stand ready to adjust current spending to the evolving situation. Spain 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 0,3 % of GDP). This follows an expansionary fiscal stance in 2022 (‒ 2,5 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a broadly neutral contribution of 0,2 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected broadly neutral contribution of nationally financed primary current expenditure is due, in substance, to the reduced net costs of the support measures (targeted and untargeted) to households and firms most vulnerable to energy price hikes (by 1,0 % of GDP). The main drivers of growth in nationally financed primary current expenditure (net of new revenue measures) are the increase in social transfers, driven by the relinking of pensions to past inflation, and higher spending on intermediate consumption. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,6 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Spain plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, such as the reinforced industrial policy España 2030, the plan for housing rehabilitation and urban regeneration or the impulse given to cybersecurity and 5G connectivity, which are funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 0,3 % of GDP). This follows an expansionary fiscal stance in 2022 (‒ 2,5 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a broadly neutral contribution of 0,2 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected broadly neutral contribution of nationally financed primary current expenditure is due, in substance, to the reduced net costs of the support measures (targeted and untargeted) to households and firms most vulnerable to energy price hikes (by 1,0 % of GDP). The main drivers of growth in nationally financed primary current expenditure (net of new revenue measures) are the increase in social transfers, driven by the relinking of pensions to past inflation, and higher spending on intermediate consumption. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,6 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Spain plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, such as the reinforced industrial policy España 2030, the plan for housing rehabilitation and urban regeneration or the impulse given to cybersecurity and 5G connectivity, which are funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 3,0 % of GDP in 2024. The decrease in 2024 also reflects the phasing-out of energy measures. The 2023 Stability Programme expects the general government debt-to-GDP ratio to decrease to 109,1 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,3 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 109,1 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 3,0 % of GDP in 2024. The decrease in 2024 also reflects the phasing-out of energy measures. The 2023 Stability Programme expects the general government debt-to-GDP ratio to decrease to 109,1 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,3 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 109,1 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the phasing-out of energy support measures in 2024, except for the levy on windfall profits for energy companies. The Commission also assumes the phasing-out of almost all energy support measures in 2024 (net revenue of 0,1 % of GDP in 2024). Those estimates are based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Stability Programme envisages the phasing-out of energy support measures in 2024, except for the levy on windfall profits for energy companies. The Commission also assumes the phasing-out of almost all energy support measures in 2024 (net revenue of 0,1 % of GDP in 2024). Those estimates are based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 2,6 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,6 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 2,6 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,6 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 1,4 % in 2024, which is below the recommended growth rate. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 1,4 % in 2024, which is below the recommended growth rate.

| (26) | According to the 2023 Stability Programme, government investment (excluding investment financed by the Facility) is expected to decrease from 2,7 % of GDP in 2023 to 2,6 % of GDP in 2024. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include a permanent framework that ensures improvements in the quality of public spending, measures preventing and combating tax fraud and tax evasion and the reform of the tax system to make it more inclusive, sustainable and capable to foster the medium and long-term sustainability of public finances, which are also part of the recovery and resilience plan. |
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(26)

According to the 2023 Stability Programme, government investment (excluding investment financed by the Facility) is expected to decrease from 2,7 % of GDP in 2023 to 2,6 % of GDP in 2024. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include a permanent framework that ensures improvements in the quality of public spending, measures preventing and combating tax fraud and tax evasion and the reform of the tax system to make it more inclusive, sustainable and capable to foster the medium and long-term sustainability of public finances, which are also part of the recovery and resilience plan.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 2,7 % of GDP in 2025 and to 2,5 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2025. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 109,1 % at the end of 2024 to 106,8 % by the end of 2026. |
| --- | --- |

(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 2,7 % of GDP in 2025 and to 2,5 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2025. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 109,1 % at the end of 2024 to 106,8 % by the end of 2026.

| (28) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Spain’s recovery and resilience plan has so far been well underway. Spain has submitted three payment requests, corresponding to 121 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 28 000 000 000. Spain has been among the Member States most advanced in the implementation of the recovery and resilience plan. On 6 June 2023, Spain submitted an amendment to its recovery and resilience plan, which included new measures to more than double its size. This should be accompanied by sufficient administrative capacity to ensure the effective and efficient absorption of the recovery and resilience funds, other Union funds and national available funds. In particular, Spain will benefit from a higher Facility grant allocation. The revised plan includes a REPowerEU chapter, to be funded partially by the additional REPowerEU grants. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Spain’s strategic objectives in the field of energy and the green transition. In accordance with Article 14(6) of Regulation (EU) 2021/241, Spain also submitted its request for EUR 84 000 000 000 of additional loan support under the Facility. The systematic and effective involvement of local and regional authorities, social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
| --- | --- |

(28)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Spain’s recovery and resilience plan has so far been well underway. Spain has submitted three payment requests, corresponding to 121 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 28 000 000 000. Spain has been among the Member States most advanced in the implementation of the recovery and resilience plan. On 6 June 2023, Spain submitted an amendment to its recovery and resilience plan, which included new measures to more than double its size. This should be accompanied by sufficient administrative capacity to ensure the effective and efficient absorption of the recovery and resilience funds, other Union funds and national available funds. In particular, Spain will benefit from a higher Facility grant allocation. The revised plan includes a REPowerEU chapter, to be funded partially by the additional REPowerEU grants. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Spain’s strategic objectives in the field of energy and the green transition. In accordance with Article 14(6) of Regulation (EU) 2021/241, Spain also submitted its request for EUR 84 000 000 000 of additional loan support under the Facility. The systematic and effective involvement of local and regional authorities, social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (29) | The Commission approved all Spain’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Spain. |
| --- | --- |

(29)

The Commission approved all Spain’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Spain.

| (30) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Spain faces a number of additional challenges related to the green transition, energy interconnections and social and affordable energy-efficient housing. |
| --- | --- |

(30)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Spain faces a number of additional challenges related to the green transition, energy interconnections and social and affordable energy-efficient housing.

| (31) | Despite low direct exposure to Russian fossil fuels, the surge in energy prices experienced in 2022 underlines the need for Spain to accelerate its transition towards clean energy. Spain is progressing in the deployment of renewables, and is one of the Member States with the highest installed capacity of wind and solar power, with approximately 49,8 GW. Some improvements to the permitting procedures, in particular for self-consumption, have helped it make further progress in deploying those technologies. However, Spain has been facing a large backlog of applications for new renewable energy plants. Network capacity constraints limit the further integration of renewables into the electricity grid. Spain is one of the countries with the highest share of smart meters, but additional investments in network infrastructure and storage would be needed to integrate additional renewable electricity. Measures to accelerate the deployment of renewable energy could include further streamlining and digitalising permitting procedures, allocating network capacity to projects faster and supporting the work of authorities in processing permits by ensuring appropriate skills and staffing in those authorities as well as improving coordination among all levels of government. Furthermore, Spain’s cross-border electricity interconnection level in 2022 (5,4 %) is still significantly below the interconnection targets for 2020 (10 %) and 2030 (15 %). |
| --- | --- |

(31)

Despite low direct exposure to Russian fossil fuels, the surge in energy prices experienced in 2022 underlines the need for Spain to accelerate its transition towards clean energy. Spain is progressing in the deployment of renewables, and is one of the Member States with the highest installed capacity of wind and solar power, with approximately 49,8 GW. Some improvements to the permitting procedures, in particular for self-consumption, have helped it make further progress in deploying those technologies. However, Spain has been facing a large backlog of applications for new renewable energy plants. Network capacity constraints limit the further integration of renewables into the electricity grid. Spain is one of the countries with the highest share of smart meters, but additional investments in network infrastructure and storage would be needed to integrate additional renewable electricity. Measures to accelerate the deployment of renewable energy could include further streamlining and digitalising permitting procedures, allocating network capacity to projects faster and supporting the work of authorities in processing permits by ensuring appropriate skills and staffing in those authorities as well as improving coordination among all levels of government. Furthermore, Spain’s cross-border electricity interconnection level in 2022 (5,4 %) is still significantly below the interconnection targets for 2020 (10 %) and 2030 (15 %).

| (32) | Spain’s consumption of natural gas dropped by 10,8 % (17) in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, above its 7 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Spain is encouraged to pursue efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19). Further investment in energy-efficient housing would help alleviate housing affordability challenges. The significant loss of purchasing power, the sustained growth of rental prices and higher mortgage payments have aggravated housing affordability problems, particularly for vulnerable households. The supply of affordable and social housing remains constrained and is significantly lower than the Union average. The current Spanish national energy and climate plan envisages achieving 1,2 million renovations of residential buildings by 2030, with the recovery and resilience plan covering around a third of them. Deploying additional energy-efficient housing in areas with pronounced shortages and stressed markets, including through renovation and electrification, can help contain energy consumption and address the green transition, as well as support vulnerable households more exposed to energy poverty. Well-targeted social and affordable rental housing provided in cooperation with the private sector can help limit the fiscal impact. |
| --- | --- |

(32)

Spain’s consumption of natural gas dropped by 10,8 % (17) in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, above its 7 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Spain is encouraged to pursue efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19). Further investment in energy-efficient housing would help alleviate housing affordability challenges. The significant loss of purchasing power, the sustained growth of rental prices and higher mortgage payments have aggravated housing affordability problems, particularly for vulnerable households. The supply of affordable and social housing remains constrained and is significantly lower than the Union average. The current Spanish national energy and climate plan envisages achieving 1,2 million renovations of residential buildings by 2030, with the recovery and resilience plan covering around a third of them. Deploying additional energy-efficient housing in areas with pronounced shortages and stressed markets, including through renovation and electrification, can help contain energy consumption and address the green transition, as well as support vulnerable households more exposed to energy poverty. Well-targeted social and affordable rental housing provided in cooperation with the private sector can help limit the fiscal impact.

| (33) | Transport remains heavily reliant on oil fuels. The sector accounts for a large share of greenhouse gas emissions and also contributes to air pollution, which is above the Union average. Insufficient infrastructure and access to public transport remains a concern in rural areas. Electro-mobility deployment is underdeveloped both from the supply and demand side. Completing the core high-speed rail network, including cross-border, by 2030 will accelerate the transition towards climate neutrality and make transport less reliant on fossil fuels. Measures included in the recovery and resilience plan have the potential to transform urban and metropolitan transport and strengthen the Trans-European Transport Network, helping introduce digitalisation and new technologies to the sector. |
| --- | --- |

(33)

Transport remains heavily reliant on oil fuels. The sector accounts for a large share of greenhouse gas emissions and also contributes to air pollution, which is above the Union average. Insufficient infrastructure and access to public transport remains a concern in rural areas. Electro-mobility deployment is underdeveloped both from the supply and demand side. Completing the core high-speed rail network, including cross-border, by 2030 will accelerate the transition towards climate neutrality and make transport less reliant on fossil fuels. Measures included in the recovery and resilience plan have the potential to transform urban and metropolitan transport and strengthen the Trans-European Transport Network, helping introduce digitalisation and new technologies to the sector.

| (34) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Spain for several occupations that required specific skills or knowledge for the green transition, such as electronics engineering technicians. |
| --- | --- |

(34)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Spain for several occupations that required specific skills or knowledge for the green transition, such as electronics engineering technicians.

| (35) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1). |
| --- | --- |

(35)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1).

| (36) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Spain, recommendations (1), (2) and (3) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area. |
| --- | --- |

(36)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Spain, recommendations (1), (2) and (3) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area.

| (37) | In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high government debt. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 36, |
| --- | --- |

(37)

In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high government debt. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 36,

HEREBY RECOMMENDS that Spain take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 2,6 % (21).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

2.

Maintain the momentum in the steady implementation of its recovery and resilience plan and, following the recent submission of the addendum, including the REPowerEU chapter and the additional loan request, rapidly start the implementation of the related measures. Ensure continued sufficient administrative capacity in view of the planned increase in the size of the recovery and resilience plan. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Reduce reliance on fossil fuels. Accelerate the deployment of renewable energy, including by further streamlining and digitalising permitting procedures, supporting the work of permitting authorities, improving access to the grid and investing in energy storage, electricity transmission and distribution, and cross-border electricity interconnections. Increase the availability of social and affordable energy-efficient housing, including through renovation, accelerate the electrification of buildings and the penetration of electromobility. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10150/21 INIT; ST 10150/21 ADD 1; ST 10150/21 ADD 1 REV 1; ST 10150/21 ADD 1 REV 2; ST 10150/21 COR 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Spain (OJ C 304, 29.7.2021, p. 38).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided a contractionary contribution of 0,3 percentage points of GDP, due to the gradual adjustment to the pre-COVID-19 pandemic levels.

9

(10)  That figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as, where relevant, capital expenditure measures.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Spain and delivering a Council opinion on the 2022 Stability Programme of Spain (OJ C 334, 1.9.2022, p. 70).

11

(12)  On the basis of the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Spain is estimated at 5,5 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,2 percentage points of GDP.

13

(14)  Expenditure financed by grants under the Facility and other Union funds amounted to 1,6 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,2 percentage points. Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,2 percentage points of GDP.

14

(15)  Article 5 of Regulation (EC) No 1466/97 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.

15

(16)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

16

(17)  The 10,8 % drop includes consumption of natural gas to produce electricity in Spain, which has been exported to a neighbouring Member State.

17

(18)  Spain has been granted a derogation therefore its target is 7 % instead of 15 % in case of a mandatory demand reduction in the event of a Union alert pursuant to Article 5(7) of Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

18

(19)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

19

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

20

(21)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,7 % of GDP for 2024, as described in recital 24.

21

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/86 |
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1.9.2023

EN

Official Journal of the European Union

C 312/86

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of France and delivering a Council opinion on the 2023 Stability Programme of France

(2023/C 312/10)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article148(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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified France 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. On the same date, the Commission also adopted an opinion on France's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified France 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. On the same date, the Commission also adopted an opinion on France's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
| --- | --- |

(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 28 April 2021, France 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for France (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that France 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. |
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(9)

On 28 April 2021, France 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for France (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that France 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 11 May 2023, France submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 France's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 11 May 2023, France submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 France's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for France. It assessed France's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of France's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 France's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for France. It assessed France's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of France's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 France's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for France and published its results on 24 May 2023. The Commission concluded that France is experiencing macroeconomic imbalances. In particular, vulnerabilities related to high government debt, competitiveness and low productivity growth, which have cross-border relevance, remain present despite some signs of reduction. Government debt has been declining since the rebound in GDP in 2021, following an increase during the COVID-19 pandemic. In 2022, various fiscal measures significantly mitigated the impact of the energy crisis but slowed debt reduction. Debt is forecast to further decline this year and next year, but is projected to enter an upward trend again thereafter in the absence of policy action and to remain high and above pre-COVID-19 pandemic levels. Medium-term fiscal sustainability challenges remain high. Policy measures taken in recent years aiming at enhancing potential growth might help correct the projected increase in public debt in the medium term. Several reforms have been adopted to boost cost competitiveness. A small positive effect on competitiveness is already visible, and the full impact of those reforms is expected to materialise over the coming years. Likewise, labour productivity is expected to benefit from the effective implementation of planned investments and reforms. The French economy displayed resilience over the last year, as cost competitiveness was less affected by increases in energy prices than in the rest of the euro area. Exports are improving owing to the further recovery of cross-border tourism and the aircraft industry, which were much affected by the COVID-19 pandemic. While private-sector debt increased during the worst of the COVID-19 pandemic, higher corporate borrowing went hand in hand with increases in equity and accumulation of liquidity buffers. Higher interest rates may make public and private deleveraging more difficult. The policy response has been favourable, but there remain challenges, centred on public finance management. An effective implementation of recently adopted reforms remains central to further reduce vulnerabilities, namely the reform of public finances management and the new mechanism to conduct annual public spending evaluations. Both actions are crucial to continue to curb expenditure and keep public debt on a sustained downward trend. Moreover, the government has adopted a reform of the public pension system that is expected to help public debt sustainability. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for France and published its results on 24 May 2023. The Commission concluded that France is experiencing macroeconomic imbalances. In particular, vulnerabilities related to high government debt, competitiveness and low productivity growth, which have cross-border relevance, remain present despite some signs of reduction. Government debt has been declining since the rebound in GDP in 2021, following an increase during the COVID-19 pandemic. In 2022, various fiscal measures significantly mitigated the impact of the energy crisis but slowed debt reduction. Debt is forecast to further decline this year and next year, but is projected to enter an upward trend again thereafter in the absence of policy action and to remain high and above pre-COVID-19 pandemic levels. Medium-term fiscal sustainability challenges remain high. Policy measures taken in recent years aiming at enhancing potential growth might help correct the projected increase in public debt in the medium term. Several reforms have been adopted to boost cost competitiveness. A small positive effect on competitiveness is already visible, and the full impact of those reforms is expected to materialise over the coming years. Likewise, labour productivity is expected to benefit from the effective implementation of planned investments and reforms. The French economy displayed resilience over the last year, as cost competitiveness was less affected by increases in energy prices than in the rest of the euro area. Exports are improving owing to the further recovery of cross-border tourism and the aircraft industry, which were much affected by the COVID-19 pandemic. While private-sector debt increased during the worst of the COVID-19 pandemic, higher corporate borrowing went hand in hand with increases in equity and accumulation of liquidity buffers. Higher interest rates may make public and private deleveraging more difficult. The policy response has been favourable, but there remain challenges, centred on public finance management. An effective implementation of recently adopted reforms remains central to further reduce vulnerabilities, namely the reform of public finances management and the new mechanism to conduct annual public spending evaluations. Both actions are crucial to continue to curb expenditure and keep public debt on a sustained downward trend. Moreover, the government has adopted a reform of the public pension system that is expected to help public debt sustainability.

| (13) | According to data validated by Eurostat, France's general government deficit decreased from 6,5 % of GDP in 2021 to 4,7 % in 2022, while general government debt fell from 112,9 % of GDP at the end of 2021 to 111,6 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of France, as its general government deficit in 2022 exceeded the 3 %-of-GDP Treaty reference value, while its general government debt exceeded the 60 %-of-GDP Treaty reference value and did not respect the debt reduction benchmark. The report concluded that the deficit and debt criteria were not fulfilled. Also, in line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. France should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(13)

According to data validated by Eurostat, France's general government deficit decreased from 6,5 % of GDP in 2021 to 4,7 % in 2022, while general government debt fell from 112,9 % of GDP at the end of 2021 to 111,6 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of France, as its general government deficit in 2022 exceeded the 3 %-of-GDP Treaty reference value, while its general government debt exceeded the 60 %-of-GDP Treaty reference value and did not respect the debt reduction benchmark. The report concluded that the deficit and debt criteria were not fulfilled. Also, in line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. France should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of the domestic tax on final electricity consumption (taxe intérieure sur le consommation finale d'électricité or TICFE), while such fiscal policy expenditure-increasing measures included direct subsidies to compensate gas and electricity suppliers for the cap on regulated gas and electricity prices, subsidies to limit the increase of retail transport fuel prices and to energy-intensive enterprises, and transfers to low-income households. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely an exceptional solidarity tax on fossil fuel and refining companies and a mechanism for capping infra-marginal market revenues from electricity generation, as well as indirect tax revenues from renewable energy producers and lower subsidies to them, stemming from the positive gap between the market and the reference electricity prices. The Commission estimates the net budgetary cost of those measures at 0,9 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,5 % of GDP in 2022, from 2,6 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of the domestic tax on final electricity consumption (taxe intérieure sur le consommation finale d'électricité or TICFE), while such fiscal policy expenditure-increasing measures included direct subsidies to compensate gas and electricity suppliers for the cap on regulated gas and electricity prices, subsidies to limit the increase of retail transport fuel prices and to energy-intensive enterprises, and transfers to low-income households. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely an exceptional solidarity tax on fossil fuel and refining companies and a mechanism for capping infra-marginal market revenues from electricity generation, as well as indirect tax revenues from renewable energy producers and lower subsidies to them, stemming from the positive gap between the market and the reference electricity prices. The Commission estimates the net budgetary cost of those measures at 0,9 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,5 % of GDP in 2022, from 2,6 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 France (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that France preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 France (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that France preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 2,0 % of GDP. As recommended by the Council, France continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,6 % of GDP in 2022 (0,7 % of GDP in 2021). The marginal decrease in expenditure financed by grants under the Facility and other Union funds in 2022 was due to the frontloaded implementation of the recovery and resilience plan over the first two years thereof. Nationally financed investment provided an expansionary contribution of 0,1 percentage points to the fiscal stance (9). France 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 1,7 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,8 % of GDP). At the same time, the indexation of pensions, social benefits and public wages also contributed (0,4 % of GDP) to the growth in net primary current expenditure. France therefore did not sufficiently limit the growth in nationally financed current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 2,0 % of GDP. As recommended by the Council, France continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,6 % of GDP in 2022 (0,7 % of GDP in 2021). The marginal decrease in expenditure financed by grants under the Facility and other Union funds in 2022 was due to the frontloaded implementation of the recovery and resilience plan over the first two years thereof. Nationally financed investment provided an expansionary contribution of 0,1 percentage points to the fiscal stance (9). France 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 1,7 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,8 % of GDP). At the same time, the indexation of pensions, social benefits and public wages also contributed (0,4 % of GDP) to the growth in net primary current expenditure. France therefore did not sufficiently limit the growth in nationally financed current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission's 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,0 % in 2023 and 1,6 % in 2024. By comparison, the Commission's 2023 spring forecast projects a lower real GDP growth of 0,7 % in 2023 and 1,4 % in 2024, mainly due to lower contributions to growth of domestic demand in 2023, stemming from gross fixed capital formation and inventories, and of external demand in 2024. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission's 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,0 % in 2023 and 1,6 % in 2024. By comparison, the Commission's 2023 spring forecast projects a lower real GDP growth of 0,7 % in 2023 and 1,4 % in 2024, mainly due to lower contributions to growth of domestic demand in 2023, stemming from gross fixed capital formation and inventories, and of external demand in 2024.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 4,9 % of GDP in 2023. The increase in 2023 mainly reflects the slowing down of economic activity and expected revenue shortfalls. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 111,6 % at the end of 2022 to 109,6 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 4,7 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to a higher tax elasticity expected by the Commission, leading to higher revenues. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 109,6 % at the end of 2023. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 4,9 % of GDP in 2023. The increase in 2023 mainly reflects the slowing down of economic activity and expected revenue shortfalls. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 111,6 % at the end of 2022 to 109,6 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 4,7 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to a higher tax elasticity expected by the Commission, leading to higher revenues. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 109,6 % at the end of 2023.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the decrease in the TICFE and the direct subsidies to compensate gas and electricity suppliers for the cap on regulated gas and electricity prices, as well as new measures such as the means-tested transport fuel voucher (chèque carburant) for low-income households, replacing the generalised rebate applied in 2022, and the subsidies to micro-, small- and medium-sized enterprises not benefitting from regulated electricity tariffs, to cover for the increase in the energy bill until the end of 2023. The cost of those measures continues to be partly offset by taxes on windfall profits on energy producers and suppliers, namely a mechanism for capping infra-marginal market revenues from electricity generation, as well as by the indirect tax revenues from renewable energy producers and lower subsidies to them, stemming from the positive gap between the market and the reference electricity prices. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 1,0 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not fully preserve the price signal to reduce energy demand and increase energy efficiency, even though the price caps on electricity and gas for households have been raised. As a result, the amount of targeted support measures, to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,2 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,5 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular the decrease in the TICFE and the direct subsidies to compensate gas and electricity suppliers for the cap on regulated gas and electricity prices, as well as new measures such as the means-tested transport fuel voucher (chèque carburant) for low-income households, replacing the generalised rebate applied in 2022, and the subsidies to micro-, small- and medium-sized enterprises not benefitting from regulated electricity tariffs, to cover for the increase in the energy bill until the end of 2023. The cost of those measures continues to be partly offset by taxes on windfall profits on energy producers and suppliers, namely a mechanism for capping infra-marginal market revenues from electricity generation, as well as by the indirect tax revenues from renewable energy producers and lower subsidies to them, stemming from the positive gap between the market and the reference electricity prices. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 1,0 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not fully preserve the price signal to reduce energy demand and increase energy efficiency, even though the price caps on electricity and gas for households have been raised. As a result, the amount of targeted support measures, to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,2 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,5 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that France ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, France should stand ready to adjust current spending to the evolving situation. France 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that France ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, France should stand ready to adjust current spending to the evolving situation. France 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be contractionary (+ 0,5 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,6 % 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. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,4 % of GDP in 2023, while nationally financed investment provided a neutral contribution to the fiscal stance (13). Therefore, France plans to finance additional investment through the Facility and other Union funds, and it plans to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investments under the investment plan France 2030 to foster investment in state-of-the-art R&D and in the digital realms, as well as investments in renewable energy in heating systems and renovation of public and private buildings, measures supporting the decarbonisation of industry, investments in sustainable transport, health and education, which are partly funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be contractionary (+ 0,5 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,6 % 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. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,4 % of GDP in 2023, while nationally financed investment provided a neutral contribution to the fiscal stance (13). Therefore, France plans to finance additional investment through the Facility and other Union funds, and it plans to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investments under the investment plan France 2030 to foster investment in state-of-the-art R&D and in the digital realms, as well as investments in renewable energy in heating systems and renovation of public and private buildings, measures supporting the decarbonisation of industry, investments in sustainable transport, health and education, which are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 4,4 % of GDP in 2024. The decrease in 2024 mainly reflects the withdrawal of most energy support measures, jointly with higher tax elasticities. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to remain broadly stable at 109,5 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 4,3 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to a base effect stemming from an already lower deficit projected by the Commission for 2023. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio of 109,5 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 4,4 % of GDP in 2024. The decrease in 2024 mainly reflects the withdrawal of most energy support measures, jointly with higher tax elasticities. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to remain broadly stable at 109,5 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 4,3 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to a base effect stemming from an already lower deficit projected by the Commission for 2023. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio of 109,5 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,2 % of GDP in 2024. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear targeted to vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and increase energy efficiency. |
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(23)

The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,2 % of GDP in 2024. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear targeted to vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and increase energy efficiency.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,3 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,0 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,3 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,0 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024.

| (25) | Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow at 3,1 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is less than the savings from the full phasing-out of energy support measures. This is due to increased investments under the programme France 2030 and the full withdrawal of the production tax on firms' value added. |
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(25)

Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow at 3,1 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is less than the savings from the full phasing-out of energy support measures. This is due to increased investments under the programme France 2030 and the full withdrawal of the production tax on firms' value added.

| (26) | According to the 2023 Stability Programme, government investment is expected to remain stable at 3,8 % of GDP between 2023 and 2024. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include a reform of the governance of public finances and a new spending review mechanism, reforms of the pension and unemployment benefit system, as well as investments to foster the green and digital transitions, which are also part of the recovery and resilience plan. The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 3,7 % of GDP in 2025, to 3,2 % in 2026 and to 2,7 % by 2027. The general government deficit is therefore planned to decrease below 3 % of GDP in 2027. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 109,5 % at the end of 2024 to 108,3 % by the end of 2027. |
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(26)

According to the 2023 Stability Programme, government investment is expected to remain stable at 3,8 % of GDP between 2023 and 2024. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include a reform of the governance of public finances and a new spending review mechanism, reforms of the pension and unemployment benefit system, as well as investments to foster the green and digital transitions, which are also part of the recovery and resilience plan. The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 3,7 % of GDP in 2025, to 3,2 % in 2026 and to 2,7 % by 2027. The general government deficit is therefore planned to decrease below 3 % of GDP in 2027. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 109,5 % at the end of 2024 to 108,3 % by the end of 2027.

| (27) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of France's recovery and resilience plan is underway. France submitted one payment request, corresponding to 38 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 7 400 000. Milestones reflect progress in the implementation of reforms in the areas of public finance, housing, mobility, employment, skills and health. Several targets reflect major investments in the fields of energy renovation of buildings, decarbonisation of industry, clean vehicles, research, youth employment, and education. On 20 April 2023, France submitted an amendment to its recovery and resilience plan, including a REPowerEU chapter. France's request to modify its recovery and resilience plan is based on the need to factor in the high inflation experienced in 2022, supply chain disruptions and the downward revision of its maximum Facility grant allocation. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of France'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(27)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of France's recovery and resilience plan is underway. France submitted one payment request, corresponding to 38 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 7 400 000. Milestones reflect progress in the implementation of reforms in the areas of public finance, housing, mobility, employment, skills and health. Several targets reflect major investments in the fields of energy renovation of buildings, decarbonisation of industry, clean vehicles, research, youth employment, and education. On 20 April 2023, France submitted an amendment to its recovery and resilience plan, including a REPowerEU chapter. France's request to modify its recovery and resilience plan is based on the need to factor in the high inflation experienced in 2022, supply chain disruptions and the downward revision of its maximum Facility grant allocation. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of France'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (28) | The Commission approved most of France's cohesion policy programming documents in 2022, except the Saint-Martin programme, which was adopted on 20 March 2023. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in France. |
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(28)

The Commission approved most of France's cohesion policy programming documents in 2022, except the Saint-Martin programme, which was adopted on 20 March 2023. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in France.

| (29) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, France faces a number of additional challenges related to the shortage of skills and inequalities in the education system, to energy policy and to the green transition. Addressing those challenges could help boost the skills of workers, increase labour productivity, make French businesses more energy efficient, and in turn make the French economy more competitive overall. |
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(29)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, France faces a number of additional challenges related to the shortage of skills and inequalities in the education system, to energy policy and to the green transition. Addressing those challenges could help boost the skills of workers, increase labour productivity, make French businesses more energy efficient, and in turn make the French economy more competitive overall.

| (30) | Labour shortages remain high in France. According to the 2023 survey on labour force needs (carried out by Pôle Emploi), 61 % of employers anticipate further hiring difficulties in 2023, in particular for skilled labour in construction and industry – two sectors severely impacted by the green and digital transitions. In recent years, France has boosted investment in the upskilling and reskilling of workers, in part supported by the Facility. However, evaluations show that multiple barriers persist to the upskilling of the low-skilled, undermining the effectiveness of targeted programmes such as the investment plan in skills. Although on the rise, the participation of low-skilled workers in training remains much lower than that of other workers, and they tend to benefit less from training that leads to a qualification. This suggests that further boosting the number of young people entering the labour market with sufficient basic skills and qualifications should remain a priority of the education system. |
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(30)

Labour shortages remain high in France. According to the 2023 survey on labour force needs (carried out by Pôle Emploi), 61 % of employers anticipate further hiring difficulties in 2023, in particular for skilled labour in construction and industry – two sectors severely impacted by the green and digital transitions. In recent years, France has boosted investment in the upskilling and reskilling of workers, in part supported by the Facility. However, evaluations show that multiple barriers persist to the upskilling of the low-skilled, undermining the effectiveness of targeted programmes such as the investment plan in skills. Although on the rise, the participation of low-skilled workers in training remains much lower than that of other workers, and they tend to benefit less from training that leads to a qualification. This suggests that further boosting the number of young people entering the labour market with sufficient basic skills and qualifications should remain a priority of the education system.

| (31) | Despite an overall level of public spending above the OECD average and good outcomes, the French education system is marked by a significant share of low achievers, and socioeconomic background remains a strong predictor of pupils' performance. Underachievement and inequalities in acquired skills in mathematics remain a particular concern. According to national and international surveys, average performance in mathematics has steadily decreased over the past 30 years in France. Some steps have been taken to strengthen the acquisition of basic skills, including by reinforcing the continuous training of teachers in mathematics and French, initiated in 2019, and by adding a one-hour support module in mathematics and French to the first year of secondary school from school year 2023/24 on. The plan to halve class sizes in first and secondary grades in disadvantaged public pre-primary and primary schools has almost been completed and the long-term impact on the learning outcomes of the 300 000 pupils concerned is being assessed. However, a substantial share of disadvantaged pupils, outside of priority areas, do not benefit from it. Challenges also remain, despite investments and progress, with regard to the access of pupils and students with disabilities to the mainstream education system. |
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(31)

Despite an overall level of public spending above the OECD average and good outcomes, the French education system is marked by a significant share of low achievers, and socioeconomic background remains a strong predictor of pupils' performance. Underachievement and inequalities in acquired skills in mathematics remain a particular concern. According to national and international surveys, average performance in mathematics has steadily decreased over the past 30 years in France. Some steps have been taken to strengthen the acquisition of basic skills, including by reinforcing the continuous training of teachers in mathematics and French, initiated in 2019, and by adding a one-hour support module in mathematics and French to the first year of secondary school from school year 2023/24 on. The plan to halve class sizes in first and secondary grades in disadvantaged public pre-primary and primary schools has almost been completed and the long-term impact on the learning outcomes of the 300 000 pupils concerned is being assessed. However, a substantial share of disadvantaged pupils, outside of priority areas, do not benefit from it. Challenges also remain, despite investments and progress, with regard to the access of pupils and students with disabilities to the mainstream education system.

| (32) | In 2022, France continued to invest in the apprenticeship system and in further work-based learning options, such as the reform of vocational training in secondary schools. While those measures could have a positive outcome, their impact is yet to be felt and would require a greater involvement of professionals and teachers in the design of programmes. Despite measures to improve teaching conditions, including an increase in teachers' wages, concerns remain over the attractiveness of the teaching profession and the high share of contractual staff, who often have lower levels of qualifications and experience than permanent staff and insufficient access to training opportunities. Overall, the teacher-to-student ratio remains among the highest in the Union. |
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(32)

In 2022, France continued to invest in the apprenticeship system and in further work-based learning options, such as the reform of vocational training in secondary schools. While those measures could have a positive outcome, their impact is yet to be felt and would require a greater involvement of professionals and teachers in the design of programmes. Despite measures to improve teaching conditions, including an increase in teachers' wages, concerns remain over the attractiveness of the teaching profession and the high share of contractual staff, who often have lower levels of qualifications and experience than permanent staff and insufficient access to training opportunities. Overall, the teacher-to-student ratio remains among the highest in the Union.

| (33) | The French energy mix is less reliant on fossil fuels than other Member States, although it remains dependent on imported fossil fuels. France's consumption of natural gas dropped by 16 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). France could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17). The current geopolitical situation and high energy prices are also increasing the urgency for France to further step up its efforts to meet renewable energy targets laid down in its national energy and climate plan. With 19,1 % of gross final energy consumption from renewable energy, France missed its renewables target of 23 % for 2020. It is also not on track to reach its 2030 renewables target and is lagging behind on deploying renewable energy, in particular for electricity production and heating. Swift deployment of renewables such as solar and wind energy would contribute to France's energy security and supply diversification by reducing the use of fossil fuels. The low rate of renewables deployment can be explained by slow and complicated administrative procedures related to permitting. Delays in permitting for all technologies (onshore and offshore wind as well as solar energy) are linked to a lack of political support for projects, inadequate planning and long and complex permitting procedures. There are also public acceptance and legal challenges, which create uncertainty for investors and developers. The permitting process could be accelerated by the allocation of more staff and financial resources in central administration at regional levels as well as in relevant authorities and grid operators. Improved spatial planning procedures and the swifter application of tendering procedures are also key to securing the installation of renewable projects.
  France adopted a law in 2023 on the acceleration of renewable energy production, which acknowledges the need to considerably develop renewable heat and gas and increase the share of renewable electricity in order to meet the growing needs of electrification of uses. If properly implemented, that law could foster a faster deployment of renewable projects. This could put France on a trajectory to achieve the 2030 objectives. |
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(33)

The French energy mix is less reliant on fossil fuels than other Member States, although it remains dependent on imported fossil fuels. France's consumption of natural gas dropped by 16 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). France could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17). The current geopolitical situation and high energy prices are also increasing the urgency for France to further step up its efforts to meet renewable energy targets laid down in its national energy and climate plan. With 19,1 % of gross final energy consumption from renewable energy, France missed its renewables target of 23 % for 2020. It is also not on track to reach its 2030 renewables target and is lagging behind on deploying renewable energy, in particular for electricity production and heating. Swift deployment of renewables such as solar and wind energy would contribute to France's energy security and supply diversification by reducing the use of fossil fuels. The low rate of renewables deployment can be explained by slow and complicated administrative procedures related to permitting. Delays in permitting for all technologies (onshore and offshore wind as well as solar energy) are linked to a lack of political support for projects, inadequate planning and long and complex permitting procedures. There are also public acceptance and legal challenges, which create uncertainty for investors and developers. The permitting process could be accelerated by the allocation of more staff and financial resources in central administration at regional levels as well as in relevant authorities and grid operators. Improved spatial planning procedures and the swifter application of tendering procedures are also key to securing the installation of renewable projects.

France adopted a law in 2023 on the acceleration of renewable energy production, which acknowledges the need to considerably develop renewable heat and gas and increase the share of renewable electricity in order to meet the growing needs of electrification of uses. If properly implemented, that law could foster a faster deployment of renewable projects. This could put France on a trajectory to achieve the 2030 objectives.

| (34) | In order to bring its interconnection level to the 10 % target for 2020, further support for cross-border electricity interconnectors (under development or planned) remains of crucial importance for the integration of large shares of renewables. Frontloading investment in energy infrastructure, both domestic and cross-border, will help reduce dependence on fossil fuel and in particular Russian gas. New infrastructure and network investments are recommended to be future proof where possible, in order to facilitate their long-term sustainability through future repurposing for sustainable fuels. Interconnections are crucial for an efficient functioning of the internal energy market by pooling resources to achieve overall security of supply. |
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(34)

In order to bring its interconnection level to the 10 % target for 2020, further support for cross-border electricity interconnectors (under development or planned) remains of crucial importance for the integration of large shares of renewables. Frontloading investment in energy infrastructure, both domestic and cross-border, will help reduce dependence on fossil fuel and in particular Russian gas. New infrastructure and network investments are recommended to be future proof where possible, in order to facilitate their long-term sustainability through future repurposing for sustainable fuels. Interconnections are crucial for an efficient functioning of the internal energy market by pooling resources to achieve overall security of supply.

| (35) | The French recovery and resilience plan contains major projects in building renovation for social and individual housing as well as public buildings and smaller businesses. On the renovation of residential buildings, most projects have focused on one-step works, leading to limited renovations. In the first half of 2022, only 27 % of works contained at least two steps of renovation, and only 5 % were total renovations. Extensive renovations could have a major impact on reducing energy consumption in the building sector. In addition, greater efforts to channel public and private investment towards helping low-income households renovate buildings and renovating building stock with the worst energy performance could help eradicate the 5,2 million most energy-inefficient dwellings (housing with an energy efficiency rating of F and G) by 2030. The 2021 Climate and Resilience Law introduced several measures to incentivise the extensive renovation of buildings, such as the prohibition of rental housing with an energy efficiency rating of G from 2025, F from 2028 and E from 2034. To encourage more significant energy efficiency gains, the policy framework could be improved to incentivise deep renovation and help France further increase the energy efficiency of its building stock with a particular focus on low-income households. |
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(35)

The French recovery and resilience plan contains major projects in building renovation for social and individual housing as well as public buildings and smaller businesses. On the renovation of residential buildings, most projects have focused on one-step works, leading to limited renovations. In the first half of 2022, only 27 % of works contained at least two steps of renovation, and only 5 % were total renovations. Extensive renovations could have a major impact on reducing energy consumption in the building sector. In addition, greater efforts to channel public and private investment towards helping low-income households renovate buildings and renovating building stock with the worst energy performance could help eradicate the 5,2 million most energy-inefficient dwellings (housing with an energy efficiency rating of F and G) by 2030. The 2021 Climate and Resilience Law introduced several measures to incentivise the extensive renovation of buildings, such as the prohibition of rental housing with an energy efficiency rating of G from 2025, F from 2028 and E from 2034. To encourage more significant energy efficiency gains, the policy framework could be improved to incentivise deep renovation and help France further increase the energy efficiency of its building stock with a particular focus on low-income households.

| (36) | France represents nearly 11 % of the Union's total venture capital investment in climate technology start-ups and scale-ups. However, despite large public support, only 29 % of small French firms have invested more than 1 % of their turnover to become resource efficient (40 % on average in the Union). Promoters of clean-tech manufacturing projects are confronted with a high administrative burden and face long procedures and litigation risks. It takes 17 months on average to obtain a building permit, receive environmental authorisation and carry out the public investigation process for an industrial project. The procedure involves blocking points, where the project owner must wait for replies from different bodies (administrative court, opinion of the environmental authority, report from the public investigator). Furthermore, a public consultation must be held for large industrial projects. This process can last at least six months, which adds to the time taken to obtain the building permit, receive environmental authorisation and carry out the public investigation. Investment projects may also be subject to litigation procedures that can last several years, leading to projects being abandoned. While permitting procedures are necessary to safeguard overriding public and private interests, they should be simplified and speeded up for clean-tech manufacturing projects. Launching administrative procedures in parallel and proposing industrial sites ready for use could also help save time. |
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(36)

France represents nearly 11 % of the Union's total venture capital investment in climate technology start-ups and scale-ups. However, despite large public support, only 29 % of small French firms have invested more than 1 % of their turnover to become resource efficient (40 % on average in the Union). Promoters of clean-tech manufacturing projects are confronted with a high administrative burden and face long procedures and litigation risks. It takes 17 months on average to obtain a building permit, receive environmental authorisation and carry out the public investigation process for an industrial project. The procedure involves blocking points, where the project owner must wait for replies from different bodies (administrative court, opinion of the environmental authority, report from the public investigator). Furthermore, a public consultation must be held for large industrial projects. This process can last at least six months, which adds to the time taken to obtain the building permit, receive environmental authorisation and carry out the public investigation. Investment projects may also be subject to litigation procedures that can last several years, leading to projects being abandoned. While permitting procedures are necessary to safeguard overriding public and private interests, they should be simplified and speeded up for clean-tech manufacturing projects. Launching administrative procedures in parallel and proposing industrial sites ready for use could also help save time.

| (37) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in France for several occupations that required specific skills or knowledge for the green transition, including civil engineering technicians, power production plant operators, and engineering professionals. |
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(37)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in France for several occupations that required specific skills or knowledge for the green transition, including civil engineering technicians, power production plant operators, and engineering professionals.

| (38) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1). |
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(38)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1).

| (39) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For France, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area. |
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(39)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For France, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area.

| (40) | In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high government debt and to weak competitiveness and low productivity growth. Recommendations (2) and (3) contribute to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 39, |
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(40)

In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high government debt and to weak competitiveness and low productivity growth. Recommendations (2) and (3) contribute to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 39,

HEREBY RECOMMENDS that France take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 2,3 % (19).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Further improve framework conditions in order to facilitate investment and innovation.

2.

Proceed with the steady implementation of its recovery and resilience plan and, following the recent submission of the addendum, including the REPowerEU chapter, rapidly start the implementation of the related measures. Proceed with the swift implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Address the shortage of skills, in particular by providing additional work-based learning options and raising the share of people with basic skills. Adapt resources and methods to the needs of disadvantaged students and schools in order to make the education and training system more equitable and inclusive. Improve the working conditions and initial and continuous training for teachers.

4.

Reduce overall reliance on fossil fuels. Accelerate the deployment of renewable energies, focusing in particular on wind, solar and geothermal sources and biogas, including through small-scale renewable energy production and the promotion of collective self-consumption, and promote related storage technologies, through increased public investment, by facilitating private investment and addressing permitting bottlenecks. Further upgrade electricity transmission and distribution grids and increase cross-border electricity interconnections. Further improve the policy framework in order to incentivise the deep renovation of buildings and the decarbonisation of heating systems, with a particular focus on low-income households and on building stock with the lowest energy performance. Build a supporting regulatory environment to increase investment in clean-tech manufacturing, including by simplifying and speeding up permitting. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10162/21 INIT; ST 10162/21 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of France (OJ C 304, 29.7.2021, p. 43).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,3 percentage points of GDP, mainly explained by the impact of capital transfers paid in the context of the French recovery plan (France Relance), not funded by grants under the Facility.

9

France Relance)

(10)  That figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as, where relevant, capital expenditure measures.

10

(11)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of France (OJ C 334, 1.9.2022, p. 79).

11

(12)  On the basis of the Commission's 2023 spring forecast, the medium-term (10-year average) potential output growth of France is estimated at 6,3 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,3 percentage points of GDP, mainly explained by the impact of capital transfers paid in the context of the French recovery plan (France Relance), not funded by grants under the Facility, and of the investment plan France 2030.

13

France Relance

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1)

16

(17)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

17

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

18

(19)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,7 % of GDP for 2024, as described in recital 24.

19

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/97 |
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1.9.2023

EN

Official Journal of the European Union

C 312/97

---

COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Croatia and delivering a Council opinion on the 2023 Stability Programme of Croatia

(2023/C 312/11)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Croatia 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. On the same date, the Commission also adopted an opinion on Croatia's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Croatia 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. On the same date, the Commission also adopted an opinion on Croatia's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 14 May 2021, Croatia 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 set out in Annex V to that Regulation. On 28 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Croatia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Croatia 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. |
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(9)

On 14 May 2021, Croatia 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 set out in Annex V to that Regulation. On 28 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Croatia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Croatia 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 28 April 2023, Croatia submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Croatia's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 28 April 2023, Croatia submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Croatia's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Croatia. It assessed Croatia's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Croatia's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Croatia's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Croatia. It assessed Croatia's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Croatia's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Croatia's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Croatia's general government balance improved from a deficit of 2,5 % of GDP in 2021 to a surplus of 0,4 % in 2022, while general government debt fell from 78,4 % of GDP at the end of 2021 to 68,4 % at the end of 2022. |
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(12)

According to data validated by Eurostat, Croatia's general government balance improved from a deficit of 2,5 % of GDP in 2021 to a surplus of 0,4 % in 2022, while general government debt fell from 78,4 % of GDP at the end of 2021 to 68,4 % at the end of 2022.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included value added tax (VAT) and excise duties cuts, while such fiscal policy expenditure-increasing measures included energy price caps, allowances for vulnerable consumers, support schemes for businesses, and social assistance for pensioners and vulnerable households. The Commission estimates the net budgetary cost of those measures at 1,6 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,1 % of GDP in 2022, from 1,3 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included value added tax (VAT) and excise duties cuts, while such fiscal policy expenditure-increasing measures included energy price caps, allowances for vulnerable consumers, support schemes for businesses, and social assistance for pensioners and vulnerable households. The Commission estimates the net budgetary cost of those measures at 1,6 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,1 % of GDP in 2022, from 1,3 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Croatia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. Moreover, the Council recommended that Croatia keep the growth of nationally financed current expenditure under control. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Croatia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. Moreover, the Council recommended that Croatia keep the growth of nationally financed current expenditure under control.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at +0,2 % of GDP, which was appropriate in a context of high inflation (9). As recommended by the Council, Croatia continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 2,6 % of GDP in 2022 (2,7 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,6 percentage points (10) to the fiscal stance (11). Croatia therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a broadly neutral contribution of 0,1 percentage points to the fiscal stance. Croatia therefore sufficiently kept under control the growth in nationally financed current expenditure. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at +0,2 % of GDP, which was appropriate in a context of high inflation (9). As recommended by the Council, Croatia continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 2,6 % of GDP in 2022 (2,7 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,6 percentage points (10) to the fiscal stance (11). Croatia therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a broadly neutral contribution of 0,1 percentage points to the fiscal stance. Croatia therefore sufficiently kept under control the growth in nationally financed current expenditure.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission's 2023 spring forecast for 2023 and in line with it thereafter. The government projects real GDP to grow by 2,2 % in 2023 and 2,6 % in 2024. By comparison, the Commission's 2023 spring forecast projects a lower real GDP growth of 1,6 % in 2023 and 2,3 % in 2024, mainly due to more conservative estimates for households' and public consumption, as well as total investment. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission's 2023 spring forecast for 2023 and in line with it thereafter. The government projects real GDP to grow by 2,2 % in 2023 and 2,6 % in 2024. By comparison, the Commission's 2023 spring forecast projects a lower real GDP growth of 1,6 % in 2023 and 2,3 % in 2024, mainly due to more conservative estimates for households' and public consumption, as well as total investment.

| (17) | In its 2023 Stability Programme, the government expects that the general government balance will deteriorate to a deficit ratio of 0,7 % of GDP in 2023. The deterioration in 2023 mainly reflects the lagged impact of inflation on public spending, namely through the indexation mechanisms of public wages, pensions and social benefits. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 68,4 % at the end of 2022 to 62,6 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 0,5 % of GDP for 2023. This is broadly in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 63,0 % at the end of 2023. |
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(17)

In its 2023 Stability Programme, the government expects that the general government balance will deteriorate to a deficit ratio of 0,7 % of GDP in 2023. The deterioration in 2023 mainly reflects the lagged impact of inflation on public spending, namely through the indexation mechanisms of public wages, pensions and social benefits. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 68,4 % at the end of 2022 to 62,6 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 0,5 % of GDP for 2023. This is broadly in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 63,0 % at the end of 2023.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, including, on the revenue side, VAT and excise duties cuts, as well as, on the expenditure side, energy price caps, allowances for vulnerable consumers, support schemes for businesses and social assistance for pensioners and vulnerable households. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 1,5 % of GDP in 2023 (12). Most of the measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (13), is estimated in the Commission's 2023 spring forecast at 0,2 % of GDP in 2023 (compared to 0,3 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable compared to 2022. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, including, on the revenue side, VAT and excise duties cuts, as well as, on the expenditure side, energy price caps, allowances for vulnerable consumers, support schemes for businesses and social assistance for pensioners and vulnerable households. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 1,5 % of GDP in 2023 (12). Most of the measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (13), is estimated in the Commission's 2023 spring forecast at 0,2 % of GDP in 2023 (compared to 0,3 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable compared to 2022.

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Croatia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (14), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Croatia should stand ready to adjust current spending to the evolving situation. Croatia 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Croatia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (14), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Croatia should stand ready to adjust current spending to the evolving situation. Croatia 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,0 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (+ 0,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,4 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % 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 (net of discretionary revenue measures) is also driven by the maintenance of untargeted energy measures, permanent increases in public-sector wages and social benefits, and lower VAT rates on non-energy products. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 3,1 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,7 percentage points (15). Therefore, Croatia plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as energy renovation of buildings, digitalising the public administration, investment in digital diagnostics and equipment in hospitals, and support to the green and digital transitions of the business sector, which are funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,0 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (+ 0,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,4 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % 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 (net of discretionary revenue measures) is also driven by the maintenance of untargeted energy measures, permanent increases in public-sector wages and social benefits, and lower VAT rates on non-energy products. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 3,1 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,7 percentage points (15). Therefore, Croatia plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as energy renovation of buildings, digitalising the public administration, investment in digital diagnostics and equipment in hospitals, and support to the green and digital transitions of the business sector, which are funded by the Facility and other Union funds.

| (21) | According to the 2023 Stability Programme, the general government deficit is expected to increase to 1,5 % of GDP in 2024. The increase in 2024 mainly reflects higher capital expenditure and a still relatively high indexation of wages, pensions and social assistance spending. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 59,8 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 1,3 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 61,8 % at the end of 2024, with the difference vis-à-vis the 2023 Stability Programme projections being largely explained by the denominator effect (difference in the nominal GDP in 2024) and, to a lesser extent, different assumptions concerning the stock-flow adjustment. |
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(21)

According to the 2023 Stability Programme, the general government deficit is expected to increase to 1,5 % of GDP in 2024. The increase in 2024 mainly reflects higher capital expenditure and a still relatively high indexation of wages, pensions and social assistance spending. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 59,8 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 1,3 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 61,8 % at the end of 2024, with the difference vis-à-vis the 2023 Stability Programme projections being largely explained by the denominator effect (difference in the nominal GDP in 2024) and, to a lesser extent, different assumptions concerning the stock-flow adjustment.

| (22) | The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,2 % of GDP in 2024. Those estimates are based on the assumption of no renewed energy price increases. |
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(22)

The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,2 % of GDP in 2024. Those estimates are based on the assumption of no renewed energy price increases.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (16). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (17) in 2024 should not exceed 5,1 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,5 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission's 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
| --- | --- |

(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (16). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (17) in 2024 should not exceed 5,1 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,5 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission's 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (24) | Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 6,8 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is due to an increase in the dynamics of capital, wage and social expenditure. |
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(24)

Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 6,8 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is due to an increase in the dynamics of capital, wage and social expenditure.

| (25) | According to the 2023 Stability Programme, government investment is expected to remain stable at 4,6 % of GDP between 2023 and 2024. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. These include reforms (health care and welfare sector, improving the management of State-owned enterprises, improving the fiscal responsibility act) and investments (transport and water infrastructure, energy renovations of multi-dwelling buildings and houses, investments in the green and digital transitions, as well as in educational infrastructure) which are mostly also part of the recovery and resilience plan. |
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(25)

According to the 2023 Stability Programme, government investment is expected to remain stable at 4,6 % of GDP between 2023 and 2024. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. These include reforms (health care and welfare sector, improving the management of State-owned enterprises, improving the fiscal responsibility act) and investments (transport and water infrastructure, energy renovations of multi-dwelling buildings and houses, investments in the green and digital transitions, as well as in educational infrastructure) which are mostly also part of the recovery and resilience plan.

| (26) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 0,8 % of GDP in 2025 and to 0,6 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 59,8 % at the end of 2024 to 55,6 % by the end of 2026. The general government debt-to-GDP ratio is therefore planned to drop and remain below 60 % over the Programme horizon. |
| --- | --- |

(26)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 0,8 % of GDP in 2025 and to 0,6 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 59,8 % at the end of 2024 to 55,6 % by the end of 2026. The general government debt-to-GDP ratio is therefore planned to drop and remain below 60 % over the Programme horizon.

| (27) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Croatia's recovery and resilience plan is well underway. Croatia submitted two payment requests, corresponding to 59 milestones and targets in the plan and resulting in an overall disbursement of EUR 1,4 billion. Croatia is expected to submit an amendment of its plan, which should feature a REPowerEU chapter as well as additional measures in other areas, to be financed by the loan component. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 30 March 2023, Croatia expressed its intention to request EUR 3 612 000 000 of additional loan support under the 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 Croatia'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(27)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Croatia's recovery and resilience plan is well underway. Croatia submitted two payment requests, corresponding to 59 milestones and targets in the plan and resulting in an overall disbursement of EUR 1,4 billion. Croatia is expected to submit an amendment of its plan, which should feature a REPowerEU chapter as well as additional measures in other areas, to be financed by the loan component. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 30 March 2023, Croatia expressed its intention to request EUR 3 612 000 000 of additional loan support under the 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 Croatia'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (28) | The Commission approved all Croatia's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Croatia. |
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(28)

The Commission approved all Croatia's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Croatia.

| (29) | Croatia imports about 53 % of the total energy consumed each year, while having great potential in renewable energy, in particular from solar, wind, and geothermal sources. Half of the country's electricity is generated by hydropower plants; the share of wind energy has increased and reached 14 %, but the share of solar energy is still only 1 %. Key factors to accelerate the uptake of solar and wind installations are the streamlining of the permitting procedures and finalisation of the relevant legislative framework to provide producers and self-consumers with more legal certainty. Other factors include a significant upgrading of the transmission network and extending it to the southern part of the country, which is where renewable energy sources are mainly produced, as well as the roll-out of smart metering for small solar installations. Energy consumption in the residential sector is rather high in Croatia (35 % of total energy consumption), with 71 % dependency on gas for heating. The revision and simplification of the procedures for installing solar photovoltaic facilities in multi-apartment buildings as well as the accelerated roll-out of heat pumps for heating and cooling are relevant measures for energy renovation in the building sector. The share of renewable energy sources used in transport is low (7 % against the 2030 target of 14 %), as is the share of rail in passenger transport (2,5 % against 8 % in the Union). Modernising the rail infrastructure and rolling stock and ensuring an increased uptake of zero-emission vehicles can greatly contribute to the decarbonisation of the transport sector. Croatia's consumption of natural gas dropped by 22 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Croatia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19). |
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(29)

Croatia imports about 53 % of the total energy consumed each year, while having great potential in renewable energy, in particular from solar, wind, and geothermal sources. Half of the country's electricity is generated by hydropower plants; the share of wind energy has increased and reached 14 %, but the share of solar energy is still only 1 %. Key factors to accelerate the uptake of solar and wind installations are the streamlining of the permitting procedures and finalisation of the relevant legislative framework to provide producers and self-consumers with more legal certainty. Other factors include a significant upgrading of the transmission network and extending it to the southern part of the country, which is where renewable energy sources are mainly produced, as well as the roll-out of smart metering for small solar installations. Energy consumption in the residential sector is rather high in Croatia (35 % of total energy consumption), with 71 % dependency on gas for heating. The revision and simplification of the procedures for installing solar photovoltaic facilities in multi-apartment buildings as well as the accelerated roll-out of heat pumps for heating and cooling are relevant measures for energy renovation in the building sector. The share of renewable energy sources used in transport is low (7 % against the 2030 target of 14 %), as is the share of rail in passenger transport (2,5 % against 8 % in the Union). Modernising the rail infrastructure and rolling stock and ensuring an increased uptake of zero-emission vehicles can greatly contribute to the decarbonisation of the transport sector. Croatia's consumption of natural gas dropped by 22 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Croatia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19).

| (30) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Croatia for 31 occupations that required specific skills or knowledge for the green transition, including in the construction and manufacturing sectors (both below the Union average). |
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(30)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Croatia for 31 occupations that required specific skills or knowledge for the green transition, including in the construction and manufacturing sectors (both below the Union average).

| (31) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1). |
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(31)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1).

| (32) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Croatia, recommendations (1), (2) and (3) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area, |
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(32)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Croatia, recommendations (1), (2) and (3) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Croatia take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 5,1 % (21).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

2.

Continue the steady implementation of its recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Reduce overall reliance on fossil fuels by accelerating the deployment of renewables, in particular wind, solar and geothermal sources, finalising the incomplete legislative framework, streamlining administrative procedures for permitting, simplifying the procedures for installing renewable energy sources (e.g. solar photovoltaic facilities) in multi-apartment buildings and providing more legal certainty. Support small-scale renewable energy generation capacity. Further upgrade electricity transmission and distribution grids, in particular by improving the transmission links between the north and south of the country, and advancing the roll-out of smart meters. Accelerate the implementation of energy efficiency measures, including the installation of heat pumps. Reduce dependence on fossil fuels in the transport sector by promoting sustainable solutions, in particular rail and the electrification of road transport. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10687/2021 INIT; ST 10687/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Convergence Programme of Croatia (OJ C 304, 29.7.2021, p. 48).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Croatia also experienced strong real GDP growth in 2022.

9

(10)  Nationally financed investment had a contractionary contribution to the fiscal stance due to a decrease in investment expenditure done by local authorities.

10

(11)  Other nationally financed capital expenditure provided an expansionary contribution of 0,5 percentage points of GDP. This was partly due to a one-off cost of an international arbitration case.

11

(12)  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.

12

(13)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Croatia and delivering a Council opinion on the 2022 Convergence Programme of Croatia (OJ C 334, 1.9.2022, p. 88).

13

(14)  On the basis of the Commission's spring 2023 forecast, the medium-term (10-year average) potential output growth of Croatia, which is used to measure the fiscal stance, is estimated at 10,3 % in nominal terms.

14

(15)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,5 percentage points of GDP. This is driven partly by a base effect of higher spending in 2022 due to a one-off measure, while in 2023 a reduction in transfers to utility companies is envisaged.

15

(16)  Article 5 of Regulation (EC) No 1466/97 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.

16

(17)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

17

(18)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

18

(19)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

19

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

20

(21)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 23.

21

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/105 |
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1.9.2023

EN

Official Journal of the European Union

C 312/105

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Italy and delivering a Council opinion on the 2023 Stability Programme of Italy

(2023/C 312/12)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Italy 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. On 14 December 2022, the Commission adopted an opinion on Italy’s 2023 draft budgetary plan. On 22 November 2022, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Italy 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. On 14 December 2022, the Commission adopted an opinion on Italy’s 2023 draft budgetary plan. On 22 November 2022, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPower EU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPower EU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreoever, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreoever, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 30 April 2021, Italy 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Italy (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Italy 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. |
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(9)

On 30 April 2021, Italy 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Italy (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Italy 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 2 May 2023, Italy submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Italy’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 2 May 2023, Italy submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Italy’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Italy. It assessed Italy’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Italy’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Italy’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Italy. It assessed Italy’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Italy’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Italy’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Italy and published its results on 24 May 2023. The Commission concluded that Italy is experiencing excessive macroeconomic imbalances. In particular, while there have been some improvements, vulnerabilities related to high government debt and weak productivity growth, in a context of labour market fragilities and some weaknesses in financial markets, which have cross-border relevance, persist. Italy’s long-standing vulnerabilities have receded somewhat over recent years but remain significant and are not expected to unwind quickly. Persistent low productivity growth has been a key factor behind Italy’s protracted weak economic growth, which slows down government debt deleveraging, dents employment opportunities and impacts banks’ balance sheets. The government debt ratio further declined in 2022 along with the economic recovery. However, it remains high and constitutes a substantial fiscal sustainability challenge. The public debt ratio is forecast to further decline by 2024 but to increase in the medium term in the absence of consolidation measures. The government has implemented further measures to support the resilience of the financial sector and non-performing loans have significantly declined but banks are still significantly exposed to the sovereign. Some progress has been made with policies to tackle imbalances, but sustained efforts are warranted and the implementation of the recovery and resilience plan remains the key policy priority as it includes comprehensive reforms and significant investments. Putting the high government debt on a firm downward path, in a context of rising debt servicing costs and rising age-related costs, requires a multipronged approach relying on prudent fiscal policies with adequate primary surpluses, growth-enhancing investments and reforms, greater tax compliance as well as an efficient use of national and Union resources. Italy is facing challenges that, alongside the continued strong implementation of the recovery and resilience plan, would benefit from additional policy efforts, notably in the areas of taxation, fiscal framework and pension systems, as well as in the areas of demography, labour market and energy. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Italy and published its results on 24 May 2023. The Commission concluded that Italy is experiencing excessive macroeconomic imbalances. In particular, while there have been some improvements, vulnerabilities related to high government debt and weak productivity growth, in a context of labour market fragilities and some weaknesses in financial markets, which have cross-border relevance, persist. Italy’s long-standing vulnerabilities have receded somewhat over recent years but remain significant and are not expected to unwind quickly. Persistent low productivity growth has been a key factor behind Italy’s protracted weak economic growth, which slows down government debt deleveraging, dents employment opportunities and impacts banks’ balance sheets. The government debt ratio further declined in 2022 along with the economic recovery. However, it remains high and constitutes a substantial fiscal sustainability challenge. The public debt ratio is forecast to further decline by 2024 but to increase in the medium term in the absence of consolidation measures. The government has implemented further measures to support the resilience of the financial sector and non-performing loans have significantly declined but banks are still significantly exposed to the sovereign. Some progress has been made with policies to tackle imbalances, but sustained efforts are warranted and the implementation of the recovery and resilience plan remains the key policy priority as it includes comprehensive reforms and significant investments. Putting the high government debt on a firm downward path, in a context of rising debt servicing costs and rising age-related costs, requires a multipronged approach relying on prudent fiscal policies with adequate primary surpluses, growth-enhancing investments and reforms, greater tax compliance as well as an efficient use of national and Union resources. Italy is facing challenges that, alongside the continued strong implementation of the recovery and resilience plan, would benefit from additional policy efforts, notably in the areas of taxation, fiscal framework and pension systems, as well as in the areas of demography, labour market and energy.

| (13) | According to data validated by Eurostat, Italy’s general government deficit decreased from 9,0 % of GDP in 2021 to 8,0 % in 2022, while general government debt fell from 149,9 % of GDP at the end of 2021 to 144,4 % at the end of 2022. On 24 May 2023, the Commission published a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Italy, as its general government deficit in 2022 exceeded the 3 %-of-GDP Treaty reference value, while its general government debt exceeded the 60 %-of-GDP Treaty reference value and did not respect the debt-reduction benchmark. The report concluded that the deficit and debt criteria were not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequenty 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. Italy should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(13)

According to data validated by Eurostat, Italy’s general government deficit decreased from 9,0 % of GDP in 2021 to 8,0 % in 2022, while general government debt fell from 149,9 % of GDP at the end of 2021 to 144,4 % at the end of 2022. On 24 May 2023, the Commission published a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Italy, as its general government deficit in 2022 exceeded the 3 %-of-GDP Treaty reference value, while its general government debt exceeded the 60 %-of-GDP Treaty reference value and did not respect the debt-reduction benchmark. The report concluded that the deficit and debt criteria were not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequenty 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. Italy should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (14) | The general government balance has been impacted by the new statistical treatment of some housing renovation tax credits, now recorded as capital transfers and mostly accrued to 2021–2022 (7). It was also impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included measures to control general system charges in the electricity and gas sectors, reduction of the VAT rate on gas, reduction of excise duties on fuel prices, reduction of social security contributions for workers below a certain income threshold, while such fiscal policy expenditure-increasing measures included subsidies to electricity and gas companies, expansion of the ‘social bonus’ for electricity and gas bills for low-income households, means-tested allowances for workers, pensioners and unemployed persons and an increase of old-age pensions, by 2 % in October 2022 in advance of the statutory inflation-related indexation normally due in 2023. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers and revenues from the offset mechanism on the price of electricity produced from renewable sources and from the application of a compensation mechanism in the electricity sector, deemed to implement Council Regulation (EU) 2022/1854 (8) on an emergency intervention to address high energy prices. The Commission estimates the net budgetary cost of those measures at 2,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,1 % of GDP in 2022, from 3,4 % in 2021, as the government phased out the majority of the measures taken in response to the COVID-19 crisis. |
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(14)

The general government balance has been impacted by the new statistical treatment of some housing renovation tax credits, now recorded as capital transfers and mostly accrued to 2021–2022 (7). It was also impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included measures to control general system charges in the electricity and gas sectors, reduction of the VAT rate on gas, reduction of excise duties on fuel prices, reduction of social security contributions for workers below a certain income threshold, while such fiscal policy expenditure-increasing measures included subsidies to electricity and gas companies, expansion of the ‘social bonus’ for electricity and gas bills for low-income households, means-tested allowances for workers, pensioners and unemployed persons and an increase of old-age pensions, by 2 % in October 2022 in advance of the statutory inflation-related indexation normally due in 2023. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers and revenues from the offset mechanism on the price of electricity produced from renewable sources and from the application of a compensation mechanism in the electricity sector, deemed to implement Council Regulation (EU) 2022/1854 (8) on an emergency intervention to address high energy prices. The Commission estimates the net budgetary cost of those measures at 2,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,1 % of GDP in 2022, from 3,4 % in 2021, as the government phased out the majority of the measures taken in response to the COVID-19 crisis.

| (15) | On 18 June 2021, the Council recommended that in 2022 Italy (9) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Italy preserve nationally financed investment. The Council also recommended Italy to limit the growth of nationally financed current expenditure. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Italy (9) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Italy preserve nationally financed investment. The Council also recommended Italy to limit the growth of nationally financed current expenditure.

| (16) | According to the Commission estimates, the fiscal stance (10) in 2022 was supportive, at ‒ 3,2 % of GDP. As recommended by the Council, Italy continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,9 % of GDP in 2022 (0,4 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (11). Italy 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 2,4 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 2,2 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Italy therefore kept the growth in national financed current expenditure sufficiently under control. |
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(16)

According to the Commission estimates, the fiscal stance (10) in 2022 was supportive, at ‒ 3,2 % of GDP. As recommended by the Council, Italy continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,9 % of GDP in 2022 (0,4 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (11). Italy 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 2,4 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 2,2 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Italy therefore kept the growth in national financed current expenditure sufficiently under control.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for both 2023 and 2024. The government projects real GDP to grow by 1,0 % in 2023 and 1,5 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a slightly higher real GDP growth of 1,2 % in 2023 and somewhat lower, at 1,1 %, in 2024, mainly due to a smaller contribution of investment, which the government projects to grow by 3,4 % year-on-year while the Commission forecasts to grow by 1,4 %. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for both 2023 and 2024. The government projects real GDP to grow by 1,0 % in 2023 and 1,5 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a slightly higher real GDP growth of 1,2 % in 2023 and somewhat lower, at 1,1 %, in 2024, mainly due to a smaller contribution of investment, which the government projects to grow by 3,4 % year-on-year while the Commission forecasts to grow by 1,4 %.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 4,5 % of GDP in 2023. The decrease in 2023 mainly reflects the reduction in capital transfers related to tax credits supporting private investment in housing efficiency, a decrease in compensation of employees due to the retroactive renewal of public contracts for the period 2019–2021, for which a substantial part of the arrears was recorded in 2022, a reduction in subsidies on production in conjunction to lower tax credits to electricity and gas companies and lower interest expenditure mainly explained by lower yields on government bonds indexed to inflation. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 144,4 % at the end of 2022 to 142,1 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,5 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio of 140,4 % at the end of 2023. The difference is due to higher nominal GDP growth in the Commission’s 2023 spring forecast. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 4,5 % of GDP in 2023. The decrease in 2023 mainly reflects the reduction in capital transfers related to tax credits supporting private investment in housing efficiency, a decrease in compensation of employees due to the retroactive renewal of public contracts for the period 2019–2021, for which a substantial part of the arrears was recorded in 2022, a reduction in subsidies on production in conjunction to lower tax credits to electricity and gas companies and lower interest expenditure mainly explained by lower yields on government bonds indexed to inflation. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 144,4 % at the end of 2022 to 142,1 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,5 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio of 140,4 % at the end of 2023. The difference is due to higher nominal GDP growth in the Commission’s 2023 spring forecast.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular subsidies to electricity and gas companies, measures to control general system charges in gas sector, reduction of the VAT rate on gas and reduction of social security contributions for workers below a certain income threshold, as well as new measures, such as a heating bonus for all households for the period between October and December 2023. The cost of those measures continues to be partly offset by taxes on windfall profits of energy producers and suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,0 % of GDP in 2023 (12). Most measures in 2023 are targeted at the most vulnerable households or firms, although the majority of the energy support measures 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 Council recommendation of 12 July 2022 (13), is estimated in the Commission’s 2023 spring forecast at 0,7 % of GDP in 2023 (compared to 1,2 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the complete phasing out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,1 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular subsidies to electricity and gas companies, measures to control general system charges in gas sector, reduction of the VAT rate on gas and reduction of social security contributions for workers below a certain income threshold, as well as new measures, such as a heating bonus for all households for the period between October and December 2023. The cost of those measures continues to be partly offset by taxes on windfall profits of energy producers and suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,0 % of GDP in 2023 (12). Most measures in 2023 are targeted at the most vulnerable households or firms, although the majority of the energy support measures 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 Council recommendation of 12 July 2022 (13), is estimated in the Commission’s 2023 spring forecast at 0,7 % of GDP in 2023 (compared to 1,2 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the complete phasing out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,1 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Italy ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (14), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Italy should stand ready to adjust current spending to the evolving situation. Italy 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Italy ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (14), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Italy should stand ready to adjust current spending to the evolving situation. Italy 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 2,6 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 3,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,9 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected contractionary contribution of nationally financed primary current expenditure is due, in substance, to the reduced costs (by 1,5 percentage points of GDP) of the support measures (targeted and untargeted) to households and firms in response to energy price hikes. The main drivers of growth in nationally financed primary current expenditure (net of new revenue measures) are the increase in pension expenditure due to the partial indexation to previous-year inflation (15) and the further recently adopted cuts to the labour tax wedge for low- and medium-income earners. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,4 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (16). Therefore, Italy plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investments in the rail network, renewable energy, hydrogen, electricity grids and sustainable mobility, the protection of land and water resources as well investments related to the cloud infrastructure for the public administration, which are partly funded by the Facility and other Union funds. In light of the devastating floods that hit Italy in May 2023, the cost of direct emergency support related to those floods will be taken into account in subsequent assessments of compliance and will in principle be considered as one-off and temporary measures (17). |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 2,6 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 3,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,9 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected contractionary contribution of nationally financed primary current expenditure is due, in substance, to the reduced costs (by 1,5 percentage points of GDP) of the support measures (targeted and untargeted) to households and firms in response to energy price hikes. The main drivers of growth in nationally financed primary current expenditure (net of new revenue measures) are the increase in pension expenditure due to the partial indexation to previous-year inflation (15) and the further recently adopted cuts to the labour tax wedge for low- and medium-income earners. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 1,4 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points (16). Therefore, Italy plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investments in the rail network, renewable energy, hydrogen, electricity grids and sustainable mobility, the protection of land and water resources as well investments related to the cloud infrastructure for the public administration, which are partly funded by the Facility and other Union funds. In light of the devastating floods that hit Italy in May 2023, the cost of direct emergency support related to those floods will be taken into account in subsequent assessments of compliance and will in principle be considered as one-off and temporary measures (17).

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 3,7 % of GDP in 2024. The decrease in 2024 mainly reflects a reduction in expenditure for intermediate consumption and for tax credits to electricity and gas companies. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 141,4 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,7 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme, although the Commission’s 2023 spring forecast does not include planned deficit-increasing measures amounting to 0,2 % of GDP, for which the details are not yet known. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 140,3 % at the end of 2024. The difference is due to higher nominal GDP growth in the Commission forecast. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 3,7 % of GDP in 2024. The decrease in 2024 mainly reflects a reduction in expenditure for intermediate consumption and for tax credits to electricity and gas companies. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 141,4 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,7 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme, although the Commission’s 2023 spring forecast does not include planned deficit-increasing measures amounting to 0,2 % of GDP, for which the details are not yet known. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 140,3 % at the end of 2024. The difference is due to higher nominal GDP growth in the Commission forecast.

| (23) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes the full-phasing out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes the full-phasing out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (18). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure in 2024 should not exceed 1,3 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,0 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure lower than recommended for 2024. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (18). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure in 2024 should not exceed 1,3 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,0 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure lower than recommended for 2024.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 0,8 % in 2024, which is below the recommended growth rate. In light of the devastating floods that hit Italy in May 2023, the cost of direct emergency support related to those floods will be taken into account in subsequent assessments of compliance and will in principle be considered as one-off and temporary measures. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 0,8 % in 2024, which is below the recommended growth rate. In light of the devastating floods that hit Italy in May 2023, the cost of direct emergency support related to those floods will be taken into account in subsequent assessments of compliance and will in principle be considered as one-off and temporary measures.

| (26) | According to the 2023 Stability Programme, government investment is expected to increase from 3,3 % of GDP in 2023 to 3,8 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, including through the Facility. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include the reform of the procurement code, which is also part of the recovery and resilience plan and the tax system included in the enabling law of March 2023 (the ‘enabling law on tax reform’). |
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(26)

According to the 2023 Stability Programme, government investment is expected to increase from 3,3 % of GDP in 2023 to 3,8 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, including through the Facility. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include the reform of the procurement code, which is also part of the recovery and resilience plan and the tax system included in the enabling law of March 2023 (the ‘enabling law on tax reform’).

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 3,0 % of GDP in 2025 and to 2,5 % by 2026. Therefore, the general government deficit is planned to not exceed 3 % of GDP from 2025. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 141,4 % at the end of 2024 to 140,4 % by the end of 2026. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 3,0 % of GDP in 2025 and to 2,5 % by 2026. Therefore, the general government deficit is planned to not exceed 3 % of GDP from 2025. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 141,4 % at the end of 2024 to 140,4 % by the end of 2026.

| (28) | Italy’s tax wedge on labour has remained high at all income levels compared to other Member States, despite the reduction of personal income taxes implemented in 2022. In addition, the extension of the flat-rate regime to the self-employed raises concerns over the equity and efficiency of the tax system. The introduction of a new flat-rate regime on earning increases for 2023 also raised complexity. In March 2023, the government adopted a new enabling law for a general reform of the tax system (the ‘enabling law on tax reform’). It is expected to tackle some long-standing weaknesses, including by reducing taxes on labour and rationalising and streamlining tax expenditures and corporate taxes. When implementing that reform, it is crucial to preserve the progressivity of the tax system, reduce complexity, increase incentives to work, strengthen tax compliance and ensure budget neutrality. In this regard, there is potential to increase revenues from other sources that are less detrimental to growth, such as property, VAT and authorisation for the use of state-owned coastal assets, in order to reduce the tax burden on labour in a budget-neutral way. There is also scope to improve the design of environmental taxes, which, despite relatively high revenues, does not sufficiently promote the transition to cleaner technologies, also due to the extensive use of environmentally harmful subsidies. Furthermore, it is important to address a long-standing challenge that is not included in the enabling law on tax reform, namely the largely outdated cadastral values, which serve as a basis for calculating property tax. |
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(28)

Italy’s tax wedge on labour has remained high at all income levels compared to other Member States, despite the reduction of personal income taxes implemented in 2022. In addition, the extension of the flat-rate regime to the self-employed raises concerns over the equity and efficiency of the tax system. The introduction of a new flat-rate regime on earning increases for 2023 also raised complexity. In March 2023, the government adopted a new enabling law for a general reform of the tax system (the ‘enabling law on tax reform’). It is expected to tackle some long-standing weaknesses, including by reducing taxes on labour and rationalising and streamlining tax expenditures and corporate taxes. When implementing that reform, it is crucial to preserve the progressivity of the tax system, reduce complexity, increase incentives to work, strengthen tax compliance and ensure budget neutrality. In this regard, there is potential to increase revenues from other sources that are less detrimental to growth, such as property, VAT and authorisation for the use of state-owned coastal assets, in order to reduce the tax burden on labour in a budget-neutral way. There is also scope to improve the design of environmental taxes, which, despite relatively high revenues, does not sufficiently promote the transition to cleaner technologies, also due to the extensive use of environmentally harmful subsidies. Furthermore, it is important to address a long-standing challenge that is not included in the enabling law on tax reform, namely the largely outdated cadastral values, which serve as a basis for calculating property tax.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Italy’s recovery and resilience plan is underway, however with increasing risk of delays. Italy submitted three payment requests, corresponding to 151 milestones and targets in the plan and resulting in an overall disbursement of EUR 42 billion (the amount refers to the first two payment requests, while the third one is under assessment). Proceeding swiftly with the implementation of the recovery and resilience plan and the negotiation of its amendment is essential due to the temporary nature of the Facility in place until 2026. It is important for Italy to strengthen administrative capacity, particularly at subnational level, to continue to deliver on the commitments of the recovery and resilience plan, while an effective and fully operational governance framework remains key for a smooth and timely implementation of that plan. It continues to be crucial to identify potential delays and implementation issues early on and to take timely action to address them. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 31 March 2023, Italy expressed its intention to request additional loan support under the Facility. The negotiation on the addendum and the REPowerEU chapter is ongoing, although Italy has not submitted any official proposal. 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 Italy’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Italy’s recovery and resilience plan is underway, however with increasing risk of delays. Italy submitted three payment requests, corresponding to 151 milestones and targets in the plan and resulting in an overall disbursement of EUR 42 billion (the amount refers to the first two payment requests, while the third one is under assessment). Proceeding swiftly with the implementation of the recovery and resilience plan and the negotiation of its amendment is essential due to the temporary nature of the Facility in place until 2026. It is important for Italy to strengthen administrative capacity, particularly at subnational level, to continue to deliver on the commitments of the recovery and resilience plan, while an effective and fully operational governance framework remains key for a smooth and timely implementation of that plan. It continues to be crucial to identify potential delays and implementation issues early on and to take timely action to address them. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 31 March 2023, Italy expressed its intention to request additional loan support under the Facility. The negotiation on the addendum and the REPowerEU chapter is ongoing, although Italy has not submitted any official proposal. 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 Italy’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved most of Italy’s cohesion policy programming documents in 2022 and one in 2023. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in Italy. |
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(30)

The Commission approved most of Italy’s cohesion policy programming documents in 2022 and one in 2023. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience and achieving balanced territorial development in Italy.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Italy faces a number of additional challenges related to energy policy and the green transition, particularly on the uptake of renewables, gas transmission, energy efficiency, the provision and acquisition of green skills and sustainable mobility. |
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(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Italy faces a number of additional challenges related to energy policy and the green transition, particularly on the uptake of renewables, gas transmission, energy efficiency, the provision and acquisition of green skills and sustainable mobility.

| (32) | Renewable capacity grew very slowly over the past year, and the share of fossil fuels in the energy mix remains significant. To accelerate the uptake of renewables, Italy has adopted some amendments to the existing framework that regulates the permitting and authorisation process for renewables. Further efforts are needed to ensure coherence between the administrative and legislative framework at both national and subnational level and their relevance to state-of-the-art energy technology. For example, all related norms could be consolidated into a unique text (Testo unico); at the same time, the guidelines that subnational authorities follow to evaluate projects need to be updated. Lastly, further investments are needed to upgrade the national grid and construct interconnections between the mainland, Sicily and Sardinia to allow for the expected higher generation capacity and absorb the related increase in renewable output. |
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(32)

Renewable capacity grew very slowly over the past year, and the share of fossil fuels in the energy mix remains significant. To accelerate the uptake of renewables, Italy has adopted some amendments to the existing framework that regulates the permitting and authorisation process for renewables. Further efforts are needed to ensure coherence between the administrative and legislative framework at both national and subnational level and their relevance to state-of-the-art energy technology. For example, all related norms could be consolidated into a unique text (Testo unico); at the same time, the guidelines that subnational authorities follow to evaluate projects need to be updated. Lastly, further investments are needed to upgrade the national grid and construct interconnections between the mainland, Sicily and Sardinia to allow for the expected higher generation capacity and absorb the related increase in renewable output.

| (33) | Bottlenecks in the gas network remain. Italy is discussing investments with partners in North Africa to increase the import capacity of existing pipelines and gas interconnectors. This would help diversify imports and therefore strengthen security of supply. However, further investments are needed to remove bottlenecks in the existing domestic network, which does not have the transmission capacity to distribute new gas intake from the south to the north of the country. Investment into fossil fuel infrastructure needs to be limited to the strictly necessary and be designed to be future-proof, to avoid lock-in into technologies that are not consistent with the climate objectives or increasing the cost of the energy transition. |
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(33)

Bottlenecks in the gas network remain. Italy is discussing investments with partners in North Africa to increase the import capacity of existing pipelines and gas interconnectors. This would help diversify imports and therefore strengthen security of supply. However, further investments are needed to remove bottlenecks in the existing domestic network, which does not have the transmission capacity to distribute new gas intake from the south to the north of the country. Investment into fossil fuel infrastructure needs to be limited to the strictly necessary and be designed to be future-proof, to avoid lock-in into technologies that are not consistent with the climate objectives or increasing the cost of the energy transition.

| (34) | Italy’s consumption of natural gas dropped by 19 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the last five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (19). Italy could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (20). Measures to improve the energy efficiency of buildings need to be targeted. Italy’s building stock has considerable energy efficiency potential, in particular with regard to the large share of old and energy-intensive buildings. Existing measures in the recovery and resilience plan could be complemented by measures such as targeted incentive schemes to increase energy efficiency in worst-performing buildings, including commercial buildings and public housing, while ensuring that vulnerable households benefit from those measures and avoiding regressive effects. Those measures would benefit in particular small, medium and microenterprises that often lack the technical and financial capacity to improve their energy efficiency. The same measures would also help reduce energy poverty, which could be further tackled by other measures, for instance via one-stop shops that provide personalised services for energy savings. Energy efficiency gains would also benefit from an increase in market surveillance on ecodesign and energy labelling. |
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(34)

Italy’s consumption of natural gas dropped by 19 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the last five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (19). Italy could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (20). Measures to improve the energy efficiency of buildings need to be targeted. Italy’s building stock has considerable energy efficiency potential, in particular with regard to the large share of old and energy-intensive buildings. Existing measures in the recovery and resilience plan could be complemented by measures such as targeted incentive schemes to increase energy efficiency in worst-performing buildings, including commercial buildings and public housing, while ensuring that vulnerable households benefit from those measures and avoiding regressive effects. Those measures would benefit in particular small, medium and microenterprises that often lack the technical and financial capacity to improve their energy efficiency. The same measures would also help reduce energy poverty, which could be further tackled by other measures, for instance via one-stop shops that provide personalised services for energy savings. Energy efficiency gains would also benefit from an increase in market surveillance on ecodesign and energy labelling.

| (35) | Infrastructure gaps and environmentally harmful subsidies, including road transport, remain substantial and discourage the transition towards more sustainable transport solutions. For instance, the average number of charging outlets remains below the Union average. Environmentally harmful subsidies include the flat-rate taxation of company cars available for private use and the reimbursement of excise duty on diesel used in freight. Continuing efforts to roll out charging stations and remove those subsidies is key to consolidating the market for zero-emission vehicles. |
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(35)

Infrastructure gaps and environmentally harmful subsidies, including road transport, remain substantial and discourage the transition towards more sustainable transport solutions. For instance, the average number of charging outlets remains below the Union average. Environmentally harmful subsidies include the flat-rate taxation of company cars available for private use and the reimbursement of excise duty on diesel used in freight. Continuing efforts to roll out charging stations and remove those subsidies is key to consolidating the market for zero-emission vehicles.

| (36) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In Italy, both high- and low-skilled occupations that are key for the green transition are affected by shortages. At the same time, training support often does not reach the workers most likely to be affected by the green transition. The lack of skills for the green transition in the public sector, in particular at local level, is also holding back green investments. Italy faces wide regional disparities that risk being exacerbated if local labour markets are not able to grasp the opportunities of the green transition. Moreover, boosting skills for the green transition, including for sustainable soil management, would be key in fighting the effects of climate change, in particular aggravated flooding and persistent droughts. |
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(36)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In Italy, both high- and low-skilled occupations that are key for the green transition are affected by shortages. At the same time, training support often does not reach the workers most likely to be affected by the green transition. The lack of skills for the green transition in the public sector, in particular at local level, is also holding back green investments. Italy faces wide regional disparities that risk being exacerbated if local labour markets are not able to grasp the opportunities of the green transition. Moreover, boosting skills for the green transition, including for sustainable soil management, would be key in fighting the effects of climate change, in particular aggravated flooding and persistent droughts.

| (37) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (21) is reflected in recommendation (1). |
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(37)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (21) is reflected in recommendation (1).

| (38) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Italy, recommendations (1), (2) and (3) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area. |
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(38)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Italy, recommendations (1), (2) and (3) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area.

| (39) | In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high government debt and weak productivity growth. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 38, |
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(39)

In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high government debt and weak productivity growth. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 38,

HEREBY RECOMMENDS that Italy take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 1,3 % (22).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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 improved productivity and higher sustainable growth, in order to achieve a prudent medium-term fiscal position.

Further reduce taxes on labour and make the tax system more efficient by adopting and duly implementing the enabling law on tax reform while preserving the progressivity of the tax system and improving fairness, in particular by streamlining and reducing tax expenditures, including VAT and environmentally harmful subsidies, and by reducing the complexity of the tax code. Align the cadastral values with current market values.

2.

Ensure effective governance and strengthen administrative capacity, in particular at subnational level, in order to allow for the continued swift and steady implementation of the recovery and resilience plan. Swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Reduce the reliance on fossil fuels. Streamline permitting procedures in order to accelerate the production of additional renewable energy, and develop electricity interconnections to absorb it. Increase the capacity for internal gas transmission in order to diversify energy imports and strengthen security of supply. Increase energy efficiency in the residential and corporate sectors, including through better targeted incentive schemes, addressing in particular the most vulnerable households and the worst-performing buildings. Promote sustainable mobility, including by removing environmentally harmful subsidies and speeding up the roll-out of charging stations. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10160/21 INIT; ST 10160/21 ADD 1; ST 10160/21 ADD 1 REV 1; ST 10160/21 ADD 1 REV 2; ST 10160/21 ADD 1 REV 2 COR 1.

6

(7)  The new statistical treatment implied an upward revision of the deficit by 1,8 percentage points of GDP in 2021. In 2022, the tax credits involved by the new statistical treatment are estimated to have had a deficit increasing impact of 2,6 percentage points of GDP.

7

(8)  Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices (OJ L 261 I, 7.10.2022, p. 1).

8

(9)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Italy (OJ C 304, 29.7.2021, p. 53).

9

(10)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

10

(11)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,3 percentage points of GDP. This is explained by the increase in expenditure related to tax credits for building renovation works, which is recorded as a capital transfer.

11

(12)  That figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as, where relevant, capital expenditure measures.

12

(13)  Council Recommendation of 12 July 2022 on the National Reform Programme of Italy and delivering a Council opinion on the 2022 Stability Programme of Italy (OJ C 334, 1.9.2022, p. 96).

13

(14)  On the basis of the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Italy is estimated at 6,4 % in nominal terms.

14

(15)  Law No 197/2022 provides for a partial revision of the indexation mechanism for pensions issued over the period 2023–2024 that limited the impact of inflation on budgetary projections.

15

(16)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 2,3 percentage points of GDP. This is explained by the expected reduction in spending for tax credits for building renovation works.

16

(17)  See for the definition of a one-off measure the European Commission Report on Public Finances in EMU 2015.

17

(18)  Article 5 of Regulation (EC) No 1466/97 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.

18

(19)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

19

(20)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

20

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

21

(22)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,7 % of GDP for 2024, as described in recital 24.

22

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/116 |
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1.9.2023

EN

Official Journal of the European Union

C 312/116

---

COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Cyprus and delivering a Council opinion on the 2023 Stability Programme of Cyprus

(2023/C 312/13)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Cyprus as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such an in-depth review would be needed. On the same date, the Commission also adopted an opinion on the 2023 draft budgetary plan of Cyprus. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Cyprus as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such an in-depth review would be needed. On the same date, the Commission also adopted an opinion on the 2023 draft budgetary plan of Cyprus. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
| --- | --- |

(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 17 May 2021, Cyprus 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 set out in Annex V to that Regulation. On 28 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Cyprus (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Cyprus 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. |
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(9)

On 17 May 2021, Cyprus 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 set out in Annex V to that Regulation. On 28 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Cyprus (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Cyprus 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 9 May 2023, Cyprus submitted its 2023 National Reform Programme and, on 2 May 2023, its 2023 Stability Programme, in line with Article 4(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 Cyprus’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 9 May 2023, Cyprus submitted its 2023 National Reform Programme and, on 2 May 2023, its 2023 Stability Programme, in line with Article 4(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 Cyprus’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Cyprus. It assessed Cyprus’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Cyprus’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Cyprus's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Cyprus. It assessed Cyprus’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Cyprus’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Cyprus's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Cyprus and published its results on 24 May 2023. The Commission concluded that Cyprus is experiencing macroeconomic imbalances. In particular, vulnerabilities related to private, government and external debt have declined overall but remain a concern. In particular, high debts including non-performing loans have decreased significantly and are expected to continue doing so, while current account deficits remain an issue. Private debt has been decreasing since 2015, except in 2020 during the COVID-19 crisis, and is expected to continue declining in 2023 and 2024, supported by nominal GDP growth. Still, higher interest rates could put pressure on debt servicing, as variable interest rate loans prevail. Private and external debt stocks are affected by the presence of special purpose entities in Cyprus, which elevate debt levels but pose limited risks to the economy. Non-performing loans held by banks have declined very markedly over the recent years thanks to non-performing loans sales, write-offs, cash repayments, curing and debt-to-asset swaps. The government debt has been steadily falling; it declined below its pre-pandemic level and is expected to fall further in 2023 and 2024. Despite the recovery in tourism, the large current account deficit widened in 2022, reflecting robust domestic demand as well as high energy prices; it is expected to decrease somewhat in 2023 and 2024 but to remain large. The policy response has been favourable. Several measures included in the recovery and resilience plan are expected to help diversify the economy, support export growth and alleviate the over-reliance on oil imports. As part of the recovery and resilience plan, a package of amending laws on credit-acquiring companies and credit servicers was adopted in mid-2022, improving their working environment and supporting the reduction of non-performing loans. Following several extensions, the suspension of foreclosures came to an end this February: an effective foreclosure framework is key to encouraging borrowers to participate in loan restructuring, to further reducing non-performing loans in the economy, to helping reduce private indebtedness, and to enhancing payment discipline. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Cyprus and published its results on 24 May 2023. The Commission concluded that Cyprus is experiencing macroeconomic imbalances. In particular, vulnerabilities related to private, government and external debt have declined overall but remain a concern. In particular, high debts including non-performing loans have decreased significantly and are expected to continue doing so, while current account deficits remain an issue. Private debt has been decreasing since 2015, except in 2020 during the COVID-19 crisis, and is expected to continue declining in 2023 and 2024, supported by nominal GDP growth. Still, higher interest rates could put pressure on debt servicing, as variable interest rate loans prevail. Private and external debt stocks are affected by the presence of special purpose entities in Cyprus, which elevate debt levels but pose limited risks to the economy. Non-performing loans held by banks have declined very markedly over the recent years thanks to non-performing loans sales, write-offs, cash repayments, curing and debt-to-asset swaps. The government debt has been steadily falling; it declined below its pre-pandemic level and is expected to fall further in 2023 and 2024. Despite the recovery in tourism, the large current account deficit widened in 2022, reflecting robust domestic demand as well as high energy prices; it is expected to decrease somewhat in 2023 and 2024 but to remain large. The policy response has been favourable. Several measures included in the recovery and resilience plan are expected to help diversify the economy, support export growth and alleviate the over-reliance on oil imports. As part of the recovery and resilience plan, a package of amending laws on credit-acquiring companies and credit servicers was adopted in mid-2022, improving their working environment and supporting the reduction of non-performing loans. Following several extensions, the suspension of foreclosures came to an end this February: an effective foreclosure framework is key to encouraging borrowers to participate in loan restructuring, to further reducing non-performing loans in the economy, to helping reduce private indebtedness, and to enhancing payment discipline.

| (13) | According to data validated by Eurostat, Cyprus’s general government balance improved from a deficit of 2,0 % of GDP in 2021 to a surplus of 2,1 % in 2022, while general government debt fell from 101,2 % of GDP at the end of 2021 to 86,5 % at the end of 2022. |
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(13)

According to data validated by Eurostat, Cyprus’s general government balance improved from a deficit of 2,0 % of GDP in 2021 to a surplus of 2,1 % in 2022, while general government debt fell from 101,2 % of GDP at the end of 2021 to 86,5 % at the end of 2022.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction of the excise duty on fuel products (petrol and diesel by 7 cents per litre and heating fuel by 5,37 cents per litre) for all consumers, and a reduction of the value-added tax rate on electricity consumption for households, from 19 % to 9 % (with a further reduction for vulnerable households to 5 %), while such fiscal policy expenditure-increasing measures included a subsidisation of the increase in the electricity tariffs, covering 50 % to 100 % of the increase. For the implementation of that subsidisation measure, the government is providing payments to the Electricity Authority of Cyprus, a fully State-owned entity. The Commission estimates the net budgetary cost of all those measures at 0,7 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,3 % of GDP in 2022, from 2,9 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction of the excise duty on fuel products (petrol and diesel by 7 cents per litre and heating fuel by 5,37 cents per litre) for all consumers, and a reduction of the value-added tax rate on electricity consumption for households, from 19 % to 9 % (with a further reduction for vulnerable households to 5 %), while such fiscal policy expenditure-increasing measures included a subsidisation of the increase in the electricity tariffs, covering 50 % to 100 % of the increase. For the implementation of that subsidisation measure, the government is providing payments to the Electricity Authority of Cyprus, a fully State-owned entity. The Commission estimates the net budgetary cost of all those measures at 0,7 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,3 % of GDP in 2022, from 2,9 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Cyprus (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Cyprus (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was neutral, which was appropriate in a context of high inflation. As recommended by the Council, Cyprus continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,4 % of GDP in 2022 (1,6 % of GDP in 2021). The decrease in expenditures financed by Recovery and Resilience Facility grants and other Union funds in 2022 was due to the starting phase of the new programming period for other Union funds. Nationally financed investment provided a contractionary contribution of 0,1 percentage point to the fiscal stance (9). Cyprus therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a neutral contribution to the fiscal stance. Cyprus therefore sufficiently kept under control the growth in nationally financed current expenditure. |
| --- | --- |

(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was neutral, which was appropriate in a context of high inflation. As recommended by the Council, Cyprus continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,4 % of GDP in 2022 (1,6 % of GDP in 2021). The decrease in expenditures financed by Recovery and Resilience Facility grants and other Union funds in 2022 was due to the starting phase of the new programming period for other Union funds. Nationally financed investment provided a contractionary contribution of 0,1 percentage point to the fiscal stance (9). Cyprus therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a neutral contribution to the fiscal stance. Cyprus therefore sufficiently kept under control the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and in line with it thereafter. The government projects real GDP to grow by 2,8 % in 2023 and 3,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 2,3 % in 2023 and 2,7 % in 2024, mainly due to a lower contribution to growth from domestic demand. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and in line with it thereafter. The government projects real GDP to grow by 2,8 % in 2023 and 3,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 2,3 % in 2023 and 2,7 % in 2024, mainly due to a lower contribution to growth from domestic demand.

| (18) | In its 2023 Stability Programme, the government expects that the general government surplus will decrease marginally from 2,1 % in 2022 to 2,0 % of GDP in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 86,5 % at the end of 2022 to 81,1 % at the end of 2023. The Commission’s 2023 spring forecast projects a government surplus of 1,8 % of GDP for 2023. This is in line with the surplus projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 80,4 % at the end of 2023. |
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(18)

In its 2023 Stability Programme, the government expects that the general government surplus will decrease marginally from 2,1 % in 2022 to 2,0 % of GDP in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 86,5 % at the end of 2022 to 81,1 % at the end of 2023. The Commission’s 2023 spring forecast projects a government surplus of 1,8 % of GDP for 2023. This is in line with the surplus projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 80,4 % at the end of 2023.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a reduction of the excise duty on fuel products for all consumers and a subsidisation of the increase in the electricity tariffs. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,4 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,0 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). |
| --- | --- |

(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a reduction of the excise duty on fuel products for all consumers and a subsidisation of the increase in the electricity tariffs. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 0,4 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,0 % of GDP in 2023 (compared to 0,1 % of GDP in 2022).

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Cyprus take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Cyprus should stand ready to adjust current spending to the evolving situation. Cyprus 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 Facility and other Union funds. |
| --- | --- |

(20)

In its Recommendation of 12 July 2022, the Council recommended that Cyprus take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Cyprus should stand ready to adjust current spending to the evolving situation. Cyprus 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be broadly neutral (- 0,1 % of GDP). This follows a neutral fiscal stance in 2022 (0,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a neutral contribution of 0,0 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,8 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,8 percentage point (13). Therefore, Cyprus plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as a market management system for the Cyprus electricity market, construction of new energy efficient buildings including a new mental health hospital, energy efficiency upgrading of schools and enhancing of water security for Nicosia and Larnaca regions through a construction of a reservoir, which are partly funded by the Facility and other Union funds. |
| --- | --- |

(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be broadly neutral (- 0,1 % of GDP). This follows a neutral fiscal stance in 2022 (0,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a neutral contribution of 0,0 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,1 % of GDP. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,8 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,8 percentage point (13). Therefore, Cyprus plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as a market management system for the Cyprus electricity market, construction of new energy efficient buildings including a new mental health hospital, energy efficiency upgrading of schools and enhancing of water security for Nicosia and Larnaca regions through a construction of a reservoir, which are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government surplus is expected to increase to 2,3 % of GDP in 2024. The increase in 2024 mainly reflects the increase in social security contributions as from 1 January 2024. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 72,9 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government surplus of 2,1 % of GDP in 2024. This is in line with the surplus projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 72,5 % at the end of 2024. |
| --- | --- |

(22)

According to the 2023 Stability Programme the general government surplus is expected to increase to 2,3 % of GDP in 2024. The increase in 2024 mainly reflects the increase in social security contributions as from 1 January 2024. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 72,9 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government surplus of 2,1 % of GDP in 2024. This is in line with the surplus projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 72,5 % at the end of 2024.

| (23) | The Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increase. |
| --- | --- |

(23)

The Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increase.

| (24) | In the programme, Cyprus plans to meet the medium-term budgetary objective – a structural budget balance of 0,0 % of GDP – in 2023 and to maintain it throughout the rest of the programme period. On the basis of the Commission’s 2023 spring forecast, the structural balance is forecast at + 0,9 % of GDP in 2023 and + 1,3 % of GDP in 2024, above the medium-term budgetary objective. Prudent fiscal policy in 2024 will also contribute to strengthening the external position. |
| --- | --- |

(24)

In the programme, Cyprus plans to meet the medium-term budgetary objective – a structural budget balance of 0,0 % of GDP – in 2023 and to maintain it throughout the rest of the programme period. On the basis of the Commission’s 2023 spring forecast, the structural balance is forecast at + 0,9 % of GDP in 2023 and + 1,3 % of GDP in 2024, above the medium-term budgetary objective. Prudent fiscal policy in 2024 will also contribute to strengthening the external position.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure (14) to grow by 3,6 % in 2024. |
| --- | --- |

(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure (14) to grow by 3,6 % in 2024.

| (26) | According to the 2023 Stability Programme, government investment is expected to decrease from 3,0 % of GDP in 2023 to 2,8 % of GDP in 2024. The lower investment reflects a constant nominal investment level at a higher GDP. |
| --- | --- |

(26)

According to the 2023 Stability Programme, government investment is expected to decrease from 3,0 % of GDP in 2023 to 2,8 % of GDP in 2024. The lower investment reflects a constant nominal investment level at a higher GDP.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government surplus is expected to stay constant at 2,3 % of GDP in 2025 and to increase to 2,4 % by 2026. Therefore, the general government balance is planned to meet the relevant Treaty reference value over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 72,9 % at the end of 2024 to 60,1 % by the end of 2026. |
| --- | --- |

(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government surplus is expected to stay constant at 2,3 % of GDP in 2025 and to increase to 2,4 % by 2026. Therefore, the general government balance is planned to meet the relevant Treaty reference value over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 72,9 % at the end of 2024 to 60,1 % by the end of 2026.

| (28) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Cyprus’s recovery and resilience plan is underway, albeit with risk of some delays. Cyprus submitted one payment request, corresponding to 14 milestones in the recovery and resilience plan and resulting in an overall disbursement of EUR 85 million. The Cypriot recovery and resilience plan is relatively large and complex in nature. To minimise the risk of delays, strong governance and continuous monitoring of the recovery and resilience plan are essential. The Cypriot recovery and resilience plan is expected to be revised to include REPowerEU measures and to take into account the decreased maximum financial contribution. 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 Cyprus’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
| --- | --- |

(28)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Cyprus’s recovery and resilience plan is underway, albeit with risk of some delays. Cyprus submitted one payment request, corresponding to 14 milestones in the recovery and resilience plan and resulting in an overall disbursement of EUR 85 million. The Cypriot recovery and resilience plan is relatively large and complex in nature. To minimise the risk of delays, strong governance and continuous monitoring of the recovery and resilience plan are essential. The Cypriot recovery and resilience plan is expected to be revised to include REPowerEU measures and to take into account the decreased maximum financial contribution. 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 Cyprus’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (29) | The Commission approved all Cyprus’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Cyprus. |
| --- | --- |

(29)

The Commission approved all Cyprus’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Cyprus.

| (30) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Cyprus faces a number of additional challenges related to the business environment, in particular on the governance of State-owned entities (SOEs), deployment of renewables, the upgrade and modernisation of the electricity grid, energy interconnections, energy efficiency, sustainable transport and skills needed for the green transition. |
| --- | --- |

(30)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Cyprus faces a number of additional challenges related to the business environment, in particular on the governance of State-owned entities (SOEs), deployment of renewables, the upgrade and modernisation of the electricity grid, energy interconnections, energy efficiency, sustainable transport and skills needed for the green transition.

| (31) | The governance system shows gaps with respect to international standards, e.g. the OECD guidelines on corporate governance of SOEs and the World Bank Toolkit for Corporate Governance of SOEs. In particular, increased transparency of and higher accountability for financial performance and public objectives would increase the efficiency and effectiveness of SOEs, as would the implementation of best practices such as a merit-based and transparent process for nominations to SOE management bodies. Shifting the SOE ownership function from the policy-oriented line ministries to a dedicated central body or at least establishing a centralised monitoring unit in the Ministry of Finance would also improve the current situation. Improving governance would help ensure that key public investment projects by SOEs are completed in time, which would in turn facilitate the green and digital transition. Taking action on SOEs would make governance in Cyprus more effective and the market for local and foreign businesses fairer and more transparent. This is in line with the objectives of the long-term strategy for Cyprus and the action plan underpinning it (under the ‘Modernise semi-government organisations and create the right incentives for innovation and efficiency’ initiative area). Policies aimed at improving SOE governance can also help increase public-sector efficiency. Cyprus has requested technical assistance from the International Monetary Fund on SOE governance. |
| --- | --- |

(31)

The governance system shows gaps with respect to international standards, e.g. the OECD guidelines on corporate governance of SOEs and the World Bank Toolkit for Corporate Governance of SOEs. In particular, increased transparency of and higher accountability for financial performance and public objectives would increase the efficiency and effectiveness of SOEs, as would the implementation of best practices such as a merit-based and transparent process for nominations to SOE management bodies. Shifting the SOE ownership function from the policy-oriented line ministries to a dedicated central body or at least establishing a centralised monitoring unit in the Ministry of Finance would also improve the current situation. Improving governance would help ensure that key public investment projects by SOEs are completed in time, which would in turn facilitate the green and digital transition. Taking action on SOEs would make governance in Cyprus more effective and the market for local and foreign businesses fairer and more transparent. This is in line with the objectives of the long-term strategy for Cyprus and the action plan underpinning it (under the ‘Modernise semi-government organisations and create the right incentives for innovation and efficiency’ initiative area). Policies aimed at improving SOE governance can also help increase public-sector efficiency. Cyprus has requested technical assistance from the International Monetary Fund on SOE governance.

| (32) | The full potential of renewable energy sources in Cyprus could be further unlocked, in particular by making further investments to upgrade and modernise the electricity grid, and by opting for grid-scale energy storage facilities. Power purchase agreements and contracts for difference can be suitable economic instruments to accelerate the rollout of renewables. Cyprus currently uses no gas, although oil represents 83,2 % of the total energy supply mix. Given the widely fluctuating energy prices on global markets, it is crucial for the sustainability of the Cypriot economy to reduce its heavy reliance on oil which it imports entirely. To diversify energy supplies and reduce import dependence, Cyprus would benefit from electricity interconnections and the expansion of renewables, as well as new infrastructure and network investments. In addition, energy efficiency policies could be extended and accelerated to curb the growth in energy consumption. Energy efficiency measures are also expected to help address the energy poverty experienced by a high share of the population (19,4 % in 2021), including by using cohesion policy funds as appropriate. Cyprus would benefit from a shift towards sustainable transport. The island currently relies on private transport, and the whole transport sector was responsible for 21 % of the total greenhouse gas emissions in 2020, while the share of electric vehicles in new registrations and the number of charging points per vehicle is the lowest in the Union. Greater ambition is needed to reduce greenhouse gas emissions and to increase renewable energy and energy efficiency so that Cyprus is in line with the ‘Fit for 55’ objectives. |
| --- | --- |

(32)

The full potential of renewable energy sources in Cyprus could be further unlocked, in particular by making further investments to upgrade and modernise the electricity grid, and by opting for grid-scale energy storage facilities. Power purchase agreements and contracts for difference can be suitable economic instruments to accelerate the rollout of renewables. Cyprus currently uses no gas, although oil represents 83,2 % of the total energy supply mix. Given the widely fluctuating energy prices on global markets, it is crucial for the sustainability of the Cypriot economy to reduce its heavy reliance on oil which it imports entirely. To diversify energy supplies and reduce import dependence, Cyprus would benefit from electricity interconnections and the expansion of renewables, as well as new infrastructure and network investments. In addition, energy efficiency policies could be extended and accelerated to curb the growth in energy consumption. Energy efficiency measures are also expected to help address the energy poverty experienced by a high share of the population (19,4 % in 2021), including by using cohesion policy funds as appropriate. Cyprus would benefit from a shift towards sustainable transport. The island currently relies on private transport, and the whole transport sector was responsible for 21 % of the total greenhouse gas emissions in 2020, while the share of electric vehicles in new registrations and the number of charging points per vehicle is the lowest in the Union. Greater ambition is needed to reduce greenhouse gas emissions and to increase renewable energy and energy efficiency so that Cyprus is in line with the ‘Fit for 55’ objectives.

| (33) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating bottlenecks in the transition to a net-zero economy. In 2022, several occupations with specific skills or knowledge required for the green transition faced labour shortages and key sectors (e.g. construction, manufacturing) registered an increasing job vacancy rate. High-quality education and training systems that respond to changing labour market needs and targeted upskilling and reskilling measures are key to reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. |
| --- | --- |

(33)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating bottlenecks in the transition to a net-zero economy. In 2022, several occupations with specific skills or knowledge required for the green transition faced labour shortages and key sectors (e.g. construction, manufacturing) registered an increasing job vacancy rate. High-quality education and training systems that respond to changing labour market needs and targeted upskilling and reskilling measures are key to reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition.

| (34) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (15) is reflected in recommendation (1). |
| --- | --- |

(34)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (15) is reflected in recommendation (1).

| (35) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Cyprus, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area. |
| --- | --- |

(35)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Cyprus, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area.

| (36) | In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to private, government and external debt. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 35. |
| --- | --- |

(36)

In the light of the Commission’s in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to private, government and external debt. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 35.

HEREBY RECOMMENDS that Cyprus take action in 2023 and 2024 to:

1.

Facilitate the reduction of private debt, including by implementing an effective foreclosure framework.

For the period beyond 2024, continue to pursue investment and reforms conducive to higher sustainable growth and preserve a prudent medium-term fiscal position.

2.

Accelerate the implementation of its recovery and resilience plan, including by ensuring adequate administrative capacity, and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Take measures to improve the governance of State-owned entities in line with international standards.

4.

Reduce reliance on fossil fuels and diversify the energy supply. To better exploit all untapped potential for renewable energy generation, accelerate the deployment of renewables by using suitable economic instruments and making further investments to upgrade and modernise the electricity grid, including energy storage facilities. Speed up the development of electricity interconnections. Extend and accelerate energy efficiency measures in order to address, inter alia, energy poverty. Extend and accelerate the shift towards sustainable transport. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10686/2021; ST 10686/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Cyprus (OJ C 304, 29.7.2021, p. 58).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,2 percentage point of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Cyprus and delivering a Council opinion on the 2022 Stability Programme of Cyprus (OJ C 334, 1.9.2022, p. 104).

11

(12)  Based on the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Cyprus, which is used to measure the fiscal stance, is estimated at 8,2 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a neutral contribution of 0,0 percentage points of GDP.

13

(14)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

14

(15)  Under Articles 5(2) and 9(2) of Regulation (EC) No 1466/97.

15

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/125 |
| --- | --- | --- | --- |

1.9.2023

EN

Official Journal of the European Union

C 312/125

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Latvia and delivering a Council opinion on the Stability Programme of Latvia

(2023/C 312/14)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Latvia 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. On 24 February 2023, the Commission also adopted an opinion on Latvia’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Latvia 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. On 24 February 2023, the Commission also adopted an opinion on Latvia’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping 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 Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping 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 Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission also issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission also issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering of 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering of 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 30 April 2021, Latvia 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Latvia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Latvia 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. |
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(9)

On 30 April 2021, Latvia 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Latvia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Latvia 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 25 April 2023, Latvia submitted its 2023 National Reform Programme and, on 17 April 2023, its 2023 Stability Programme, in line with Article 4(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 Latvia’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 25 April 2023, Latvia submitted its 2023 National Reform Programme and, on 17 April 2023, its 2023 Stability Programme, in line with Article 4(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 Latvia’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Latvia. It assessed Latvia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Latvia’s implementation of the recovery and resilience plan. On the basis of thatanalysis, the country report identified gaps with regard 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 Latvia’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Latvia. It assessed Latvia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Latvia’s implementation of the recovery and resilience plan. On the basis of thatanalysis, the country report identified gaps with regard 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 Latvia’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Latvia and published its results on 24 May 2023. The Commission concluded that Latvia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to external borrowing and housing remain mild, whereas those relating to competitiveness are pertinent, but are expected to remain contained overall in the near future. The recent widening of the current account deficit was significant, but the deficit is expected to narrow substantially in 2023 and further in 2024. Latvia’s net international investment position, which improved markedly in the past decade, is expected to remain broadly stable. Nonetheless, inflation and wage pressures, if persistent, risk impairing Latvia’s competitiveness, particularly as core inflation is well above the euro area average. While house price growth has been elevated recently, the house price overvaluation does not appear to be substantial. Moreover, house price growth slowed down in late 2022, mortgage lending has been weak, and household debt is limited and falling in terms of household income. Latvia faces key structural economic challenges related to declining labour supply, which has contributed to fast unit labour cost increases and risks impairing competitiveness over the medium term. The policy setting is overall favourable, although some additional efforts could help to address the risks from the identified vulnerabilities. Policies to safeguard competitiveness, including measures to increase the quality and quantity of labour supply, would be important in that respect. Shortening the construction permitting process would help support housing supply and improve the housing market situation. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Latvia and published its results on 24 May 2023. The Commission concluded that Latvia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to external borrowing and housing remain mild, whereas those relating to competitiveness are pertinent, but are expected to remain contained overall in the near future. The recent widening of the current account deficit was significant, but the deficit is expected to narrow substantially in 2023 and further in 2024. Latvia’s net international investment position, which improved markedly in the past decade, is expected to remain broadly stable. Nonetheless, inflation and wage pressures, if persistent, risk impairing Latvia’s competitiveness, particularly as core inflation is well above the euro area average. While house price growth has been elevated recently, the house price overvaluation does not appear to be substantial. Moreover, house price growth slowed down in late 2022, mortgage lending has been weak, and household debt is limited and falling in terms of household income. Latvia faces key structural economic challenges related to declining labour supply, which has contributed to fast unit labour cost increases and risks impairing competitiveness over the medium term. The policy setting is overall favourable, although some additional efforts could help to address the risks from the identified vulnerabilities. Policies to safeguard competitiveness, including measures to increase the quality and quantity of labour supply, would be important in that respect. Shortening the construction permitting process would help support housing supply and improve the housing market situation.

| (13) | According to data validated by Eurostat, Latvia’s general government deficit decreased from 7,1 % of GDP in 2021 to 4,4 % in 2022, while general government debt fell from 43,7 % of GDP at the end of 2021 to 40,8 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Latvia, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Latvia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(13)

According to data validated by Eurostat, Latvia’s general government deficit decreased from 7,1 % of GDP in 2021 to 4,4 % in 2022, while general government debt fell from 43,7 % of GDP at the end of 2021 to 40,8 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Latvia, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Latvia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy expenditure-increasing measures included cost compensation for heating (based on the energy source used) and reduction of electricity bills for households; monthly benefits to vulnerable households and families with children as well as earlier indexation of pensions; grants to energy intensive companies and compensation for the increase of electricity costs for companies. The Commission estimates the net budgetary cost of those measures at 1,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,2 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,2 % of GDP in 2022, from 5,0 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy expenditure-increasing measures included cost compensation for heating (based on the energy source used) and reduction of electricity bills for households; monthly benefits to vulnerable households and families with children as well as earlier indexation of pensions; grants to energy intensive companies and compensation for the increase of electricity costs for companies. The Commission estimates the net budgetary cost of those measures at 1,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,2 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,2 % of GDP in 2022, from 5,0 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Latvia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. The Council also recommended Latvia to keep the growth of nationally financed current expenditure under control. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Latvia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. The Council also recommended Latvia to keep the growth of nationally financed current expenditure under control.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was neutral, at 0,0 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Latvia continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,3 % of GDP in 2021). Due to capacity constraints and a rise in construction prices, some investments financed by Facility grants and other Union funds in 2022 were delayed, leading to the small decrease in expenditure. Nationally financed investment provided a contractionary contribution of 1,2 percentage points to the fiscal stance (9). Latvia therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,3 percentage points to the fiscal stance. Latvia therefore kept under control the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was neutral, at 0,0 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Latvia continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,3 % of GDP in 2021). Due to capacity constraints and a rise in construction prices, some investments financed by Facility grants and other Union funds in 2022 were delayed, leading to the small decrease in expenditure. Nationally financed investment provided a contractionary contribution of 1,2 percentage points to the fiscal stance (9). Latvia therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,3 percentage points to the fiscal stance. Latvia therefore kept under control the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is cautious in 2023 and thereafter. The government projects real GDP to stagnate in 2023 and grow by 2,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a higher real GDP growth of 1,4 % in 2023 and 2,8 % in 2024, reflecting the incorporation of new data releases not included in the 2023 Stability Programme, namely data revisions of GDP growth in 2022 as well as the flash estimate for the first quarter of 2023, both of which put the GDP growth higher than previously expected. However, in nominal terms, the projected GDP growth is similar in both forecasts with 11,7 % and 5,5 % growth expected for 2023 and 2024, respectively, in the 2023 Stability Programme and 10,5 % and 5,6 % growth forecast for the respective years in the Commission’s 2023 spring forecast. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is cautious in 2023 and thereafter. The government projects real GDP to stagnate in 2023 and grow by 2,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a higher real GDP growth of 1,4 % in 2023 and 2,8 % in 2024, reflecting the incorporation of new data releases not included in the 2023 Stability Programme, namely data revisions of GDP growth in 2022 as well as the flash estimate for the first quarter of 2023, both of which put the GDP growth higher than previously expected. However, in nominal terms, the projected GDP growth is similar in both forecasts with 11,7 % and 5,5 % growth expected for 2023 and 2024, respectively, in the 2023 Stability Programme and 10,5 % and 5,6 % growth forecast for the respective years in the Commission’s 2023 spring forecast.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 4,0 % of GDP in 2023. The deficit adjustment in 2023 mainly reflects expenditure developments. A deficit-decreasing contribution is expected from the phasing-out of most pandemic-related support measures, and the lump-sum expenditure in 2022 for the creation of a national gas reserve is not foreseen for 2023. These savings are set to be partially offset by expenditure measures included in the 2023 budget package, such as a wage increase for public administration and medical personnel, higher current expenditure for healthcare services, science, research and higher education as well as a substantial public investment package for defence and internal security. Moreover, higher spending is expected for pensions and allowances due to higher indexation coefficients. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 40,8 % at the end of 2022 to 39,6 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 3,8 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a slightly higher general government debt-to-GDP ratio, of 39,8 % at the end of 2023. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 4,0 % of GDP in 2023. The deficit adjustment in 2023 mainly reflects expenditure developments. A deficit-decreasing contribution is expected from the phasing-out of most pandemic-related support measures, and the lump-sum expenditure in 2022 for the creation of a national gas reserve is not foreseen for 2023. These savings are set to be partially offset by expenditure measures included in the 2023 budget package, such as a wage increase for public administration and medical personnel, higher current expenditure for healthcare services, science, research and higher education as well as a substantial public investment package for defence and internal security. Moreover, higher spending is expected for pensions and allowances due to higher indexation coefficients. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 40,8 % at the end of 2022 to 39,6 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 3,8 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a slightly higher general government debt-to-GDP ratio, of 39,8 % at the end of 2023.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They mainly consist of measures extended from 2022. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,0 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,5 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to increase by 0,1 percentage points of GDP compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,2 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They mainly consist of measures extended from 2022. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,0 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,5 % of GDP in 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to increase by 0,1 percentage points of GDP compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,2 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Latvia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Latvia should stand ready to adjust current spending to the evolving situation. Latvia 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Latvia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Latvia should stand ready to adjust current spending to the evolving situation. Latvia 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 0,9 % of GDP), in a context of high inflation. This follows a neutral fiscal stance in 2022 (0,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,5 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,4 % of GDP. This also includes higher cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % 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 (net of discretionary revenue measures) is driven by expenditure measures included in the 2023 budget package, such as a wage increase for administration and medical personnel, additional current expenditure to finance oncology, science and research, and other discretionary current expenditure for national administration as well as higher spending for pensions and allowances. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,2 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 1,0 percentage points (13).
  Therefore, Latvia plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as purchasing electric vehicles for public transport, improving the energy efficiency of multi-apartment buildings and business properties, modernising the electricity transmission and distribution networks, strengthening the response capacity of rescue services, centralising governance digital platforms and systems in the public sector, developing the digital skills and digitisation of processes in businesses, developing the broadband infrastructure as well as fostering digitalisation in the education sector. That public investment is largely funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 0,9 % of GDP), in a context of high inflation. This follows a neutral fiscal stance in 2022 (0,0 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,5 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,4 % of GDP. This also includes higher cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % 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 (net of discretionary revenue measures) is driven by expenditure measures included in the 2023 budget package, such as a wage increase for administration and medical personnel, additional current expenditure to finance oncology, science and research, and other discretionary current expenditure for national administration as well as higher spending for pensions and allowances. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,2 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 1,0 percentage points (13).

Therefore, Latvia plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as purchasing electric vehicles for public transport, improving the energy efficiency of multi-apartment buildings and business properties, modernising the electricity transmission and distribution networks, strengthening the response capacity of rescue services, centralising governance digital platforms and systems in the public sector, developing the digital skills and digitisation of processes in businesses, developing the broadband infrastructure as well as fostering digitalisation in the education sector. That public investment is largely funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 2,5 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of support measures to mitigate the impact of high energy prices, the absence of current expenditure related to the COVID-19 pandemic and the fact that the investment to support the recovery from the pandemic will come to an end in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase slightly to 39,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 2,7 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 40,5 % at the end of 2024, mainly due to the lower nominal GDP. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 2,5 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of support measures to mitigate the impact of high energy prices, the absence of current expenditure related to the COVID-19 pandemic and the fact that the investment to support the recovery from the pandemic will come to an end in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase slightly to 39,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 2,7 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 40,5 % at the end of 2024, mainly due to the lower nominal GDP.

| (23) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 3,0 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if it remains persistent. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,0 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 3,0 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if it remains persistent. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,0 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 1,3 % in 2024 which is below the recommended growth rate. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 1,3 % in 2024 which is below the recommended growth rate.

| (26) | According to the 2023 Stability Programme, government investment is expected to increase from 5,5 % of GDP in 2023 to 6,1 % of GDP in 2024. The higher investment reflects higher nationally financed investment and higher investment financed by the Union, including through the Facility. |
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(26)

According to the 2023 Stability Programme, government investment is expected to increase from 5,5 % of GDP in 2023 to 6,1 % of GDP in 2024. The higher investment reflects higher nationally financed investment and higher investment financed by the Union, including through the Facility.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 2,2 % of GDP in 2025 and to 0,7 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2024 and remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 39,7 % at the end of 2024 to 38,9 % by the end of 2026. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 2,2 % of GDP in 2025 and to 0,7 % by 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2024 and remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 39,7 % at the end of 2024 to 38,9 % by the end of 2026.

| (28) | Latvia’s tax revenue as a share of GDP is significantly below the Union average. This limits the delivery of public services, in particular in healthcare and social protection. Capital and property are relatively undertaxed compared with the Union average and offer potential for increasing tax revenue. Moreover, Latvia collects relatively low revenues from labour taxation despite relatively high tax rates. This suggests that continued efforts are needed to improve tax compliance and tackle the shadow economy. Poverty and inequality remain high, in particular due to low spending on social protection. The adequacy of the social safety net has been improved, but the risk of poverty or social exclusion remains high, in particular for the most vulnerable. The risk of poverty or social exclusion in old age is the highest in the Union (45,9 % in Latvia compared to 19,5 % in the Union in 2021) and also remains very high for people with disabilities (41,2 % in Latvia compared to 29,7 % in the Union in 2021). Access to and the quality of individual needs-based social services remains a challenge due to the shortage and high workload of social workers as well as disparities across municipalities. The long-term care system is fragmented, with limited progress in the transition from institutional care to home care and community-based services. The adequacy and availability of social housing is limited due to insufficient long-term funding. Public spending on healthcare as a share of GDP is low compared to the Union average and the medium-term budgetary plans expect it to decrease from 5,6 % of GDP in 2022 to 3,6 % in 2026 according to the 2023 Stability Programme. This is also significantly below the level of public financing needed for healthcare by 2027, namely 6 % of GDP, as indicated in the Latvian Public Health Policy Guidelines 2021–2027. While the decrease is mainly due to the gradual phasing-out of temporary COVID-19 support measures, plans for the sustainable financing of healthcare are also lacking. In addition, Latvia faces workforce shortages in the health sector, especially of nurses. As a result, timely and equal access to healthcare is limited. |
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(28)

Latvia’s tax revenue as a share of GDP is significantly below the Union average. This limits the delivery of public services, in particular in healthcare and social protection. Capital and property are relatively undertaxed compared with the Union average and offer potential for increasing tax revenue. Moreover, Latvia collects relatively low revenues from labour taxation despite relatively high tax rates. This suggests that continued efforts are needed to improve tax compliance and tackle the shadow economy. Poverty and inequality remain high, in particular due to low spending on social protection. The adequacy of the social safety net has been improved, but the risk of poverty or social exclusion remains high, in particular for the most vulnerable. The risk of poverty or social exclusion in old age is the highest in the Union (45,9 % in Latvia compared to 19,5 % in the Union in 2021) and also remains very high for people with disabilities (41,2 % in Latvia compared to 29,7 % in the Union in 2021). Access to and the quality of individual needs-based social services remains a challenge due to the shortage and high workload of social workers as well as disparities across municipalities. The long-term care system is fragmented, with limited progress in the transition from institutional care to home care and community-based services. The adequacy and availability of social housing is limited due to insufficient long-term funding. Public spending on healthcare as a share of GDP is low compared to the Union average and the medium-term budgetary plans expect it to decrease from 5,6 % of GDP in 2022 to 3,6 % in 2026 according to the 2023 Stability Programme. This is also significantly below the level of public financing needed for healthcare by 2027, namely 6 % of GDP, as indicated in the Latvian Public Health Policy Guidelines 2021–2027. While the decrease is mainly due to the gradual phasing-out of temporary COVID-19 support measures, plans for the sustainable financing of healthcare are also lacking. In addition, Latvia faces workforce shortages in the health sector, especially of nurses. As a result, timely and equal access to healthcare is limited.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Latvia’s recovery and resilience plan is well underway. Latvia has submitted one payment request, corresponding to nine milestones and resulting in an overall disbursement of EUR 201 million. As a result of objective circumstances related to increases in the prices of energy and construction materials, and to supply chain constraints due to Russia’s war of aggression against Ukraine, Latvia intends to submit amendments to the plan, as well as to add a new REPowerEU chapter to accelerate the decarbonisation of the economy and reduce dependence on fossil fuels. 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 Latvia’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Latvia’s recovery and resilience plan is well underway. Latvia has submitted one payment request, corresponding to nine milestones and resulting in an overall disbursement of EUR 201 million. As a result of objective circumstances related to increases in the prices of energy and construction materials, and to supply chain constraints due to Russia’s war of aggression against Ukraine, Latvia intends to submit amendments to the plan, as well as to add a new REPowerEU chapter to accelerate the decarbonisation of the economy and reduce dependence on fossil fuels. 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 Latvia’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Latvia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience and achieving balanced territorial development in Latvia. |
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(30)

The Commission approved all Latvia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience and achieving balanced territorial development in Latvia.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Latvia faces challenges related to access to finance, to energy and to the green transition. |
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(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Latvia faces challenges related to access to finance, to energy and to the green transition.

| (32) | Private-sector credit flow amounted to 1 % of GDP in 2021, which was considerably below the growth rate of the economy. This leads to a further reduction of private-sector debt, which is among the lowest in the Union. This weak credit growth to some extent reflects weak demand, but is also influenced by a number of challenges on the supply side. Small and medium-sized enterprises have found it particularly difficult to get credit. This is partly due to their higher credit risk, but also due to the high cost of credit and to red tape. Furthermore, poor liquidity of the assets available for collateral makes it particularly hard to get credit outside of the Riga region. This creates a significant barrier both for mortgage lending and lending to businesses. Policy efforts have mainly focused on supporting lending by combining it with public grants. However, this comes with a significant cost to the government budget and is therefore not a sustainable way of boosting lending. Easing the credit supply constraints requires general improvements in transparency and trust in the business environment, including a reduction in the size of the shadow economy. Furthermore, improving the insolvency process to achieve a high rate of business restructuring and possibly higher loan recovery rates would reduce the perceived risks for banks and boost lending. Targeted loan and guarantee schemes could help lower the liquidity risks faced by banks when accepting collateral in relatively illiquid markets. Public lending schemes for strategically important investment areas like the green transition and regional development could increase effective competition in the banking market or fill a market gap where bank financing is either too expensive or not available. Moreover, public guarantee and lending schemes offer a much more cost-efficient way of supporting private borrowing than grant schemes. Besides the barriers to bank financing, the Latvian market for alternative sources of finance is underdeveloped and has the potential to improve firms’ access to finance. |
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(32)

Private-sector credit flow amounted to 1 % of GDP in 2021, which was considerably below the growth rate of the economy. This leads to a further reduction of private-sector debt, which is among the lowest in the Union. This weak credit growth to some extent reflects weak demand, but is also influenced by a number of challenges on the supply side. Small and medium-sized enterprises have found it particularly difficult to get credit. This is partly due to their higher credit risk, but also due to the high cost of credit and to red tape. Furthermore, poor liquidity of the assets available for collateral makes it particularly hard to get credit outside of the Riga region. This creates a significant barrier both for mortgage lending and lending to businesses. Policy efforts have mainly focused on supporting lending by combining it with public grants. However, this comes with a significant cost to the government budget and is therefore not a sustainable way of boosting lending. Easing the credit supply constraints requires general improvements in transparency and trust in the business environment, including a reduction in the size of the shadow economy. Furthermore, improving the insolvency process to achieve a high rate of business restructuring and possibly higher loan recovery rates would reduce the perceived risks for banks and boost lending. Targeted loan and guarantee schemes could help lower the liquidity risks faced by banks when accepting collateral in relatively illiquid markets. Public lending schemes for strategically important investment areas like the green transition and regional development could increase effective competition in the banking market or fill a market gap where bank financing is either too expensive or not available. Moreover, public guarantee and lending schemes offer a much more cost-efficient way of supporting private borrowing than grant schemes. Besides the barriers to bank financing, the Latvian market for alternative sources of finance is underdeveloped and has the potential to improve firms’ access to finance.

| (33) | Latvia has ensured its independence from Russian gas following parliament’s decision in July 2022 to stop buying Russian natural gas from 1 January 2023. Domestic gas suppliers have been able to find alternative sources of natural gas thanks to imports of liquified natural gas (LNG) from the LNG terminal in Klaipėda, Lithuania and the new LNG terminal in Inkoo, Finland. The current situation has shown the need to speed up the slow roll-out of installations for electricity generation from renewable energy sources. Latvia has one of the highest shares of renewable energy in the Union, although this share stagnated from 2020 to 2021. Latvia would benefit from accelerating its efforts in the uptake of wind and solar power, which is the most viable and long-term solution to increase the share of renewable energy. Latvia’s recovery and resilience plan already includes measures to remove regulatory barriers to the deployment of onshore wind energy. However, further efforts could be made to speed up the deployment of renewable energy for electricity generation, heating and cooling. This would involve modernising the electricity grid, promoting decentralised renewable electricity generation, flexibility of the power system (demand response and storage), further improving permit granting procedures and establishing a legal framework and incentives to promote energy communities. Completing Latvia’s synchronisation with the Union electricity grid would add transmission capacity so that an increasing share of offshore and onshore renewables could be integrated into the grid. The Latvian electricity network, like that of other Baltic Member States, remains exposed as it is synchronised with the BRELL (Belarus, Russia, Estonia, Lithuania and Latvia) power grid. The regional synchronisation of the electricity grid with the rest of the Union is making progress, but still needs to be completed. To that end, cooperation with Estonia and Lithuania is necessary. Latvia’s consumption of natural gas dropped by 30 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Latvia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (16). |
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(33)

Latvia has ensured its independence from Russian gas following parliament’s decision in July 2022 to stop buying Russian natural gas from 1 January 2023. Domestic gas suppliers have been able to find alternative sources of natural gas thanks to imports of liquified natural gas (LNG) from the LNG terminal in Klaipėda, Lithuania and the new LNG terminal in Inkoo, Finland. The current situation has shown the need to speed up the slow roll-out of installations for electricity generation from renewable energy sources. Latvia has one of the highest shares of renewable energy in the Union, although this share stagnated from 2020 to 2021. Latvia would benefit from accelerating its efforts in the uptake of wind and solar power, which is the most viable and long-term solution to increase the share of renewable energy. Latvia’s recovery and resilience plan already includes measures to remove regulatory barriers to the deployment of onshore wind energy. However, further efforts could be made to speed up the deployment of renewable energy for electricity generation, heating and cooling. This would involve modernising the electricity grid, promoting decentralised renewable electricity generation, flexibility of the power system (demand response and storage), further improving permit granting procedures and establishing a legal framework and incentives to promote energy communities. Completing Latvia’s synchronisation with the Union electricity grid would add transmission capacity so that an increasing share of offshore and onshore renewables could be integrated into the grid. The Latvian electricity network, like that of other Baltic Member States, remains exposed as it is synchronised with the BRELL (Belarus, Russia, Estonia, Lithuania and Latvia) power grid. The regional synchronisation of the electricity grid with the rest of the Union is making progress, but still needs to be completed. To that end, cooperation with Estonia and Lithuania is necessary. Latvia’s consumption of natural gas dropped by 30 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Latvia could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (16).

| (34) | Latvia should accelerate its efforts to scale up energy efficiency measures to decarbonise its building stock as well as transport and industry and put in place new financing and support measures to achieve the renovation targets of its long-term renovation strategy. |
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(34)

Latvia should accelerate its efforts to scale up energy efficiency measures to decarbonise its building stock as well as transport and industry and put in place new financing and support measures to achieve the renovation targets of its long-term renovation strategy.

| (35) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in 25 out of 436 occupations that require specific skills or knowledge for the green transition, including electricians and mechanical engineers. The labour shortages were reported as a factor that constrained production in industry and construction. |
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(35)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in 25 out of 436 occupations that require specific skills or knowledge for the green transition, including electricians and mechanical engineers. The labour shortages were reported as a factor that constrained production in industry and construction.

| (36) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (17) is reflected in recommendation (1). |
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(36)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (17) is reflected in recommendation (1).

| (37) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Latvia, recommendations (1), (2), (3), and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area, |
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(37)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Latvia, recommendations (1), (2), (3), and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Latvia take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 3,0 % (18).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Broaden taxation, including of property and capital, and strengthen the adequacy of healthcare and social protection.

2.

Continue the steady implementation of its recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Improve access to finance for small and medium-sized enterprises through public lending and guarantee schemes aimed at facilitating investments of strategic importance, in particular in the areas of the green transition and regional development.

4.

Reduce overall reliance on fossil fuels by accelerating the deployment of renewable energy, in particular onshore and offshore wind energy and solar energy, and strengthening energy efficiency measures, for example through new financing and support measures to meet the targets of the long-term renovation strategy. Ensure sufficient capacity of interconnections to increase security of supply and continue synchronisation with the Union electricity grid. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10157/2021 INIT; ST 10157/2021 ADD 1; ST 10157/2021 ADD 1 COR 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Latvia (OJ C 304, 29.7.2021, p. 63).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  This contractionary contribution is caused in particular by lower spending on investment projects co-financed by Union funds, which has also affected national co-financing developments (in particular at the local government level), as well as by the transfer of military equipment to Ukraine, which is recorded as a negative gross fixed capital formation offset by a capital transfer.

9

At the same time, other nationally financed capital expenditure provided an expansionary contribution of 1,7 percentage points of GDP. The increase in other capital expenditure is largely explained by two factors: the creation of natural gas reserves for the security of national energy supply and the transfer of military equipment to Ukraine.

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Latvia and delivering a Council opinion on the 2022 Stability Programme of Latvia (OJ C 334, 1.9.2022, p. 112).

11

(12)  Based on the Commission spring 2023 forecast, potential output growth of Latvia, which is used to measure the fiscal stance, in the medium-term (10-year average), is estimated at 11,5 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 1,7 percentage points of GDP due the fact that Commission forecast for 2023 does not include creation of natural gas reserves for security of energy supply and military assistance to Ukraine.

13

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

16

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

17

(18)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,5 % of GDP for 2024, as described in recital 24.

18

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/135 |
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1.9.2023

EN

Official Journal of the European Union

C 312/135

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Lithuania and delivering a Council opinion on the 2023 Stability Programme of Lithuania

(2023/C 312/15)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to make 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to make 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Lithuania 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. On the same date, the Commission also adopted an opinion on Lithuania's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Lithuania 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. On the same date, the Commission also adopted an opinion on Lithuania's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 14 May 2021, Lithuania 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 set out in Annex V to that Regulation. On 20 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Lithuania (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Lithuania 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. |
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(9)

On 14 May 2021, Lithuania 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 set out in Annex V to that Regulation. On 20 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Lithuania (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Lithuania 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 2023, Lithuania submitted its 2023 National Reform Programme and, on 28 April 2023, its 2023 Stability Programme, in line with Article 4(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 Lithuania's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 27 April 2023, Lithuania submitted its 2023 National Reform Programme and, on 28 April 2023, its 2023 Stability Programme, in line with Article 4(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 Lithuania's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Lithuania. It assessed Lithuania's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Lithuania's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Lithuania's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Lithuania. It assessed Lithuania's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Lithuania's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Lithuania's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Lithuania and published its results on 24 May 2023. The Commission concluded that Lithuania is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to price competitiveness, external balances and house price developments have recently increased but overall seem to be contained at present. The economy was strongly affected by the energy price shock with inflation rising fast; however, Lithuania's competitiveness is projected to recover slowly as energy prices are falling. The current account deteriorated markedly in 2022 on account of the increased energy import prices but is forecast to move close to balance this year. Going forward, mild current account deficits will not compromise external sustainability given its sound stock position. Nonetheless, inflation and wage pressures, if persistent, risk impairing Lithuania's competitiveness, particularly as core inflation is well above the euro area average. House prices have grown strongly since the pandemic, but there is no evidence of overvaluation and prices are now moderating given the interest rate rises and the economic recession underway. In addition, household debt is low, and the banking sector is well capitalised, highly profitable and records low non-performing loans. The policy setting is overall favourable, although some policies could help to address the risks from the identified vulnerabilities. Continued counter-cyclical fiscal and macroprudential policies, reinforced when needed, would be important in that respect. At the same time, more focus on fostering competition in the domestic market and policies to increase the quality and quantity of labour supply could help to manage price and unit labour cost pressures. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Lithuania and published its results on 24 May 2023. The Commission concluded that Lithuania is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to price competitiveness, external balances and house price developments have recently increased but overall seem to be contained at present. The economy was strongly affected by the energy price shock with inflation rising fast; however, Lithuania's competitiveness is projected to recover slowly as energy prices are falling. The current account deteriorated markedly in 2022 on account of the increased energy import prices but is forecast to move close to balance this year. Going forward, mild current account deficits will not compromise external sustainability given its sound stock position. Nonetheless, inflation and wage pressures, if persistent, risk impairing Lithuania's competitiveness, particularly as core inflation is well above the euro area average. House prices have grown strongly since the pandemic, but there is no evidence of overvaluation and prices are now moderating given the interest rate rises and the economic recession underway. In addition, household debt is low, and the banking sector is well capitalised, highly profitable and records low non-performing loans. The policy setting is overall favourable, although some policies could help to address the risks from the identified vulnerabilities. Continued counter-cyclical fiscal and macroprudential policies, reinforced when needed, would be important in that respect. At the same time, more focus on fostering competition in the domestic market and policies to increase the quality and quantity of labour supply could help to manage price and unit labour cost pressures.

| (13) | According to data validated by Eurostat, Lithuania's general government deficit decreased from 1,2 % of GDP in 2021 to 0,6 % in 2022, while general government debt fell from 43,7 % of GDP at the end of 2021 to 38,4 % at the end of 2022. |
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(13)

According to data validated by Eurostat, Lithuania's general government deficit decreased from 1,2 % of GDP in 2021 to 0,6 % in 2022, while general government debt fell from 43,7 % of GDP at the end of 2021 to 38,4 % at the end of 2022.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included value added tax (VAT) compensations for district heating for households, while such fiscal policy expenditure-increasing measures included price caps for electricity tariffs for household and non-household consumers and for natural gas tariffs for household consumers, and subsidies to companies operating in sectors affected by high energy prices. The Commission estimates the net budgetary cost of those measures at 1,3 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,3 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,4 % of GDP in 2022, from 0,6 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included value added tax (VAT) compensations for district heating for households, while such fiscal policy expenditure-increasing measures included price caps for electricity tariffs for household and non-household consumers and for natural gas tariffs for household consumers, and subsidies to companies operating in sectors affected by high energy prices. The Commission estimates the net budgetary cost of those measures at 1,3 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,3 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,4 % of GDP in 2022, from 0,6 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Lithuania (7) maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. Moreover, the Council recommended that Lithuania keep the growth of nationally financed current expenditure under control. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Lithuania (7) maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. Moreover, the Council recommended that Lithuania keep the growth of nationally financed current expenditure under control.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was contractionary, at 0,9 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Lithuania continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,3 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). Lithuania 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 a contractionary contribution of 0,9 percentage points to the fiscal stance. Lithuania therefore sufficiently kept under control the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was contractionary, at 0,9 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Lithuania continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2022 (1,3 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (9). Lithuania 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 a contractionary contribution of 0,9 percentage points to the fiscal stance. Lithuania therefore sufficiently kept under control the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 0,5 % in 2023 and 3,0 % in 2024. By comparison, the Commission's 2023 spring forecast projects the same real GDP growth of 0,5 % in 2023 and a lower real GDP growth of 2,7 % in 2024, mainly due to a relatively slower projected growth in consumption and investment in 2024. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 0,5 % in 2023 and 3,0 % in 2024. By comparison, the Commission's 2023 spring forecast projects the same real GDP growth of 0,5 % in 2023 and a lower real GDP growth of 2,7 % in 2024, mainly due to a relatively slower projected growth in consumption and investment in 2024.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 2,2 % of GDP in 2023. The increase in 2023 mainly reflects expenditure-increasing measures aiming to support lower income households (such as increases in social benefits and pensions), as well as estimated lower tax and social security contributions revenues (as a share of GDP). According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 38,4 % at the end of 2022 to 37,8 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 1,7 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to higher projection of social security contributions revenues and slightly lower projections of government expenditures on intermediate consumption and on investment. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 37,1 % at the end of 2023. The difference is due to a lower projected government deficit. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 2,2 % of GDP in 2023. The increase in 2023 mainly reflects expenditure-increasing measures aiming to support lower income households (such as increases in social benefits and pensions), as well as estimated lower tax and social security contributions revenues (as a share of GDP). According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 38,4 % at the end of 2022 to 37,8 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 1,7 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to higher projection of social security contributions revenues and slightly lower projections of government expenditures on intermediate consumption and on investment. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 37,1 % at the end of 2023. The difference is due to a lower projected government deficit.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular price caps for electricity and natural gas tariffs for household and non-household consumers. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,7 % of GDP in 2023 (10). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not preserve the price signal to reduce energy demand and increase energy efficiency. As a result, there are no targeted support measures to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (11). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable in 2023, at 0,3 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular price caps for electricity and natural gas tariffs for household and non-household consumers. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,7 % of GDP in 2023 (10). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not preserve the price signal to reduce energy demand and increase energy efficiency. As a result, there are no targeted support measures to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (11). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to remain stable in 2023, at 0,3 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Lithuania take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Lithuania should stand ready to adjust current spending to the evolving situation. Lithuania 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Lithuania take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Lithuania should stand ready to adjust current spending to the evolving situation. Lithuania 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 0,8 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (+ 0,9 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,4 % of GDP to the fiscal stance. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,0 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage point (13). Therefore, Lithuania plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investment in the development of local renewable energy sources, and installation of the electricity storage infrastructure, which will facilitate Lithuania's efforts to disconnect from the electricity grid, which operates in a synchronous mode with the Russian and Belarussian systems. Those investment projects are partly funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 0,8 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (+ 0,9 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,4 % of GDP to the fiscal stance. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,0 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage point (13). Therefore, Lithuania plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as investment in the development of local renewable energy sources, and installation of the electricity storage infrastructure, which will facilitate Lithuania's efforts to disconnect from the electricity grid, which operates in a synchronous mode with the Russian and Belarussian systems. Those investment projects are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 1,7 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of the measures adopted to mitigate the economic and social impact of the increase in energy prices. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 37,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 1,4 % of GDP in 2024. This is lower than the deficit ratio projected in the 2023 Stability Programme, mainly due to lower government expenditure on intermediate consumption and stronger nominal GDP. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 36,6 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 1,7 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of the measures adopted to mitigate the economic and social impact of the increase in energy prices. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 37,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 1,4 % of GDP in 2024. This is lower than the deficit ratio projected in the 2023 Stability Programme, mainly due to lower government expenditure on intermediate consumption and stronger nominal GDP. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 36,6 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission also assumes the phasing-out of almost all energy support measures (net cost of 0,1 % of GDP in 2024). Those estimates are based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Stability Programme envisages the phasing-out of most of the energy support measures in 2024. The Commission also assumes the phasing-out of almost all energy support measures (net cost of 0,1 % of GDP in 2024). Those estimates are based on the assumption of no renewed energy price increases.

| (24) | In the 2023 Stability Programme, Lithuania plans to meet the medium-term budgetary objective – a structural budget balance of – 1,0 % of GDP (14) – in 2023 and to maintain it throughout the rest of the programme period. Based on the Commission's 2023 spring forecast, the structural balance is forecast at – 0,6 % of GDP in 2023 and – 0,3 % of GDP in 2024, above the medium-term budgetary objective. Prudent fiscal policy in 2024 will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if persistent. |
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(24)

In the 2023 Stability Programme, Lithuania plans to meet the medium-term budgetary objective – a structural budget balance of – 1,0 % of GDP (14) – in 2023 and to maintain it throughout the rest of the programme period. Based on the Commission's 2023 spring forecast, the structural balance is forecast at – 0,6 % of GDP in 2023 and – 0,3 % of GDP in 2024, above the medium-term budgetary objective. Prudent fiscal policy in 2024 will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if persistent.

| (25) | Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,7 % in 2024. |
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(25)

Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,7 % in 2024.

| (26) | According to the 2023 Stability Programme, government investment is expected to decrease from 4,0 % of GDP in 2023 to 3,9 % of GDP in 2024. The lower investment reflects lower nationally financed investment and investment financed by the Union. |
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(26)

According to the 2023 Stability Programme, government investment is expected to decrease from 4,0 % of GDP in 2023 to 3,9 % of GDP in 2024. The lower investment reflects lower nationally financed investment and investment financed by the Union.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 1,4 % of GDP in 2025 and to 0,9 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 37,7 % at the end of 2024 to 38,6 % by the end of 2026. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 1,4 % of GDP in 2025 and to 0,9 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 37,7 % at the end of 2024 to 38,6 % by the end of 2026.

| (28) | Lithuania's tax revenue as a share of GDP is significantly below the Union average, limiting the funding available for public expenditure on healthcare, social protection and general public services. The VAT gap (the difference between expected VAT revenue and the amount collected) is still one of the highest in the Union, even though preliminary estimates show that it might have decreased significantly in 2021. In 2021, revenues from property taxes, which are among the taxes least detrimental to growth, amounted to only 0,3 % of GDP, around seven times lower than the Union average. Lithuania collected half the Union average from corporate income taxes (as a share of GDP), had some of the lowest transport taxes in the Union and is one of the few Member States without an annual car tax. Public spending on social protection increased in 2015–2021, but is still significantly below the Union average. This translates into relatively low levels and limited coverage of social benefits, with old-age pensions among the lowest in the Union relative to employment incomes. Expenditure on general public services is particularly low, receiving almost half the funding (as a percentage of GDP) than the Union average. Inadequate financial resources for healthcare result in long waiting times and high levels of unmet needs for medical care, high out-of-pocket costs for patients and the inability to offer competitive salaries to healthcare professionals. In 2021–2023, Lithuania introduced several major permanent expenditure measures (such as increases in public-sector wages, pensions, and other social benefits), which are not matched sufficiently by corresponding financing measures, which might pose a risk to Lithuania's fiscal sustainability in the long-term. |
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(28)

Lithuania's tax revenue as a share of GDP is significantly below the Union average, limiting the funding available for public expenditure on healthcare, social protection and general public services. The VAT gap (the difference between expected VAT revenue and the amount collected) is still one of the highest in the Union, even though preliminary estimates show that it might have decreased significantly in 2021. In 2021, revenues from property taxes, which are among the taxes least detrimental to growth, amounted to only 0,3 % of GDP, around seven times lower than the Union average. Lithuania collected half the Union average from corporate income taxes (as a share of GDP), had some of the lowest transport taxes in the Union and is one of the few Member States without an annual car tax. Public spending on social protection increased in 2015–2021, but is still significantly below the Union average. This translates into relatively low levels and limited coverage of social benefits, with old-age pensions among the lowest in the Union relative to employment incomes. Expenditure on general public services is particularly low, receiving almost half the funding (as a percentage of GDP) than the Union average. Inadequate financial resources for healthcare result in long waiting times and high levels of unmet needs for medical care, high out-of-pocket costs for patients and the inability to offer competitive salaries to healthcare professionals. In 2021–2023, Lithuania introduced several major permanent expenditure measures (such as increases in public-sector wages, pensions, and other social benefits), which are not matched sufficiently by corresponding financing measures, which might pose a risk to Lithuania's fiscal sustainability in the long-term.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Lithuania's recovery and resilience plan is well underway. On 30 November 2022, Lithuania submitted a first payment request, and the Commission adopted a positive assessment for 31 out of 33 milestones covering six of the plan's seven components, while two milestones related to tax reforms have been assessed as not satisfactorily fulfilled. The Commission has therefore activated the ‘payment suspension’ procedure that gives Lithuania additional time to fulfil those milestones, while receiving a partial payment of EUR 542,3 million (net of prefinancing) linked to the milestones that have been satisfactorily fulfilled. As a result of objective circumstances related to increases in the prices of energy and construction materials, and supply chain constraints due to Russia's aggression against Ukraine, Lithuania intends to submit modifications to the plan, as well as a REPowerEU chapter to accelerate the decarbonisation of the economy and reduce dependence on fossil fuels. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 30 March 2023, Lithuania expressed its intention to request EUR 1 800 000 000 of additional loan support under the 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 Lithuania'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Lithuania's recovery and resilience plan is well underway. On 30 November 2022, Lithuania submitted a first payment request, and the Commission adopted a positive assessment for 31 out of 33 milestones covering six of the plan's seven components, while two milestones related to tax reforms have been assessed as not satisfactorily fulfilled. The Commission has therefore activated the ‘payment suspension’ procedure that gives Lithuania additional time to fulfil those milestones, while receiving a partial payment of EUR 542,3 million (net of prefinancing) linked to the milestones that have been satisfactorily fulfilled. As a result of objective circumstances related to increases in the prices of energy and construction materials, and supply chain constraints due to Russia's aggression against Ukraine, Lithuania intends to submit modifications to the plan, as well as a REPowerEU chapter to accelerate the decarbonisation of the economy and reduce dependence on fossil fuels. In accordance with Article 14(6) of Regulation (EU) 2021/241, on 30 March 2023, Lithuania expressed its intention to request EUR 1 800 000 000 of additional loan support under the 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 Lithuania'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Lithuania's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Lithuania. |
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(30)

The Commission approved all Lithuania's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Lithuania.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Lithuania faces a number of additional challenges related to the health system, social services and social housing, energy and the green transition. |
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(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Lithuania faces a number of additional challenges related to the health system, social services and social housing, energy and the green transition.

| (32) | Health outcomes in Lithuania show one of the lowest life expectancies in the Union. Levels of preventable and treatable mortality in Lithuania remain high compared to the Union average. Lithuania has a high level of avoidable hospital admissions and the highest rate of mortality from suicide in the Union. This highlights the necessity to improve the effectiveness of healthcare and the need for more preventive measures in the Lithuanian healthcare approach. The challenges in the healthcare sector are exacerbated by labour shortages, skills mismatches and an uneven distribution of health professionals, which limit access to and the provision of primary healthcare. Lithuania's recovery and resilience plan includes significant measures such as a reform that will transform the hospital network and emergency medical services, as well as investment in modernising healthcare facilities and building infrastructure for infectious disease cluster centres. Once implemented, those measures are expected to help address some of the key challenges. However, beyond the measures included in the recovery and resilience plan, additional efforts are needed to further strengthen primary care and expand preventive care, including to make the healthcare system more resilient. |
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(32)

Health outcomes in Lithuania show one of the lowest life expectancies in the Union. Levels of preventable and treatable mortality in Lithuania remain high compared to the Union average. Lithuania has a high level of avoidable hospital admissions and the highest rate of mortality from suicide in the Union. This highlights the necessity to improve the effectiveness of healthcare and the need for more preventive measures in the Lithuanian healthcare approach. The challenges in the healthcare sector are exacerbated by labour shortages, skills mismatches and an uneven distribution of health professionals, which limit access to and the provision of primary healthcare. Lithuania's recovery and resilience plan includes significant measures such as a reform that will transform the hospital network and emergency medical services, as well as investment in modernising healthcare facilities and building infrastructure for infectious disease cluster centres. Once implemented, those measures are expected to help address some of the key challenges. However, beyond the measures included in the recovery and resilience plan, additional efforts are needed to further strengthen primary care and expand preventive care, including to make the healthcare system more resilient.

| (33) | The planning and delivery of social services is hindered by municipalities' failure to sufficiently involve non-governmental organisations, and the integration of social assistance and training measures with active labour market policies, especially for the unemployed, is still insufficient. Lithuania achieved some progress by completing pilot projects in certain municipalities on the provision of integrated services for the unemployed, and a recommendation was issued to all the municipalities to apply the methodology of those projects to their employment promotion programmes as of 2023. While this is a step in the right direction, its impact is yet to be seen, and further efforts are needed. The recovery and resilience plan includes significant measures, such as a reform of the minimum income scheme and the tax-benefits system together with increasing the coverage of unemployment insurance. Those measures are expected to help address some of the key social protection challenges once implemented. However, beyond the measures included in the plan, further efforts are needed to improve the planning and delivery of social services. |
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(33)

The planning and delivery of social services is hindered by municipalities' failure to sufficiently involve non-governmental organisations, and the integration of social assistance and training measures with active labour market policies, especially for the unemployed, is still insufficient. Lithuania achieved some progress by completing pilot projects in certain municipalities on the provision of integrated services for the unemployed, and a recommendation was issued to all the municipalities to apply the methodology of those projects to their employment promotion programmes as of 2023. While this is a step in the right direction, its impact is yet to be seen, and further efforts are needed. The recovery and resilience plan includes significant measures, such as a reform of the minimum income scheme and the tax-benefits system together with increasing the coverage of unemployment insurance. Those measures are expected to help address some of the key social protection challenges once implemented. However, beyond the measures included in the plan, further efforts are needed to improve the planning and delivery of social services.

| (34) | Access to social housing is limited in Lithuania. Around 9 700 families (almost 19 000 people) were waiting for social housing at the end of 2022, with the average waiting time 5,85 years. The overall quality of social housing remains low. Although Lithuania has undertaken some reform measures on social housing, including introducing the right to prioritise single-parent families, increasing the income and assets limits when assessing eligibility and adding special provisions in case of a national emergency or quarantine, an overall strategy on how to tackle those chronic shortages and increase the quality of social housing is currently missing. |
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(34)

Access to social housing is limited in Lithuania. Around 9 700 families (almost 19 000 people) were waiting for social housing at the end of 2022, with the average waiting time 5,85 years. The overall quality of social housing remains low. Although Lithuania has undertaken some reform measures on social housing, including introducing the right to prioritise single-parent families, increasing the income and assets limits when assessing eligibility and adding special provisions in case of a national emergency or quarantine, an overall strategy on how to tackle those chronic shortages and increase the quality of social housing is currently missing.

| (35) | Following Russia's invasion of Ukraine, Lithuania has successfully abandoned imports of gas, oil, electricity and coal from Russia, by redirecting energy imports through the liquified natural gas (LNG) terminal in Klaipėda, the oil terminal in Būtingė, the new gas interconnection with Poland, the improved interconnection with Latvia, and the existing electricity interconnections with Poland, Latvia and Sweden. Lithuania's consumption of natural gas dropped by 41 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (15), mostly due to the fall in gas demand from its chemical industry, as a result of soaring energy prices. Lithuania could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (16). Nevertheless, Lithuania remains highly dependent on imports for its energy supply. It imports around two-thirds of its gross electricity needs and almost all of its oil and gas. Moreover, oil and gas represent three quarters of the country's energy mix. |
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(35)

Following Russia's invasion of Ukraine, Lithuania has successfully abandoned imports of gas, oil, electricity and coal from Russia, by redirecting energy imports through the liquified natural gas (LNG) terminal in Klaipėda, the oil terminal in Būtingė, the new gas interconnection with Poland, the improved interconnection with Latvia, and the existing electricity interconnections with Poland, Latvia and Sweden. Lithuania's consumption of natural gas dropped by 41 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (15), mostly due to the fall in gas demand from its chemical industry, as a result of soaring energy prices. Lithuania could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (16). Nevertheless, Lithuania remains highly dependent on imports for its energy supply. It imports around two-thirds of its gross electricity needs and almost all of its oil and gas. Moreover, oil and gas represent three quarters of the country's energy mix.

| (36) | The high demand for energy is driven by a large and old transport fleet, with underused public transport and rail, a large stock of energy-inefficient buildings and highly energy-intensive industries. Industry accounted for 58 % of Lithuania's total gas consumption before the energy crisis. Additional efforts to reduce energy intensity in those sectors by promoting industrial transformation, including innovative production processes and further promoting the use of renewable energy sources, would decrease Lithuania's dependence on energy imports. Incentives to choose less polluting vehicles remain weak in Lithuania, while the public transport system is fragmented and suffers from a lack of coordination. Therefore, promoting less polluting means of transport remains a priority. At the same time, the renovation rates for multi-apartment buildings remain too low to achieve the climate neutrality targets in the sector by 2050. This demonstrates the need for improved procedures and incentives to renovate and for supporting the private sector's capacity to run renovation projects. Lithuania remains among the worst performers in the Union in terms of energy poverty, which may be further aggravated in the event of another sustained increase in energy prices and if the slow pace of renovation continues. |
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(36)

The high demand for energy is driven by a large and old transport fleet, with underused public transport and rail, a large stock of energy-inefficient buildings and highly energy-intensive industries. Industry accounted for 58 % of Lithuania's total gas consumption before the energy crisis. Additional efforts to reduce energy intensity in those sectors by promoting industrial transformation, including innovative production processes and further promoting the use of renewable energy sources, would decrease Lithuania's dependence on energy imports. Incentives to choose less polluting vehicles remain weak in Lithuania, while the public transport system is fragmented and suffers from a lack of coordination. Therefore, promoting less polluting means of transport remains a priority. At the same time, the renovation rates for multi-apartment buildings remain too low to achieve the climate neutrality targets in the sector by 2050. This demonstrates the need for improved procedures and incentives to renovate and for supporting the private sector's capacity to run renovation projects. Lithuania remains among the worst performers in the Union in terms of energy poverty, which may be further aggravated in the event of another sustained increase in energy prices and if the slow pace of renovation continues.

| (37) | The Lithuanian electricity network, like that of other Baltic Member States, remains exposed, as it is synchronised with the BRELL power grid. The regional synchronisation of the electricity grid with the rest of the Union is making progress but still needs to be completed (it is expected to be completed by 2025). To that end, cooperation with Latvia and Estonia is necessary. Lithuania is increasing domestic energy generation; it has taken steps to streamline permitting procedures and to promote electricity generation from renewable energy sources, which resulted in large increases in solar and wind production capacity between 2020 and 2021. However, a further increase in ambition for reducing greenhouse gas emissions and increasing renewable energy and energy efficiency targets is necessary for Lithuania to be in line with the ‘Fit for 55’ objectives. |
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(37)

The Lithuanian electricity network, like that of other Baltic Member States, remains exposed, as it is synchronised with the BRELL power grid. The regional synchronisation of the electricity grid with the rest of the Union is making progress but still needs to be completed (it is expected to be completed by 2025). To that end, cooperation with Latvia and Estonia is necessary. Lithuania is increasing domestic energy generation; it has taken steps to streamline permitting procedures and to promote electricity generation from renewable energy sources, which resulted in large increases in solar and wind production capacity between 2020 and 2021. However, a further increase in ambition for reducing greenhouse gas emissions and increasing renewable energy and energy efficiency targets is necessary for Lithuania to be in line with the ‘Fit for 55’ objectives.

| (38) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Since 2015, the job vacancy rate increased in most key sectors, such as construction (from 0,8 % to 1,5 % in 2021) and manufacturing (from 1,4 % to 1,8 % in 2021). However, the rate in 2021 was still below the Union average of 3,6 % and 1,9 %, respectively. In recent years, labour shortages were reported in Lithuania for 28 occupations that require specific skills or knowledge for the green transition. In particular, labour shortages were reported as a factor that constrained production in industry and construction in 2022. |
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(38)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Since 2015, the job vacancy rate increased in most key sectors, such as construction (from 0,8 % to 1,5 % in 2021) and manufacturing (from 1,4 % to 1,8 % in 2021). However, the rate in 2021 was still below the Union average of 3,6 % and 1,9 %, respectively. In recent years, labour shortages were reported in Lithuania for 28 occupations that require specific skills or knowledge for the green transition. In particular, labour shortages were reported as a factor that constrained production in industry and construction in 2022.

| (39) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (17) is reflected in recommendation (1). |
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(39)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (17) is reflected in recommendation (1).

| (40) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Lithuania, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area, |
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(40)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Lithuania, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Lithuania take action in 2023 and 2024 to:

1.

While maintaining a sound fiscal position in 2024, preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union funds, in particular to foster the green and digital transitions.

For the period beyond 2024, continue to pursue investment and reforms conducive to higher sustainable growth and preserve a prudent medium-term fiscal position.

Strengthen the adequacy of healthcare and social protection, and improve general public services.

2.

Continue the steady implementation of its recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Strengthen primary care and expand preventive care in order to, inter alia, make the healthcare system more resilient. Improve the planning and delivery of social services. Improve access to, and the quality of, social housing.

4.

Further reduce reliance on fossil fuels and imported energy by accelerating the deployment of renewables, in particular by ensuring sufficient grid capacity and access, ensuring the transformation and decarbonisation of industrial production, and increasing the uptake of public and sustainable transport, as well as by making buildings more energy-efficient with a view to, inter alia, reducing energy poverty. Ensure sufficient capacity of electricity interconnections in order to increase security of supply, continuing the timely synchronisation with the Union electricity grid. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10477/2021 INIT; ST 10477/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Lithuania (OJ C 304, 29.7.2021, p. 68).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,2 percentage points of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Lithuania and delivering a Council opinion on the 2022 Stability Programme of Lithuania (OJ C 334, 1.9.2022, p. 120).

11

(12)  On the basis of the Commission's 2023 spring forecast, the medium-term (10-year average) potential output growth of Lithuania, which is used to measure the fiscal stance, is estimated at 14,0 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,2 percentage points of GDP.

13

(14)  The structural balance (cyclically-adjusted balance net of one-off and temporary measures) recalculated by the Commission using the commonly agreed methodology points to a structural deficit of 0,6 % of GDP in 2023 and 0,2 % in 2024.

14

(15)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

15

(16)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

16

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

17

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/145 |
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1.9.2023

EN

Official Journal of the European Union

C 312/145

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Luxembourg and delivering a Council opinion on the 2023 Stability Programme of Luxembourg

(2023/C 312/16)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Luxembourg 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. On the same date, the Commission also adopted an opinion on Luxembourg’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Luxembourg 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. On the same date, the Commission also adopted an opinion on Luxembourg’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
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(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and to ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and to ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 21 April 2021, Luxembourg 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Luxembourg (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Luxembourg 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. |
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(9)

On 21 April 2021, Luxembourg 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Luxembourg (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Luxembourg 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 28 April 2023, Luxembourg submitted its 2023 National Reform Programme and, on 27 April 2023, its 2023 Stability Programme, in line with Article 4(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 Luxembourg’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 28 April 2023, Luxembourg submitted its 2023 National Reform Programme and, on 27 April 2023, its 2023 Stability Programme, in line with Article 4(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 Luxembourg’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Luxembourg. It assessed Luxembourg’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Luxembourg’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Luxembourg’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Luxembourg. It assessed Luxembourg’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Luxembourg’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Luxembourg’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Luxembourg and published its results on 24 May 2023. The Commission concluded that Luxembourg is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to high house prices and high household debt have recently increased but overall seem to be contained so far and are expected to ease over the medium term. Strong population growth alongside increased mortgage credit, incentivised by fiscal support, has pushed up demand for housing, while supply has been restricted by the limited land available for construction and by land hoarding. The widening gap between housing demand and supply has resulted in strong house price increases with growing risks of house prices overvaluation and deteriorating affordability. House prices clearly decreased in late 2022, and the number of housing transactions declined sharply, as the rise in interest rates have led to a turn in the market. However, a sharp correction in house prices is not expected as incomes are holding up well and the supply shortage is expected to continue. Household debt is very high in terms of disposable income and has been increasing, while borrowing cooled somewhat in late 2022. Households’ financial assets are also substantial, indebtedness increases towards the higher levels of income and wealth, and the banking sector is sound, which overall mitigates macrofinancial risks. Additional policy efforts, such as stepping up and prioritising the adoption and implementation of recent measures, including recurrent taxes to increase the supply of buildable land, combined with the ongoing reform of land-use planning, could help boost housing supply, in particular through the supply of affordable and social housing targeted to those most in need. The efficiency of the rental market could be improved too. In addition, reducing the mortgage interest deductibility, which was recently significantly increased, would reduce the fiscal incentives to borrow which support high house prices. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Luxembourg and published its results on 24 May 2023. The Commission concluded that Luxembourg is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to high house prices and high household debt have recently increased but overall seem to be contained so far and are expected to ease over the medium term. Strong population growth alongside increased mortgage credit, incentivised by fiscal support, has pushed up demand for housing, while supply has been restricted by the limited land available for construction and by land hoarding. The widening gap between housing demand and supply has resulted in strong house price increases with growing risks of house prices overvaluation and deteriorating affordability. House prices clearly decreased in late 2022, and the number of housing transactions declined sharply, as the rise in interest rates have led to a turn in the market. However, a sharp correction in house prices is not expected as incomes are holding up well and the supply shortage is expected to continue. Household debt is very high in terms of disposable income and has been increasing, while borrowing cooled somewhat in late 2022. Households’ financial assets are also substantial, indebtedness increases towards the higher levels of income and wealth, and the banking sector is sound, which overall mitigates macrofinancial risks. Additional policy efforts, such as stepping up and prioritising the adoption and implementation of recent measures, including recurrent taxes to increase the supply of buildable land, combined with the ongoing reform of land-use planning, could help boost housing supply, in particular through the supply of affordable and social housing targeted to those most in need. The efficiency of the rental market could be improved too. In addition, reducing the mortgage interest deductibility, which was recently significantly increased, would reduce the fiscal incentives to borrow which support high house prices.

| (13) | According to data validated by Eurostat, Luxembourg’s general government surplus decreased from 0,7 % of GDP in 2021 to 0,2 % in 2022, while general government debt rose slightly from 24,5 % of GDP at the end of 2021 to 24,6 % at the end of 2022. |
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(13)

According to data validated by Eurostat, Luxembourg’s general government surplus decreased from 0,7 % of GDP in 2021 to 0,2 % in 2022, while general government debt rose slightly from 24,5 % of GDP at the end of 2021 to 24,6 % at the end of 2022.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in taxes on products to lower consumer prices for petrol, diesel and heating oil by 7,5 ct per litre, while such fiscal policy expenditure-increasing measures included the introduction of an energy tax credit (7), aid for companies affected by rising energy prices and limiting gas price increases. The Commission estimates the net budgetary cost of those measures at 0,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,2 % of GDP in 2022, from 1,0 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a reduction in taxes on products to lower consumer prices for petrol, diesel and heating oil by 7,5 ct per litre, while such fiscal policy expenditure-increasing measures included the introduction of an energy tax credit (7), aid for companies affected by rising energy prices and limiting gas price increases. The Commission estimates the net budgetary cost of those measures at 0,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,2 % of GDP in 2022, from 1,0 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Luxembourg (8) pursue a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Luxembourg (8) pursue a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (9) in 2022 was supportive, at ‒ 0,9 % of GDP, as recommended by the Council. As recommended by the Council, Luxembourg continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,1 % of GDP in 2022 (0,1 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (10). Luxembourg 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 1,3 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,5 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). At the same time, subsidies, other current expenditure and intermediate consumption also contributed (0,3 % of GDP) to the growth in net primary current expenditure. Luxembourg therefore did not sufficiently keep under control the growth in nationally financed current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine. |
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(16)

According to the Commission estimates, the fiscal stance (9) in 2022 was supportive, at ‒ 0,9 % of GDP, as recommended by the Council. As recommended by the Council, Luxembourg continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,1 % of GDP in 2022 (0,1 % of GDP in 2021). Nationally financed investment provided a neutral contribution to the fiscal stance (10). Luxembourg 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 1,3 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0,5 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). At the same time, subsidies, other current expenditure and intermediate consumption also contributed (0,3 % of GDP) to the growth in net primary current expenditure. Luxembourg therefore did not sufficiently keep under control the growth in nationally financed current expenditure. The significant expansionary contribution of nationally financed current expenditure was only partially due to the measures to address the economic and social impact of the increase in energy prices, as well as the cost of offering temporary protection to displaced persons from Ukraine.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 2,4 % in 2023 and 3,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 1,6 % in 2023 and 2,4 % in 2024, mainly due to lower growth contributions from net exports in 2023 and domestic demand in 2024 (11). |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 2,4 % in 2023 and 3,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 1,6 % in 2023 and 2,4 % in 2024, mainly due to lower growth contributions from net exports in 2023 and domestic demand in 2024 (11).

| (18) | In its 2023 Stability Programme, the government expects that the general government balance will deteriorate to a deficit of 1,5 % of GDP in 2023. The deterioration in 2023 mainly reflects additional measures to support household and corporate incomes in the wake of high energy prices and inflation. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 24,6 % at the end of 2022 to 26,1 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 1,7 % of GDP for 2023. This is slightly higher than the deficit projected in the 2023 Stability Programme, mainly due to somewhat lower tax revenue, according to the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast projects a slightly lower general government debt-to-GDP ratio of 25,9 % at the end of 2023. The difference is due to higher nominal GDP growth in 2023, according to the Commission’s 2023 spring forecast. |
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(18)

In its 2023 Stability Programme, the government expects that the general government balance will deteriorate to a deficit of 1,5 % of GDP in 2023. The deterioration in 2023 mainly reflects additional measures to support household and corporate incomes in the wake of high energy prices and inflation. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 24,6 % at the end of 2022 to 26,1 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 1,7 % of GDP for 2023. This is slightly higher than the deficit projected in the 2023 Stability Programme, mainly due to somewhat lower tax revenue, according to the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast projects a slightly lower general government debt-to-GDP ratio of 25,9 % at the end of 2023. The difference is due to higher nominal GDP growth in 2023, according to the Commission’s 2023 spring forecast.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular, limiting gas price increases by subsidising household energy costs and network charges, stabilising electricity prices through subsidies to households, and measures to support businesses, as well as new measures. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,1 % of GDP in 2023 (12). Some measures in 2023 are targeted at the most vulnerable households or firms, while most measures do not 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 Council Recommendation of 12 July 2022 (13), is estimated in the Commission’s 2023 spring forecast at 0,6 % of GDP in 2023 (compared to 0,4 % of GDP in 2022). |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular, limiting gas price increases by subsidising household energy costs and network charges, stabilising electricity prices through subsidies to households, and measures to support businesses, as well as new measures. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,1 % of GDP in 2023 (12). Some measures in 2023 are targeted at the most vulnerable households or firms, while most measures do not 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 Council Recommendation of 12 July 2022 (13), is estimated in the Commission’s 2023 spring forecast at 0,6 % of GDP in 2023 (compared to 0,4 % of GDP in 2022).

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Luxembourg take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (14), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Luxembourg should stand ready to adjust current spending to the evolving situation. Luxembourg 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Luxembourg take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (14), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Luxembourg should stand ready to adjust current spending to the evolving situation. Luxembourg 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 1,5 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 0,9 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 1,3 percentage points 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 0,3 % of GDP. The expansionary contribution of nationally financed net primary current expenditure is therefore only partly due to the targeted support to households and firms most vulnerable to energy price hikes. The expansionary growth in nationally financed primary current expenditure (net of discretionary revenue measures) is also driven by, among other factors, social benefits other than in kind, subsidies related to untargeted energy measures, permanent increases in public sector wages, a one-time contribution to the Union budget, and the reduction in VAT rates. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,2 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points. Luxembourg plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (15). It plans to finance public investment for the green and digital transitions, and for energy security, such as electrification of public transport, reinforcement of the tram and rail network, a climate and energy fund to support the acquisition of photovoltaic panels, digitalisation of public services and digital communication security (quantum technology), which are partly funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (‒ 1,5 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 0,9 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 1,3 percentage points 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 0,3 % of GDP. The expansionary contribution of nationally financed net primary current expenditure is therefore only partly due to the targeted support to households and firms most vulnerable to energy price hikes. The expansionary growth in nationally financed primary current expenditure (net of discretionary revenue measures) is also driven by, among other factors, social benefits other than in kind, subsidies related to untargeted energy measures, permanent increases in public sector wages, a one-time contribution to the Union budget, and the reduction in VAT rates. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,2 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage points. Luxembourg plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (15). It plans to finance public investment for the green and digital transitions, and for energy security, such as electrification of public transport, reinforcement of the tram and rail network, a climate and energy fund to support the acquisition of photovoltaic panels, digitalisation of public services and digital communication security (quantum technology), which are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to increase to 1,7 % of GDP in 2024. The increase in 2024 mainly reflects the extension of support measures to cushion households and corporate incomes against the effects of the inflationary surge. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 27,5 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 1,5 % of GDP in 2024. This is slightly lower than the deficit projected in the 2023 Stability Programme, mainly due to a smaller increase in compensation of employees and social transfers, according to the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 27,0 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to increase to 1,7 % of GDP in 2024. The increase in 2024 mainly reflects the extension of support measures to cushion households and corporate incomes against the effects of the inflationary surge. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 27,5 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 1,5 % of GDP in 2024. This is slightly lower than the deficit projected in the 2023 Stability Programme, mainly due to a smaller increase in compensation of employees and social transfers, according to the Commission’s 2023 spring forecast. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 27,0 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the extension of the energy support measures until the end of 2024. The Commission currently assumes the net cost of energy support measures at 0,5 % of GDP in 2024 (16), compared to 1,1 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear to be targeted at vulnerable households or firms. Most of them do not fully preserve the price signal to reduce energy demand and increase energy efficiency. |
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(23)

The 2023 Stability Programme envisages the extension of the energy support measures until the end of 2024. The Commission currently assumes the net cost of energy support measures at 0,5 % of GDP in 2024 (16), compared to 1,1 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear to be targeted at vulnerable households or firms. Most of them do not fully preserve the price signal to reduce energy demand and increase energy efficiency.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (17). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (18) in 2024 should not exceed 4,8 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,1 % of GDP in 2023) should be phased out in 2023, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. However, according to the Commission’s 2023 spring forecast, the growth in net national financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (17). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (18) in 2024 should not exceed 4,8 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,1 % of GDP in 2023) should be phased out in 2023, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. However, according to the Commission’s 2023 spring forecast, the growth in net national financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 2,9 % in 2024, which is below the recommended growth rate. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 2,9 % in 2024, which is below the recommended growth rate.

| (26) | According to the 2023 Stability Programme, government investment is expected to remain stable at 4,5 % of GDP in 2023 and 2024. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to sustainable and inclusive growth. Those reforms and investments include investments to foster the energy and digital transitions, which are also part of the recovery and resilience plan. |
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(26)

According to the 2023 Stability Programme, government investment is expected to remain stable at 4,5 % of GDP in 2023 and 2024. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to sustainable and inclusive growth. Those reforms and investments include investments to foster the energy and digital transitions, which are also part of the recovery and resilience plan.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 1,0 % of GDP in 2025 and to 0,8 % by 2026, before slightly increasing to 0,9 % in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 27,5 % at the end of 2024 to 29,0 % by the end of 2027. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 1,0 % of GDP in 2025 and to 0,8 % by 2026, before slightly increasing to 0,9 % in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 27,5 % at the end of 2024 to 29,0 % by the end of 2027.

| (28) | The impact of demographic trends on government spending will become more acute in the coming decades, as the number of pensioners per worker is expected to rise steadily due to the ageing population and the slowdown in net migration flows. In a scenario where there is no policy change, Luxembourg will face one of the Union’s sharpest increases in pension spending as a share of GDP, which is projected to double to around 18 % of GDP by 2070, the highest in the Union. This will lead to a significant increase in government debt, putting the sustainability of government finances at risk. The recovery and resilience plan does not address the long-term sustainability of the pension system. Specifically, that plan does not address the negative effects of early retirement schemes and financial incentives to leave the labour market early, which contribute to the low rate of employment among older workers. Raising the effective retirement age would have a beneficial macroeconomic impact and the potential to reduce spending on pensions, since a higher rate of older workers in employment would support economic growth. The fight against aggressive tax planning in the Union is essential to: (i) prevent distortion of competition between firms; (ii) ensure fair treatment of taxpayers; and (iii) safeguard government finances. Luxembourg is a small, open economy, with a large international financial sector, which to a significant extent explains the large financial flows. However, those flows also reflect the presence of many foreign-owned companies in the country, which are involved in intra-group treasury activities. A particular point of concern is the absence of withholding taxes, or equivalent measures on interest and royalty payments made to low or zero-tax jurisdictions beyond those countries included in the Union list of non-cooperative jurisdictions (19). Outbound payments of interest and royalties from Luxembourg-based companies to third-country jurisdictions could be subject to little or no taxation if these payments are not taxed or taxed at a low level in the recipient jurisdiction. Luxembourg has taken some steps to fight aggressive tax planning. However, so far these measures have been insufficient to address those features of the tax system, which can be used by multinationals to engage in aggressive tax planning. |
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(28)

The impact of demographic trends on government spending will become more acute in the coming decades, as the number of pensioners per worker is expected to rise steadily due to the ageing population and the slowdown in net migration flows. In a scenario where there is no policy change, Luxembourg will face one of the Union’s sharpest increases in pension spending as a share of GDP, which is projected to double to around 18 % of GDP by 2070, the highest in the Union. This will lead to a significant increase in government debt, putting the sustainability of government finances at risk. The recovery and resilience plan does not address the long-term sustainability of the pension system. Specifically, that plan does not address the negative effects of early retirement schemes and financial incentives to leave the labour market early, which contribute to the low rate of employment among older workers. Raising the effective retirement age would have a beneficial macroeconomic impact and the potential to reduce spending on pensions, since a higher rate of older workers in employment would support economic growth. The fight against aggressive tax planning in the Union is essential to: (i) prevent distortion of competition between firms; (ii) ensure fair treatment of taxpayers; and (iii) safeguard government finances. Luxembourg is a small, open economy, with a large international financial sector, which to a significant extent explains the large financial flows. However, those flows also reflect the presence of many foreign-owned companies in the country, which are involved in intra-group treasury activities. A particular point of concern is the absence of withholding taxes, or equivalent measures on interest and royalty payments made to low or zero-tax jurisdictions beyond those countries included in the Union list of non-cooperative jurisdictions (19). Outbound payments of interest and royalties from Luxembourg-based companies to third-country jurisdictions could be subject to little or no taxation if these payments are not taxed or taxed at a low level in the recipient jurisdiction. Luxembourg has taken some steps to fight aggressive tax planning. However, so far these measures have been insufficient to address those features of the tax system, which can be used by multinationals to engage in aggressive tax planning.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Luxembourg’s recovery and resilience plan is underway. Luxembourg submitted its first payment request on 28 December 2022, corresponding to 26 milestones and targets in the Council Implementing Decision, for the disbursement of EUR 20 million under the Facility. The Commission published its positive preliminary assessment on 28 April 2023. The Council is discussing the payment request. The milestones and targets concerned include the entry into force of the ‘Housing Pact 2.0’ reform, aimed at increasing the supply of affordable rental housing offered by municipalities, investments for the digitalisation of the public sector and for the development of ultra-secure communication, the upskilling of the workforce with the launch of the ‘FutureSkills’ programme, as well as a reform on the procurement of clean vehicles. Luxembourg submitted an amendment to its recovery and resilience plan on 11 November 2022, which was approved by the Council on 17 January 2023. Luxembourg is expected to submit a REPowerEU chapter and has already decided to transfer 128,5 million EUR from the Brexit Adjustment Reserve to the Facility to finance its implementation. The swift inclusion of the new REPowerEU chapter into the recovery and resilience plan will allow additional reforms and investments to be financed in support of Luxembourg’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Luxembourg’s recovery and resilience plan is underway. Luxembourg submitted its first payment request on 28 December 2022, corresponding to 26 milestones and targets in the Council Implementing Decision, for the disbursement of EUR 20 million under the Facility. The Commission published its positive preliminary assessment on 28 April 2023. The Council is discussing the payment request. The milestones and targets concerned include the entry into force of the ‘Housing Pact 2.0’ reform, aimed at increasing the supply of affordable rental housing offered by municipalities, investments for the digitalisation of the public sector and for the development of ultra-secure communication, the upskilling of the workforce with the launch of the ‘FutureSkills’ programme, as well as a reform on the procurement of clean vehicles. Luxembourg submitted an amendment to its recovery and resilience plan on 11 November 2022, which was approved by the Council on 17 January 2023. Luxembourg is expected to submit a REPowerEU chapter and has already decided to transfer 128,5 million EUR from the Brexit Adjustment Reserve to the Facility to finance its implementation. The swift inclusion of the new REPowerEU chapter into the recovery and resilience plan will allow additional reforms and investments to be financed in support of Luxembourg’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Luxembourg’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Luxembourg. |
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(30)

The Commission approved all Luxembourg’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Luxembourg.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Luxembourg faces a number of additional challenges, in particular the long-term sustainability of public finances mainly stemming from the pension system, legal loopholes that could be used by multinationals engaging in aggressive tax planning, vulnerabilities related to high house prices and household debt, weaknesses in the education system that add to inequality and issues related to energy policy and the green transition, including potential obstacles to the transition from fossil fuels and issues with the transport network. |
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(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Luxembourg faces a number of additional challenges, in particular the long-term sustainability of public finances mainly stemming from the pension system, legal loopholes that could be used by multinationals engaging in aggressive tax planning, vulnerabilities related to high house prices and household debt, weaknesses in the education system that add to inequality and issues related to energy policy and the green transition, including potential obstacles to the transition from fossil fuels and issues with the transport network.

| (32) | Pupils’ basic skills and overall performance depend largely on their socioeconomic and linguistic background. Average levels in key knowledge and skills at age 15, as measured by the OECD Programme for International Student Assessment (PISA), are significantly lower in Luxembourg than the Union average. The gap between advantaged students and their disadvantaged peers is bigger in Luxembourg than any other Union country. The education system does not equip all pupils with the basic skills necessary to meet the country’s labour market needs. The language spoken in the national school system at primary level is Luxembourgish, while pupils learn to read and write in German. All subjects (except for French) are taught in German. This constitutes a very high demand for language skills in a country where only one in three pupils speaks Luxembourgish as their first language. The share of young people 18–24 who left education and training without completing upper secondary education increased from 6,3 % in 2018 to 8,2 % in 2022. In September 2022, Luxembourg launched a pilot project in four primary schools, where pupils start learning first in French and then in German. If extended to more schools, this approach could help improve the performance of pupils whose first language is not French. Luxembourg also increased its supply of public international schools: as of 2022/2023, 4 % of the pupils at pre-primary and primary levels are enrolled in such schools, where they can choose between English, French or German as the language of instruction. If this option of teaching through one main language were extended to cover a larger part of the school population, it could substantially improve pupils’ chances of attaining better learning outcomes. |
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(32)

Pupils’ basic skills and overall performance depend largely on their socioeconomic and linguistic background. Average levels in key knowledge and skills at age 15, as measured by the OECD Programme for International Student Assessment (PISA), are significantly lower in Luxembourg than the Union average. The gap between advantaged students and their disadvantaged peers is bigger in Luxembourg than any other Union country. The education system does not equip all pupils with the basic skills necessary to meet the country’s labour market needs. The language spoken in the national school system at primary level is Luxembourgish, while pupils learn to read and write in German. All subjects (except for French) are taught in German. This constitutes a very high demand for language skills in a country where only one in three pupils speaks Luxembourgish as their first language. The share of young people 18–24 who left education and training without completing upper secondary education increased from 6,3 % in 2018 to 8,2 % in 2022. In September 2022, Luxembourg launched a pilot project in four primary schools, where pupils start learning first in French and then in German. If extended to more schools, this approach could help improve the performance of pupils whose first language is not French. Luxembourg also increased its supply of public international schools: as of 2022/2023, 4 % of the pupils at pre-primary and primary levels are enrolled in such schools, where they can choose between English, French or German as the language of instruction. If this option of teaching through one main language were extended to cover a larger part of the school population, it could substantially improve pupils’ chances of attaining better learning outcomes.

| (33) | Luxembourg’s energy system is characterised by high import dependence and reliance on fossil fuels. The country is a large net importer of energy. It is almost entirely dependent on primary energy imports, with a dependency rate of 92 % in 2021. Oil provided 69 % of Luxembourg’s energy mix, and natural gas 18 %, while 12 % came from renewable energy sources, reaching a capacity of 572 MW in 2022. Luxembourg imports no oil from Russia. As regards gas, dependency on Russia is limited, as nearly 100 % of the gas Luxembourg consumed was imported by pipelines from Belgium and Germany, flowing from Norway and the Netherlands. Luxembourg’s consumption of natural gas dropped by 26 % in the period August between 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 1369/2022 (20). Luxembourg could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (21). |
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(33)

Luxembourg’s energy system is characterised by high import dependence and reliance on fossil fuels. The country is a large net importer of energy. It is almost entirely dependent on primary energy imports, with a dependency rate of 92 % in 2021. Oil provided 69 % of Luxembourg’s energy mix, and natural gas 18 %, while 12 % came from renewable energy sources, reaching a capacity of 572 MW in 2022. Luxembourg imports no oil from Russia. As regards gas, dependency on Russia is limited, as nearly 100 % of the gas Luxembourg consumed was imported by pipelines from Belgium and Germany, flowing from Norway and the Netherlands. Luxembourg’s consumption of natural gas dropped by 26 % in the period August between 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 1369/2022 (20). Luxembourg could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (21).

| (34) | While Luxembourg is highly interconnected in terms of both power and gas, further investment will be needed in anticipation of growing renewable generation and power demand. Luxembourg has to address the challenge of insufficient housing supply while achieving its energy and climate targets. There is also a need to renovate the existing building stock. With 20,8 % of the total energy saving potential (in terms of GWh), the residential building and renovation sector represents the second-largest source of cumulative energy saving potential by 2030. Around 89 % of residential building stock uses heating systems based on fossil fuels (heating oil and natural gas). Municipalities will have a key role in this respect. Road traffic congestion weighs on the economy and on environmental sustainability. Transport accounts for a significant share of oil consumption and for 59 % of total greenhouse gas emissions, which compares to an Union average of 24 % in 2019. While Luxembourg adopted some relevant measures to improve sustainable transport, additional, more targeted interventions would substantially help reduce oil dependence and greenhouse emissions. This is reflected in Luxembourg’s national energy and climate plan (NECP), which sets a target of 40 % of electric and plug-in vehicles for its vehicle fleet by 2030. Luxembourg has set itself the target of becoming climate neutral by 2050. It has made considerable progress in recent years on renewable energies but remains one of the Member States with the lowest share of those energies. Further increases in ambition for reducing greenhouse gas emissions and increasing renewable energy and energy efficiency will be needed for Luxembourg to reach its 2030 energy targets – obtaining 25 % of energy from renewables and reducing final energy consumption by 40 % to 44 % compared to 2007. |
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(34)

While Luxembourg is highly interconnected in terms of both power and gas, further investment will be needed in anticipation of growing renewable generation and power demand. Luxembourg has to address the challenge of insufficient housing supply while achieving its energy and climate targets. There is also a need to renovate the existing building stock. With 20,8 % of the total energy saving potential (in terms of GWh), the residential building and renovation sector represents the second-largest source of cumulative energy saving potential by 2030. Around 89 % of residential building stock uses heating systems based on fossil fuels (heating oil and natural gas). Municipalities will have a key role in this respect. Road traffic congestion weighs on the economy and on environmental sustainability. Transport accounts for a significant share of oil consumption and for 59 % of total greenhouse gas emissions, which compares to an Union average of 24 % in 2019. While Luxembourg adopted some relevant measures to improve sustainable transport, additional, more targeted interventions would substantially help reduce oil dependence and greenhouse emissions. This is reflected in Luxembourg’s national energy and climate plan (NECP), which sets a target of 40 % of electric and plug-in vehicles for its vehicle fleet by 2030. Luxembourg has set itself the target of becoming climate neutral by 2050. It has made considerable progress in recent years on renewable energies but remains one of the Member States with the lowest share of those energies. Further increases in ambition for reducing greenhouse gas emissions and increasing renewable energy and energy efficiency will be needed for Luxembourg to reach its 2030 energy targets – obtaining 25 % of energy from renewables and reducing final energy consumption by 40 % to 44 % compared to 2007.

| (35) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors most affected by the green transition. While Luxembourg has increased its efforts to upskill and reskill workers in declining and transforming sectors, labour shortages persist in some occupations, including policy and planning managers. Those labour shortages might lead to a possible bottleneck in the green transition and in the implementation of REPowerEU. |
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(35)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors most affected by the green transition. While Luxembourg has increased its efforts to upskill and reskill workers in declining and transforming sectors, labour shortages persist in some occupations, including policy and planning managers. Those labour shortages might lead to a possible bottleneck in the green transition and in the implementation of REPowerEU.

| (36) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (22) is reflected in recommendation (1). |
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(36)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (22) is reflected in recommendation (1).

| (37) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Luxembourg, recommendations (1), (2) and (4) contribute to the implementation of the first, second, third, fourth and fifth recommendations set out in the 2023 Recommendation on the euro-area, |
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(37)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Luxembourg, recommendations (1), (2) and (4) contribute to the implementation of the first, second, third, fourth and fifth recommendations set out in the 2023 Recommendation on the euro-area,

HEREBY RECOMMENDS that Luxembourg take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 4,8 % (23).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Reduce risks related to the housing market, in particular by reducing mortgage interest deductibility and by taking measures to increase the supply of buildable land. Address the long-term sustainability of the pension system, in particular by limiting early retirement options and by increasing the employment rate for older workers. Increase action to effectively tackle aggressive tax planning, in particular by ensuring sufficient taxation of outbound payments of interest and royalties to zero/low-tax jurisdictions.

2.

Proceed with the steady implementation of its revised recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the swift implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Improve the performance of the school education system and promote equal opportunities for all students, in particular by adapting teaching to the needs of disadvantaged students and those from various linguistic backgrounds.

4.

Reduce reliance on fossil fuels by accelerating the deployment of renewable energy, increasing electricity transmission capacity, easing permitting procedures and investing in energy efficiency in both the residential and non-residential sectors. Support municipalities in developing detailed local plans for deploying renewable energy, including wind power and photovoltaics, and for district heating and cooling systems. Further promote the electrification of transport and invest in public transport networks and infrastructure. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10155/21 INIT; ST 10155/21 ADD 1.

6

(7)  Payable tax credits can exceed the tax liability and affect non-taxpayers as well as taxpayers; therefore, they are classified as expenditure in national accounts (ESA 2010, Articles 20.167 and 20.168).

7

(8)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Luxembourg (OJ C 304, 29.7.2021, p. 73).

8

(9)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

9

(10)  Other nationally financed capital expenditure provided a contractionary contribution of 0,4 percentage points of GDP, due to a decline in ‘Other capital transfers’ mainly related to phasing out of business support and recovery assistance in the context of the COVID-19 pandemic (Recovery and solidarity fund for businesses).

10

(11)  For nominal GDP the picture is slightly different; the 2023 Stability Programme forecasts nominal GDP growth rates of 4,7 % in 2023 and 6,0 % in 2024, while the Commission’s 2023 spring forecast projects a higher rate of 7,1 % in 2023, and a comparable rate of 5,9 % in 2024.

11

(12)  That figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as, where relevant, capital expenditure measures.

12

(13)  Council Recommendation of 12 July 2022 on the National Reform Programme of Luxembourg and delivering a Council opinion on the 2022 Stability Programme of Luxembourg (OJ C 334, 1.9.2022, p. 128).

13

(14)  On the basis of the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Luxembourg, which is used to measure the fiscal stance, is estimated at 7,8 % in nominal terms.

14

(15)  Other nationally financed capital expenditure is projected to provide a neutral contribution to GDP.

15

(16)  The Commission’s definition of energy measures only includes fiscal policy measures directly affecting energy prices or providing temporary income support for energy consumption. General inflation support measures are not classified as energy measures, which explains a difference in the estimated budgetary cost of energy support measures between the 2023 Stability Programme and the Commission’s 2023 spring forecast.

16

(17)  Article 5 of Regulation (EC) No 1466/97 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.

17

(18)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

18

(19)  Council Conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes (OJ C 64, 21.2.2023, p. 17).

19

(20)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

20

(21)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

21

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

22

(23)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 24.

23

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/155 |
| --- | --- | --- | --- |

1.9.2023

EN

Official Journal of the European Union

C 312/155

---

COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Hungary and delivering a Council opinion on the 2023 Convergence Programme of Hungary

(2023/C 312/17)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

Having regard to the recommendation of the European Commission,

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 (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Hungary as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, 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 and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Hungary as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, 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 and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
| --- | --- |

(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
| --- | --- |

(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 11 May 2021, Hungary 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 set out in Annex V to that Regulation. On 15 December 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Hungary (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Hungary 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. |
| --- | --- |

(9)

On 11 May 2021, Hungary 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 set out in Annex V to that Regulation. On 15 December 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Hungary (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Hungary 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 2 May 2023, Hungary 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 Hungary’s biannual reporting on the progress made in achieving its recovery and resilience plan. On 1 June 2023, a new law on the judicial system entered into force. |
| --- | --- |

(10)

On 2 May 2023, Hungary 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 Hungary’s biannual reporting on the progress made in achieving its recovery and resilience plan. On 1 June 2023, a new law on the judicial system entered into force.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Hungary. It assessed Hungary’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Hungary’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Hungary’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
| --- | --- |

(11)

On 24 May 2023, the Commission published the 2023 country report for Hungary. It assessed Hungary’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Hungary’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Hungary’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Hungary and published its results on 24 May 2023. The Commission concluded that Hungary is experiencing macroeconomic imbalances. In particular, vulnerabilities related to very strong price pressures and external and government financing needs have increased and are significant. Inflation has risen significantly and has not yet started moderating visibly. Should inflation remain elevated for an extended period, it would further undermine cost competitiveness and could leave financing costs elevated. The large current account deficit was strongly increased by the higher energy prices in 2022, and short-term external debt has risen. Improvements in the current account in 2023 and 2024 depend on the expected further moderation of energy prices, but the current account deficit is nonetheless forecast to remain non-negligeable in 2023 and 2024. The high energy intensity of the economy is important for current account dynamics. The government deficit has been large, only partly driven by the policy responses to the pandemic and the energy crises, and accounts for much of the external borrowing of the economy. The government debt ratio decreased thanks to marked nominal GDP growth, but that may be challenged by a slowdown in activity and the persistence of high deficits. Sovereign borrowing costs have increased since 2021, and the government is facing an increasing interest burden, while debt maturity is still relatively low. House prices doubled over five years but price increases halted in late 2022. However, the likelihood of a substantial nominal price drop seems limited amid low household indebtedness, and also in light of the current high inflation environment. Policy inconsistencies have exacerbated the identified vulnerabilities. Effective coordination and clear demarcation of macroeconomic policies, underpinned by a strong institutional policy framework, is instrumental to safeguard fiscal and external sustainability as well as to anchor expectations. Timely and full implementation of structural reforms included in Hungary’s recovery and resilience plan is expected to help reduce macroeconomic vulnerabilities and support growth and adjustment in the medium term. |
| --- | --- |

(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Hungary and published its results on 24 May 2023. The Commission concluded that Hungary is experiencing macroeconomic imbalances. In particular, vulnerabilities related to very strong price pressures and external and government financing needs have increased and are significant. Inflation has risen significantly and has not yet started moderating visibly. Should inflation remain elevated for an extended period, it would further undermine cost competitiveness and could leave financing costs elevated. The large current account deficit was strongly increased by the higher energy prices in 2022, and short-term external debt has risen. Improvements in the current account in 2023 and 2024 depend on the expected further moderation of energy prices, but the current account deficit is nonetheless forecast to remain non-negligeable in 2023 and 2024. The high energy intensity of the economy is important for current account dynamics. The government deficit has been large, only partly driven by the policy responses to the pandemic and the energy crises, and accounts for much of the external borrowing of the economy. The government debt ratio decreased thanks to marked nominal GDP growth, but that may be challenged by a slowdown in activity and the persistence of high deficits. Sovereign borrowing costs have increased since 2021, and the government is facing an increasing interest burden, while debt maturity is still relatively low. House prices doubled over five years but price increases halted in late 2022. However, the likelihood of a substantial nominal price drop seems limited amid low household indebtedness, and also in light of the current high inflation environment. Policy inconsistencies have exacerbated the identified vulnerabilities. Effective coordination and clear demarcation of macroeconomic policies, underpinned by a strong institutional policy framework, is instrumental to safeguard fiscal and external sustainability as well as to anchor expectations. Timely and full implementation of structural reforms included in Hungary’s recovery and resilience plan is expected to help reduce macroeconomic vulnerabilities and support growth and adjustment in the medium term.

| (13) | According to data validated by Eurostat, Hungary’s general government deficit decreased from 7,1 % of GDP in 2021 to 6,2 % in 2022, while general government debt fell from 76,6 % of GDP at the end of 2021 to 73,3 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Hungary, 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, the Commission did not propose to open new excessive-deficit procedures in spring 2023. The Commission subsequently 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. Hungary should take account of this in the execution of its 2023 budget and in preparing its budget for 2024. |
| --- | --- |

(13)

According to data validated by Eurostat, Hungary’s general government deficit decreased from 7,1 % of GDP in 2021 to 6,2 % in 2022, while general government debt fell from 76,6 % of GDP at the end of 2021 to 73,3 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Hungary, 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, the Commission did not propose to open new excessive-deficit procedures in spring 2023. The Commission subsequently 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. Hungary should take account of this in the execution of its 2023 budget and in preparing its budget for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a cut in excise duties on fuels, while such fiscal policy expenditure-increasing measures included subsidies to utility companies for the losses incurred due to caps on residential energy prices, and support schemes for energy-intensive companies. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely a temporary tax on the spread between Brent and Urals oil, a temporary tax on the income of energy suppliers and a temporary increase in mining royalty. The Commission estimates the net budgetary cost of those measures at 1,0 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,1 % of GDP in 2022, from 1,9 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a cut in excise duties on fuels, while such fiscal policy expenditure-increasing measures included subsidies to utility companies for the losses incurred due to caps on residential energy prices, and support schemes for energy-intensive companies. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely a temporary tax on the spread between Brent and Urals oil, a temporary tax on the income of energy suppliers and a temporary increase in mining royalty. The Commission estimates the net budgetary cost of those measures at 1,0 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,1 % of GDP in 2022, from 1,9 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Hungary (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Hungary (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 0,4 % of GDP, as recommended by the Council. As recommended by the Council, Hungary continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,5 % of GDP in 2022 (2,1 % of GDP in 2021). The decrease in expenditures financed by Facility grants and other Union funds in 2022 was due to a lower absorption of the European structural and investment funds. Nationally financed investment provided a contractionary contribution of 0,2 percentage points to the fiscal stance (9). Hungary therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,6 percentage points to the fiscal stance. Hungary therefore sufficiently kept under control the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at ‒ 0,4 % of GDP, as recommended by the Council. As recommended by the Council, Hungary continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,5 % of GDP in 2022 (2,1 % of GDP in 2021). The decrease in expenditures financed by Facility grants and other Union funds in 2022 was due to a lower absorption of the European structural and investment funds. Nationally financed investment provided a contractionary contribution of 0,2 percentage points to the fiscal stance (9). Hungary therefore did not preserve nationally financed investment, which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided a contractionary contribution of 0,6 percentage points to the fiscal stance. Hungary therefore sufficiently kept under control the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,5 % in 2023 and 4,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 0,5 % in 2023 and 2,8 % in 2024, mainly due to lower expected growth in private consumption driven by lower expected growth in nominal wages and a slightly higher unemployment rate. The Commission also projects lower growth in government consumption and net exports. The nominal GDP growth projected in the Commission’s spring 2023 forecast is lower over the forecast horizon due to the lower expected GDP growth and GDP deflator. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is more favourable than the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,5 % in 2023 and 4,0 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 0,5 % in 2023 and 2,8 % in 2024, mainly due to lower expected growth in private consumption driven by lower expected growth in nominal wages and a slightly higher unemployment rate. The Commission also projects lower growth in government consumption and net exports. The nominal GDP growth projected in the Commission’s spring 2023 forecast is lower over the forecast horizon due to the lower expected GDP growth and GDP deflator.

| (18) | In its 2023 Convergence Programme, the government expects that the general government deficit will decrease to 3,9 % of GDP in 2023. The decrease in 2023 mainly reflects higher tax revenue driven by the high inflation and temporary windfall profit and sectoral taxes estimated at 1,5 % of GDP in 2023. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 73,3 % at the end of 2022 to 69,7 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,0 % of GDP for 2023. This is in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 70,7 % at the end of 2023. The difference is due to the lower GDP growth and GDP deflator in the Commission’s spring 2023 forecast. |
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(18)

In its 2023 Convergence Programme, the government expects that the general government deficit will decrease to 3,9 % of GDP in 2023. The decrease in 2023 mainly reflects higher tax revenue driven by the high inflation and temporary windfall profit and sectoral taxes estimated at 1,5 % of GDP in 2023. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 73,3 % at the end of 2022 to 69,7 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 4,0 % of GDP for 2023. This is in line with the deficit projected in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 70,7 % at the end of 2023. The difference is due to the lower GDP growth and GDP deflator in the Commission’s spring 2023 forecast.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular subsidies to utility companies for the losses incurred due to caps on residential energy prices and support schemes for energy-intensive companies. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,2 % of GDP in 2023 (10). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and most of them do not fully preserve the price signal to reduce energy demand and increase energy efficiency. As a result, no targeted support measures are to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (11). |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular subsidies to utility companies for the losses incurred due to caps on residential energy prices and support schemes for energy-intensive companies. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,2 % of GDP in 2023 (10). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and most of them do not fully preserve the price signal to reduce energy demand and increase energy efficiency. As a result, no targeted support measures are to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (11).

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Hungary take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Hungary should stand ready to adjust current spending to the evolving situation. Hungary 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Hungary take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Hungary should stand ready to adjust current spending to the evolving situation. Hungary 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 4,2 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 0,4 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 2,2 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,3 % of GDP in 2023, while nationally financed investment is projected to provide a contractionary contribution to the fiscal stance of 0,6 percentage points (13). Therefore, Hungary plans to finance additional investment through the Facility and other Union funds, although 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, such as development of the electricity grid, modernisation of suburban railways, support for the use of residential solar panels, provision of laptops to teachers and pupils in lower and upper secondary schools and digitalisation measures in healthcare, which are funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 4,2 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 0,4 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 2,2 % of GDP to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,3 % of GDP in 2023, while nationally financed investment is projected to provide a contractionary contribution to the fiscal stance of 0,6 percentage points (13). Therefore, Hungary plans to finance additional investment through the Facility and other Union funds, although 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, such as development of the electricity grid, modernisation of suburban railways, support for the use of residential solar panels, provision of laptops to teachers and pupils in lower and upper secondary schools and digitalisation measures in healthcare, which are funded by the Facility and other Union funds.

| (22) | According to the 2023 Convergence Programme the general government deficit is expected to decrease to 2,9 % of GDP in 2024. The decrease in 2024 mainly reflects a significant reduction in general government spending as a share of GDP, in particular on gross fixed capital formation, intermediate consumption and compensation of employees. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease to 66,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,4 % of GDP in 2024. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to higher projected expenditure on gross fixed capital formation in line with recent trends and higher intermediate consumption driven by lingering inflationary pressures. The Commission’s 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 71,1 % at the end of 2024. |
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(22)

According to the 2023 Convergence Programme the general government deficit is expected to decrease to 2,9 % of GDP in 2024. The decrease in 2024 mainly reflects a significant reduction in general government spending as a share of GDP, in particular on gross fixed capital formation, intermediate consumption and compensation of employees. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease to 66,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,4 % of GDP in 2024. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to higher projected expenditure on gross fixed capital formation in line with recent trends and higher intermediate consumption driven by lingering inflationary pressures. The Commission’s 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 71,1 % at the end of 2024.

| (23) | The 2023 Convergence Programme envisages the phasing-out of some of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,4 % of GDP in 2024, compared to 1,2 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear targeted to vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and to increase energy efficiency. |
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(23)

The 2023 Convergence Programme envisages the phasing-out of some of the energy support measures in 2024. The Commission currently assumes the net cost of energy support measures at 0,4 % of GDP in 2024, compared to 1,2 % of GDP in 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear targeted to vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and to increase energy efficiency.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 4,4 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the Union average and which could lead to competitiveness losses if persistent, and to safeguarding the external position. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,2 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure lower than recommended for 2024. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 4,4 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the Union average and which could lead to competitiveness losses if persistent, and to safeguarding the external position. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,2 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure lower than recommended for 2024.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 7,0 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of the energy support measures, which is due to higher expenditure on intermediate consumption and on gross fixed capital formation and the expected phasing-out of the temporary windfall profit and sectoral taxes. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 7,0 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of the energy support measures, which is due to higher expenditure on intermediate consumption and on gross fixed capital formation and the expected phasing-out of the temporary windfall profit and sectoral taxes.

| (26) | According to the 2023 Convergence Programme, government investment is expected to decrease from 5,1 % of GDP in 2023 to 3,7 % of GDP in 2024. The lower investment reflects lower nationally financed investment and lower investment financed by the Union. |
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(26)

According to the 2023 Convergence Programme, government investment is expected to decrease from 5,1 % of GDP in 2023 to 3,7 % of GDP in 2024. The lower investment reflects lower nationally financed investment and lower investment financed by the Union.

| (27) | The 2023 Convergence Programme outlines a medium-term fiscal path until 2027. According to the 2023 Convergence Programme, the general government deficit is expected to gradually decline to 1,9 % of GDP in 2025, 1,4 % in 2026 and 0,9 % in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 66,7 % at the end of 2024 to 56,3 % by the end of 2027. |
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(27)

The 2023 Convergence Programme outlines a medium-term fiscal path until 2027. According to the 2023 Convergence Programme, the general government deficit is expected to gradually decline to 1,9 % of GDP in 2025, 1,4 % in 2026 and 0,9 % in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 66,7 % at the end of 2024 to 56,3 % by the end of 2027.

| (28) | Monetary, fiscal and economic development policies responded to recent economic challenges in an uncoordinated way, weakening the effectiveness of the overall policy response. Monetary policy started to tighten in 2021, but fiscal expansion continued until early 2022. Several temporary policy measures introduced since 2021 have aimed to preserve households’ purchasing power in an untargeted manner, through price and interest-rate caps and fiscally costly energy subsidies. Price caps were introduced on motor fuels and certain basic food items. Interest-rate caps were introduced on variable rate mortgages, loans to small and medium-sized enterprises, certain student loans, and large bank deposits. Most of those measures are due to expire in 2023. The cost of the measures has mostly been borne by companies and the financial sector, through higher indirect taxes, and their distortive effects have contributed to lower domestic production and higher prices among products not directly affected by the caps. They have also hindered the adjustment of demand to a new economic environment. Economic development policies have relied on subsidised loan schemes to help companies adjust to economic shocks. A large, subsidised loan scheme with fixed interest rates was launched in February 2023, to support companies that face rising energy costs. The price and interest-rate caps and subsidised lending have counteracted monetary policy efforts to reduce inflation, inter alia by reducing the effectiveness of the central bank’s instruments. The European Central Bank has found that certain regulatory measures, including the cap on bank deposit rates, impede the conduct of an efficient monetary policy. |
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(28)

Monetary, fiscal and economic development policies responded to recent economic challenges in an uncoordinated way, weakening the effectiveness of the overall policy response. Monetary policy started to tighten in 2021, but fiscal expansion continued until early 2022. Several temporary policy measures introduced since 2021 have aimed to preserve households’ purchasing power in an untargeted manner, through price and interest-rate caps and fiscally costly energy subsidies. Price caps were introduced on motor fuels and certain basic food items. Interest-rate caps were introduced on variable rate mortgages, loans to small and medium-sized enterprises, certain student loans, and large bank deposits. Most of those measures are due to expire in 2023. The cost of the measures has mostly been borne by companies and the financial sector, through higher indirect taxes, and their distortive effects have contributed to lower domestic production and higher prices among products not directly affected by the caps. They have also hindered the adjustment of demand to a new economic environment. Economic development policies have relied on subsidised loan schemes to help companies adjust to economic shocks. A large, subsidised loan scheme with fixed interest rates was launched in February 2023, to support companies that face rising energy costs. The price and interest-rate caps and subsidised lending have counteracted monetary policy efforts to reduce inflation, inter alia by reducing the effectiveness of the central bank’s instruments. The European Central Bank has found that certain regulatory measures, including the cap on bank deposit rates, impede the conduct of an efficient monetary policy.

| (29) | Weaknesses in budget planning and execution have increased the expansionary bias of fiscal policy and have therefore contributed to many of Hungary’s current macroeconomic challenges. Since 2016, the very early adoption of annual budgets has reduced the quality of the macroeconomic and budgetary forecasts. Various budget flexibility rules and large budget reserves allowed for higher discretionary spending, which exacerbated the procyclicality of fiscal policy. Ad hoc spending decisions were often made at the end of the budget year or were enacted by government decrees throughout the year without adequate parliamentary oversight and public consultation, in turn reducing budget transparency. The national fiscal framework has not prevented high public deficits due to shortcomings in the design of domestic fiscal rules, including a debt rule with procyclical features, the weak enforcement of medium-term budget planning, further eroded by the special provisions of the ‘state of danger’ regime, and the limited role and resources of the national fiscal council. The national fiscal council’s limited mandate and resources limit its effectiveness in steering public discussions on fiscal issues. |
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(29)

Weaknesses in budget planning and execution have increased the expansionary bias of fiscal policy and have therefore contributed to many of Hungary’s current macroeconomic challenges. Since 2016, the very early adoption of annual budgets has reduced the quality of the macroeconomic and budgetary forecasts. Various budget flexibility rules and large budget reserves allowed for higher discretionary spending, which exacerbated the procyclicality of fiscal policy. Ad hoc spending decisions were often made at the end of the budget year or were enacted by government decrees throughout the year without adequate parliamentary oversight and public consultation, in turn reducing budget transparency. The national fiscal framework has not prevented high public deficits due to shortcomings in the design of domestic fiscal rules, including a debt rule with procyclical features, the weak enforcement of medium-term budget planning, further eroded by the special provisions of the ‘state of danger’ regime, and the limited role and resources of the national fiscal council. The national fiscal council’s limited mandate and resources limit its effectiveness in steering public discussions on fiscal issues.

| (30) | House prices have grown strongly in Hungary in the last decade, while housing supply has remained limited. Weakly targeted subsidy schemes for home purchase, also available for higher income households already in possession of a dwelling, have contributed to recent price increases. Subsidies on housing construction, including grants, subsidised loans and preferential VAT rates, are similarly untargeted. |
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(30)

House prices have grown strongly in Hungary in the last decade, while housing supply has remained limited. Weakly targeted subsidy schemes for home purchase, also available for higher income households already in possession of a dwelling, have contributed to recent price increases. Subsidies on housing construction, including grants, subsidised loans and preferential VAT rates, are similarly untargeted.

| (31) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. In accordance with Article 14(6) of Regulation (EU) 2021/241, Hungary expressed its intention to request up to EUR 6 600 000 000 of additional loan support under the Facility. Proceeding swiftly with the implementation of the recovery and resilience plan is essential due to the temporary nature of the Facility in place until 2026. It is equally important for Hungary to ensure an adequate administrative capacity to deliver on the commitments of the recovery and resilience plan. 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 Hungary’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. The implementation of Hungary’s recovery and resilience plan has been significantly delayed due to the late adoption of the Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Hungary in December 2022. A swift and steady implementation of the recovery and resilience plan would require the fulfilment of 27 milestones related to strengthening judicial independence and safeguarding the protection of the financial interests of the Union. No payment under the recovery and resilience plan is possible until these milestones are fully and correctly implemented. Hungary’s REPowerEU grant allocation amounts to EUR 701,6 million. Hungary plans to use the REPowerEU grant and additional loan on energy related investments. |
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(31)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. In accordance with Article 14(6) of Regulation (EU) 2021/241, Hungary expressed its intention to request up to EUR 6 600 000 000 of additional loan support under the Facility. Proceeding swiftly with the implementation of the recovery and resilience plan is essential due to the temporary nature of the Facility in place until 2026. It is equally important for Hungary to ensure an adequate administrative capacity to deliver on the commitments of the recovery and resilience plan. 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 Hungary’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. The implementation of Hungary’s recovery and resilience plan has been significantly delayed due to the late adoption of the Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Hungary in December 2022. A swift and steady implementation of the recovery and resilience plan would require the fulfilment of 27 milestones related to strengthening judicial independence and safeguarding the protection of the financial interests of the Union. No payment under the recovery and resilience plan is possible until these milestones are fully and correctly implemented. Hungary’s REPowerEU grant allocation amounts to EUR 701,6 million. Hungary plans to use the REPowerEU grant and additional loan on energy related investments.

| (32) | The Commission approved all Hungary’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Hungary. |
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(32)

The Commission approved all Hungary’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Hungary.

| (33) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Hungary faces a number of additional challenges related to poverty, labour market competition in services and energy. |
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(33)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Hungary faces a number of additional challenges related to poverty, labour market competition in services and energy.

| (34) | While the overall poverty indicators have improved over the last decade, the relative situation of certain disadvantaged groups such as low-income households, children, people with disabilities, Roma and people living in remote rural settlements has worsened. The severe material and social deprivation rate is one of the highest in the Union, with significant disparities between regions. It is especially high among children and Roma. Disadvantaged groups face difficulties in accessing adequate social assistance, education, healthcare and job-seeking services. Households without a stable income face a weakening social safety net. The tax system disproportionately burdens lower-paid workers. The major sources of income for low-income households have not kept up with the cost of living in the last decade. The adequacy of minimum income is one of the lowest in the Union. Recent increases in energy and food prices disproportionately burden low-income earners, while support measures are mainly untargeted. The recent amendment of the social protection legislation reduced the State’s responsibility to provide social care. |
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(34)

While the overall poverty indicators have improved over the last decade, the relative situation of certain disadvantaged groups such as low-income households, children, people with disabilities, Roma and people living in remote rural settlements has worsened. The severe material and social deprivation rate is one of the highest in the Union, with significant disparities between regions. It is especially high among children and Roma. Disadvantaged groups face difficulties in accessing adequate social assistance, education, healthcare and job-seeking services. Households without a stable income face a weakening social safety net. The tax system disproportionately burdens lower-paid workers. The major sources of income for low-income households have not kept up with the cost of living in the last decade. The adequacy of minimum income is one of the lowest in the Union. Recent increases in energy and food prices disproportionately burden low-income earners, while support measures are mainly untargeted. The recent amendment of the social protection legislation reduced the State’s responsibility to provide social care.

| (35) | The headline employment rate is relatively high, but certain disadvantaged groups such as Roma, low-skilled people, women with caring responsibilities and people with disabilities face difficulties in entering the open labour market due to weaknesses in education, training and social assistance systems and support structures for jobseekers. The employment rate gaps for the low-skilled, Roma and people with disabilities remain persistently high. One in five women seeking paid employment is left out of the labour market due to caring responsibilities for children or dependents with disabilities. Benefits and access to effective active labour market measures for disadvantaged groups are inadequate. The duration of the unemployment benefit is 3 months, while the average length of unemployment was 9,4 months, according to data from a labour force survey conducted in 2022. Four out of ten registered unemployed people are without benefits. The long average registration period signals capacity challenges in the public employment service. The share of jobseekers with low basic skills is more than double compared to the national average. The share of adults participating in learning remains low, in particular among the low-skilled and the unemployed. |
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(35)

The headline employment rate is relatively high, but certain disadvantaged groups such as Roma, low-skilled people, women with caring responsibilities and people with disabilities face difficulties in entering the open labour market due to weaknesses in education, training and social assistance systems and support structures for jobseekers. The employment rate gaps for the low-skilled, Roma and people with disabilities remain persistently high. One in five women seeking paid employment is left out of the labour market due to caring responsibilities for children or dependents with disabilities. Benefits and access to effective active labour market measures for disadvantaged groups are inadequate. The duration of the unemployment benefit is 3 months, while the average length of unemployment was 9,4 months, according to data from a labour force survey conducted in 2022. Four out of ten registered unemployed people are without benefits. The long average registration period signals capacity challenges in the public employment service. The share of jobseekers with low basic skills is more than double compared to the national average. The share of adults participating in learning remains low, in particular among the low-skilled and the unemployed.

| (36) | Social dialogue remains among the weakest in the Union and has further deteriorated recently. The main tripartite body serves mainly as an information-sharing and consultation forum and it has no formal legal framework, with no meaningful dialogue except for minimum wage setting. While the shortage of teachers is an increasing challenge, new legal provisions have curbed the rights of teachers to collective action and widened employers’ possibility to retroactively dismiss teachers participating in civil disobedience to protest labour conditions. Recent reforms, introduced without meaningful dialogue with the relevant unions, negatively affected working conditions and weakened self-representation for healthcare workers. |
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(36)

Social dialogue remains among the weakest in the Union and has further deteriorated recently. The main tripartite body serves mainly as an information-sharing and consultation forum and it has no formal legal framework, with no meaningful dialogue except for minimum wage setting. While the shortage of teachers is an increasing challenge, new legal provisions have curbed the rights of teachers to collective action and widened employers’ possibility to retroactively dismiss teachers participating in civil disobedience to protest labour conditions. Recent reforms, introduced without meaningful dialogue with the relevant unions, negatively affected working conditions and weakened self-representation for healthcare workers.

| (37) | Recently, there have been cases of public interference in a number of markets, which has weakened legal certainty. Those interventions tended to discourage or limit Union and foreign investment in certain markets, in effect enabling purchases of companies by State-owned enterprises or private firms with close ties to the government. The interventions also seriously affect the principles of the single market and of the rule of law, curbing opportunities for sustainable economic growth. For example, specific firms and industries face discriminatory treatment through tailor-made taxes, price caps and regulations imposed at short notice and without prior consultation. Since 2020, the government has also used its extraordinary power under the ‘state of danger’ to introduce such measures. Budget revenues from sector-specific taxes are significant. For example, the government recently imposed administrative price caps and a 90 % profit tax on the production of cement and ceramic materials. These are industries with a high degree of foreign ownership. In December 2022, the government suddenly increased the tax on insurance and pharmaceutical companies. Banks were burdened by a cap on flexible mortgage rates, impacting their ability to lend and their profitability. Selective and arbitrary administrative inspections, fines and withholding of permits have been used to exert undue pressure on certain companies, in particular in retail and transport. Effective remedies seem to be lacking against arbitrary measures taken by the authorities. The retail sector continues to face unpredictable regulations. The conditions for authorising the establishment of or changes to shops above 400 square metres do not seem to be transparent, and the availability of judicial review is questionable. The tax on the retail sector disproportionately burdens larger companies that do not have their headquarters in Hungary. The government frequently uses its power to exempt transactions from merger control.
  The impact of such transactions on the economy, competition and the single market is not being assessed. The criteria for the exemptions are not set out transparently, and there is no formal procedure to contest those criteria or the decision itself. As a result of the interventions, State or State-friendly domestic ownership has increased in banking, telecommunications, utilities, media, TV and radio broadcasting, to the detriment of foreign ownership. Based on announcements by members of the government, similar transactions can be expected in insurance, retail and the transport sector, in particular regarding Budapest Airport. The decreased presence of foreign capital and know-how, in particular in high-value-added industries such as banking and telecommunications, risks curbing Hungary’s opportunities for productivity growth and innovation. |
| --- | --- |

(37)

Recently, there have been cases of public interference in a number of markets, which has weakened legal certainty. Those interventions tended to discourage or limit Union and foreign investment in certain markets, in effect enabling purchases of companies by State-owned enterprises or private firms with close ties to the government. The interventions also seriously affect the principles of the single market and of the rule of law, curbing opportunities for sustainable economic growth. For example, specific firms and industries face discriminatory treatment through tailor-made taxes, price caps and regulations imposed at short notice and without prior consultation. Since 2020, the government has also used its extraordinary power under the ‘state of danger’ to introduce such measures. Budget revenues from sector-specific taxes are significant. For example, the government recently imposed administrative price caps and a 90 % profit tax on the production of cement and ceramic materials. These are industries with a high degree of foreign ownership. In December 2022, the government suddenly increased the tax on insurance and pharmaceutical companies. Banks were burdened by a cap on flexible mortgage rates, impacting their ability to lend and their profitability. Selective and arbitrary administrative inspections, fines and withholding of permits have been used to exert undue pressure on certain companies, in particular in retail and transport. Effective remedies seem to be lacking against arbitrary measures taken by the authorities. The retail sector continues to face unpredictable regulations. The conditions for authorising the establishment of or changes to shops above 400 square metres do not seem to be transparent, and the availability of judicial review is questionable. The tax on the retail sector disproportionately burdens larger companies that do not have their headquarters in Hungary. The government frequently uses its power to exempt transactions from merger control.

The impact of such transactions on the economy, competition and the single market is not being assessed. The criteria for the exemptions are not set out transparently, and there is no formal procedure to contest those criteria or the decision itself. As a result of the interventions, State or State-friendly domestic ownership has increased in banking, telecommunications, utilities, media, TV and radio broadcasting, to the detriment of foreign ownership. Based on announcements by members of the government, similar transactions can be expected in insurance, retail and the transport sector, in particular regarding Budapest Airport. The decreased presence of foreign capital and know-how, in particular in high-value-added industries such as banking and telecommunications, risks curbing Hungary’s opportunities for productivity growth and innovation.

| (38) | Hungary’s energy mix is determined by oil and gas, each accounting for about one third of overall energy use. Nuclear and renewable energy sources have a share of 15 % and about 14 %, respectively. Hungary continues to rely heavily on Russia for fossil fuels as well as nuclear power and its efforts to shift away from Russian dependence are slow. Three quarters of the domestic gas consumption is covered by imports from Russia. In 2021, Hungary signed a long-term gas supply agreement with Gazprom and an amendment to it was negotiated in April 2023, with an option for additional quantities. Decreasing dependency on Russian fossil fuels will require significant additional action, in particular to strengthen cooperation with neighbouring countries, including where necessary on infrastructure, to ensure access to alternative fossil fuel sources. Electrification and the envisaged investment in energy-intensive industries will increase the need for electricity production. Despite the significant increase in solar energy capacity in recent years, the share of renewable energy capacity is still one of the lowest in the Union. The installation of wind power plants has been suspended and is expected to resume after the removal of legal restrictions. Geothermal energy has been underutilised. The frequently changing regulatory environment poses several challenges to the development of renewable energy. In addition, the limitations of the electricity grid’s capacity create a significant bottleneck for connecting renewables to the grid, while the lack of flexibility solutions on the demand and supply sides, and limited consumer empowerment, create a major constraint on the development of clean, renewable electricity production. Suboptimal integration into the Union balancing market is also a missed opportunity to optimise the grid for additional renewables capacity. |
| --- | --- |

(38)

Hungary’s energy mix is determined by oil and gas, each accounting for about one third of overall energy use. Nuclear and renewable energy sources have a share of 15 % and about 14 %, respectively. Hungary continues to rely heavily on Russia for fossil fuels as well as nuclear power and its efforts to shift away from Russian dependence are slow. Three quarters of the domestic gas consumption is covered by imports from Russia. In 2021, Hungary signed a long-term gas supply agreement with Gazprom and an amendment to it was negotiated in April 2023, with an option for additional quantities. Decreasing dependency on Russian fossil fuels will require significant additional action, in particular to strengthen cooperation with neighbouring countries, including where necessary on infrastructure, to ensure access to alternative fossil fuel sources. Electrification and the envisaged investment in energy-intensive industries will increase the need for electricity production. Despite the significant increase in solar energy capacity in recent years, the share of renewable energy capacity is still one of the lowest in the Union. The installation of wind power plants has been suspended and is expected to resume after the removal of legal restrictions. Geothermal energy has been underutilised. The frequently changing regulatory environment poses several challenges to the development of renewable energy. In addition, the limitations of the electricity grid’s capacity create a significant bottleneck for connecting renewables to the grid, while the lack of flexibility solutions on the demand and supply sides, and limited consumer empowerment, create a major constraint on the development of clean, renewable electricity production. Suboptimal integration into the Union balancing market is also a missed opportunity to optimise the grid for additional renewables capacity.

| (39) | Hungary has significant potential in energy efficiency, in particular in residential buildings. Hungary’s consumption of natural gas dropped by 20 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding 5 years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16), also due to measures in the public sector and the amendment of the energy price cap system applied for households. Hungary is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024, pursuant to Council Regulation (EU) 2023/706 (17). Nevertheless, despite the recent changes, the administrative prices system on energy still does not allow price signals to work properly and to create sufficient incentives for energy savings. Price caps are uniformly applied to all households. High-income households also benefit from the subsidised administrative price, while low-income families often live in less energy-efficient homes. Targeted schemes for low-income households would be more efficient, both in supporting vulnerable households and generating energy savings. |
| --- | --- |

(39)

Hungary has significant potential in energy efficiency, in particular in residential buildings. Hungary’s consumption of natural gas dropped by 20 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding 5 years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16), also due to measures in the public sector and the amendment of the energy price cap system applied for households. Hungary is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024, pursuant to Council Regulation (EU) 2023/706 (17). Nevertheless, despite the recent changes, the administrative prices system on energy still does not allow price signals to work properly and to create sufficient incentives for energy savings. Price caps are uniformly applied to all households. High-income households also benefit from the subsidised administrative price, while low-income families often live in less energy-efficient homes. Targeted schemes for low-income households would be more efficient, both in supporting vulnerable households and generating energy savings.

| (40) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Hungary for 31 occupations that require specific skills or knowledge for the green transition. At the same time, worker participation in training in energy-intensive industries has significantly declined and is now below the Union average. |
| --- | --- |

(40)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Hungary for 31 occupations that require specific skills or knowledge for the green transition. At the same time, worker participation in training in energy-intensive industries has significantly declined and is now below the Union average.

| (41) | In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (18) is reflected in recommendation (1). |
| --- | --- |

(41)

In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (18) is reflected in recommendation (1).

| (42) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2023 National Reform Programme and the 2023 Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to very strong price pressures and external and government financing needs. Recommendations (2) and (4) contribute to addressing recommendation (1), |
| --- | --- |

(42)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2023 National Reform Programme and the 2023 Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to very strong price pressures and external and government financing needs. Recommendations (2) and (4) contribute to addressing recommendation (1),

HEREBY RECOMMENDS that Hungary take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 4,4 % (19).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Pursue effective coordination and clear demarcation of macroeconomic policies in order to ensure fiscal and external sustainability. Phase out price and interest-rate caps in order to reduce distortive effects and to facilitate the smooth transmission of monetary policy. Target support measures in the housing sector to low-income households. Strengthen the medium-term budgetary framework, align the preparation of annual budgets with the budgetary year and limit discretion in the implementation of annual budgets.

2.

Urgently fulfil the required milestones and targets related to strengthening judicial independence and safeguarding the protection of the financial interests of the Union in order 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 the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Improve the adequacy of the social assistance system, including unemployment benefits. Improve access to effective active labour market measures, in particular upskilling opportunities for the most disadvantaged groups, and ensure effective social dialogue. Improve the regulatory framework and competition in services by avoiding selective and arbitrary administrative interventions and the use of tailor-made legislation providing undue advantage or disadvantage to specific companies, by applying competition scrutiny systematically to business transactions and by reducing the use of emergency measures to what is strictly necessary, in line with the principles of the single market and of the rule of law.

4.

Reduce overall reliance on fossil fuels by accelerating the deployment of renewables, including wind energy, geothermal and sustainable biomethane, in particular by streamlining permitting procedures, while conducting regular environmental impact assessments, and by creating a supportive and predictable regulatory environment. Phase out subsidies for fossil fuels. Reform the rules on the balancing of the energy market and tariff setting in order to allow for cost recovery and an optimum use of the grid. Where necessary, upgrade the electricity infrastructure, including grid and storage capacities. Diversify imports of fossil fuels in order to significantly decrease dependence on Russia, including by strengthening cooperation with other Member States, including, where necessary, on infrastructure. Improve energy efficiency, in particular in buildings, and continue efforts to reduce overall gas consumption. Adjust the current system of regulated energy prices in order to encourage energy saving while providing targeted support for low-income households. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 15447/22; ST 15447/22 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Convergence Programme of Hungary (OJ C 304, 29.7.2021, p. 78).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 1,7 percentage points of GDP, which is driven by the impact of the purchase of gas stockpiles by a special entity classified as part of the general government.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Hungary and delivering a Council opinion on the 2022 Convergence Programme of Hungary (OJ C 334, 1.9.2022, p. 136).

11

(12)  Based on the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Hungary, which is used to measure the fiscal stance, is estimated at 16,6 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 2,2 percentage points of GDP. The large fall in other capital expenditure in 2023 is related to the large impact of the purchase of gas stockpiles by a special entity classified as part of the general government in 2022.

13

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

16

(17)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1)

17

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

18

(19)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,5 % of GDP for 2024, as described in recital 24.

19

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/167 |
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1.9.2023

EN

Official Journal of the European Union

C 312/167

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Malta and delivering a Council opinion on the 2023 Stability Programme of Malta

(2023/C 312/18)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Malta as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Malta’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Malta as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Malta’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
| --- | --- |

(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 13 July 2021, Malta 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 set out in Annex V to that Regulation. On 5 October 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Malta (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Malta 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. |
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(9)

On 13 July 2021, Malta 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 set out in Annex V to that Regulation. On 5 October 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Malta (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Malta 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 25 April 2023, Malta submitted its 2023 National Reform Programme and, on 3 May 2023, its 2023 Stability Programme, in line with Article 4(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 Malta’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 25 April 2023, Malta submitted its 2023 National Reform Programme and, on 3 May 2023, its 2023 Stability Programme, in line with Article 4(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 Malta’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Malta. It assessed Malta's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Malta’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Malta’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Malta. It assessed Malta's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Malta’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Malta’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Malta’s general government deficit decreased from 7,8 % of GDP in 2021 to 5,8 % in 2022, while general government debt fell from 55,1 % of GDP at the end of 2021 to 53,4 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Malta, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Malta should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(12)

According to data validated by Eurostat, Malta’s general government deficit decreased from 7,8 % of GDP in 2021 to 5,8 % in 2022, while general government debt fell from 55,1 % of GDP at the end of 2021 to 53,4 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Malta, 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Malta should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included cuts to indirect taxes on energy consumption, while such fiscal policy expenditure-increasing measures included subsidies to energy production to compensate for the price increase of imported electricity and carbon emissions. The Commission estimates the net budgetary cost of those measures at 2,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 3,2 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included cuts to indirect taxes on energy consumption, while such fiscal policy expenditure-increasing measures included subsidies to energy production to compensate for the price increase of imported electricity and carbon emissions. The Commission estimates the net budgetary cost of those measures at 2,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 3,2 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Malta (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Malta (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,2 % of GDP, as recommended by the Council. As recommended by the Council, Malta continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,9 % of GDP in 2022 (1,1 % of GDP in 2021). The decrease in expenditures financed by Facility grants and other Union funds in 2022 was due to a lower absorption of other Union funds. Nationally financed investment provided a contractionary contribution of 0,2 percentage points to the fiscal stance (9). Malta therefore did not preserve nationally financed investment which was not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 0,9 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken 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 cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Malta therefore sufficiently kept under control the growth in nationally financed current expenditure. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,2 % of GDP, as recommended by the Council. As recommended by the Council, Malta continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,9 % of GDP in 2022 (1,1 % of GDP in 2021). The decrease in expenditures financed by Facility grants and other Union funds in 2022 was due to a lower absorption of other Union funds. Nationally financed investment provided a contractionary contribution of 0,2 percentage points to the fiscal stance (9). Malta therefore did not preserve nationally financed investment which was not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 0,9 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken 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 cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Malta therefore sufficiently kept under control the growth in nationally financed current expenditure.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 Spring Forecast for 2023 and thereafter. The government projects real GDP to grow by 4,1 % in 2023 and 4,5 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 3,9 % in 2023 and 4,1 % in 2024, mainly due to lower contribution of net exports to growth. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 Spring Forecast for 2023 and thereafter. The government projects real GDP to grow by 4,1 % in 2023 and 4,5 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a lower real GDP growth of 3,9 % in 2023 and 4,1 % in 2024, mainly due to lower contribution of net exports to growth.

| (17) | In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 5,0 % of GDP in 2023. The decrease in 2023 mainly reflects the increase in other revenues, including the proceeds from the country's investor citizenship and residence schemes while the decrease of the subsidies, including the expected phasing-out of the national airline restructuring costs, is partially compensated by an increase of intermediate consumption and gross fixed capital formation. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 53,4 % at the end of 2022 to 54,5 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 5,1 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 54,8 % at the end of 2023. |
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(17)

In its 2023 Stability Programme, the government expects that the general government deficit will decrease to 5,0 % of GDP in 2023. The decrease in 2023 mainly reflects the increase in other revenues, including the proceeds from the country's investor citizenship and residence schemes while the decrease of the subsidies, including the expected phasing-out of the national airline restructuring costs, is partially compensated by an increase of intermediate consumption and gross fixed capital formation. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 53,4 % at the end of 2022 to 54,5 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 5,1 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 54,8 % at the end of 2023.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular cuts to indirect taxes on energy consumption and subsidies to energy production to compensate for the price increase of imported electricity and carbon emissions. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,7 % of GDP in 2023 (10). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular cuts to indirect taxes on energy consumption and subsidies to energy production to compensate for the price increase of imported electricity and carbon emissions. The net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,7 % of GDP in 2023 (10). The measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,1 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP.

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Malta take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Malta should stand ready to adjust current spending to the evolving situation. Malta 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Malta take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Malta should stand ready to adjust current spending to the evolving situation. Malta 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 0,4 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (– 0,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,8 % of GDP to the fiscal stance. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 1,6 % of GDP in 2023, while nationally financed investment provided a contractionary contribution to the fiscal stance of 0,3 percentage point (13). Therefore, Malta plans to finance additional investment through the Facility and other Union 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 particular for the renovation of private and public buildings, including hospitals and schools, the electrification of the transport sector and projects related to the digitalisation of the public administration and the private sector, which are partly funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 0,4 % of GDP), in a context of high inflation. This follows a broadly neutral fiscal stance in 2022 (– 0,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,8 % of GDP to the fiscal stance. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 1,6 % of GDP in 2023, while nationally financed investment provided a contractionary contribution to the fiscal stance of 0,3 percentage point (13). Therefore, Malta plans to finance additional investment through the Facility and other Union 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 particular for the renovation of private and public buildings, including hospitals and schools, the electrification of the transport sector and projects related to the digitalisation of the public administration and the private sector, which are partly funded by the Facility and other Union funds.

| (21) | According to the 2023 Stability Programme the general government deficit is expected to decline to 4,3 % of GDP in 2024. The decrease in 2024 mainly reflects the reduction of subsidies, including the phasing-out of the national airline’s early retirement schemes, and the contained growth of the wage bill and of the intermediate consumption expenditure compensated partially by the increase of interest expenditures. According to the 2023 Stability programme, the general government debt-to-GDP ratio is expected to increase to 55,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,5 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 56,1 % at the end of 2024. |
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(21)

According to the 2023 Stability Programme the general government deficit is expected to decline to 4,3 % of GDP in 2024. The decrease in 2024 mainly reflects the reduction of subsidies, including the phasing-out of the national airline’s early retirement schemes, and the contained growth of the wage bill and of the intermediate consumption expenditure compensated partially by the increase of interest expenditures. According to the 2023 Stability programme, the general government debt-to-GDP ratio is expected to increase to 55,7 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,5 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 56,1 % at the end of 2024.

| (22) | The 2023 Stability Programme envisages the phasing-out of some of the energy support measures in 2024. The Commission currently assumes a net cost of energy support measures of 1,5 % of GDP. This is based on the assumption of no renewed energy price increase. Most of the energy support measures that are currently planned to remain in place in 2024 do not appear to be targeted at vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and increase energy efficiency. |
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(22)

The 2023 Stability Programme envisages the phasing-out of some of the energy support measures in 2024. The Commission currently assumes a net cost of energy support measures of 1,5 % of GDP. This is based on the assumption of no renewed energy price increase. Most of the energy support measures that are currently planned to remain in place in 2024 do not appear to be targeted at vulnerable households or firms. They do not fully preserve the price signal to reduce energy demand and increase energy efficiency.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure in 2024 should not exceed 5,9 %, 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, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure lower than recommended for 2024. |
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(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure in 2024 should not exceed 5,9 %, 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, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure lower than recommended for 2024.

| (24) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow by 3,3 % in 2024 which is below the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is largely due to most of such measures remaining in place. |
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(24)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow by 3,3 % in 2024 which is below the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is largely due to most of such measures remaining in place.

| (25) | According to the 2023 Stability Programme, government investment is expected to decrease from 3,8 % of GDP in 2023 to 3,1 % of GDP in 2024. The lower investment reflects lower nationally financed investment and investment financed by the Union other than the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include high-value added investments and structural reforms towards the green, digital and energy transitions including health and governance, which are also part of the recovery and resilience plan. |
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(25)

According to the 2023 Stability Programme, government investment is expected to decrease from 3,8 % of GDP in 2023 to 3,1 % of GDP in 2024. The lower investment reflects lower nationally financed investment and investment financed by the Union other than the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include high-value added investments and structural reforms towards the green, digital and energy transitions including health and governance, which are also part of the recovery and resilience plan.

| (26) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 3,6 % of GDP in 2025 and to 2,9 % by 2026. Therefore, the general government deficit is planned to not exceed 3 % of GDP in 2026. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 55,7 % at the end of 2024 to 56,1 % by the end of 2026. |
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(26)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 3,6 % of GDP in 2025 and to 2,9 % by 2026. Therefore, the general government deficit is planned to not exceed 3 % of GDP in 2026. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 55,7 % at the end of 2024 to 56,1 % by the end of 2026.

| (27) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Malta’s recovery and resilience plan is well underway. Malta submitted one payment request, corresponding to 19 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 52,3 million (in grants) on 8 March 2023. On 26 April 2023, Malta submitted an amendment of its plan, together with a new REPowerEU chapter. The new REPowerEU chapter is expected to address the challenges related to energy supply and security, and to speed up the transition to renewable energy sources. Furthermore, Malta is proposing some modifications to the original recovery and resilience plan in view of the decreased total allocation and to adjust the recovery and resilience plan to objective circumstances. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Malta’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(27)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Malta’s recovery and resilience plan is well underway. Malta submitted one payment request, corresponding to 19 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 52,3 million (in grants) on 8 March 2023. On 26 April 2023, Malta submitted an amendment of its plan, together with a new REPowerEU chapter. The new REPowerEU chapter is expected to address the challenges related to energy supply and security, and to speed up the transition to renewable energy sources. Furthermore, Malta is proposing some modifications to the original recovery and resilience plan in view of the decreased total allocation and to adjust the recovery and resilience plan to objective circumstances. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Malta’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (28) | The Commission approved all of Malta’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Malta. |
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(28)

The Commission approved all of Malta’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Malta.

| (29) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Malta faces a number of additional challenges related to features of the tax system that facilitate aggressive tax planning, energy policy and the green transition. |
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(29)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Malta faces a number of additional challenges related to features of the tax system that facilitate aggressive tax planning, energy policy and the green transition.

| (30) | Tackling aggressive tax planning remains key to improving the efficiency and fairness of tax systems. In view of the spillover effects of aggressive tax planning strategies between Member States, coordinated action to complement Union legislation through national policies by all Member States is paramount. Malta has taken steps to address aggressive tax planning practices by implementing previously agreed international and European initiatives. Malta further commits to tackling the issue in its recovery and resilience plan. The commitments to introduce transfer pricing rules and to commission an independent study on outbound and inbound payments (i.e. between Union residents and third-country residents), to be followed up by legislation in line with the study’s findings, point in the right direction. However, until withholding taxes on interest, dividends and royalty payments made by Malta-based companies to zero and low-tax jurisdictions (hereby intended to mean as any jurisdiction with a statutory corporate income tax rate below 9 %, the lowest statutory corporate income tax rate in the Union), or equivalent defensive measures, are applied by Malta to ensure that firms cannot shift their profits untaxed to third countries, the risks of double non-taxation of these profits remain high. Furthermore, the treatment of resident non-domiciled companies continues to pose a risk of double non-taxation for both companies and individuals. The issue will only be partly addressed by compliance with Council Directive (EU) 2022/2523 (15), which will only apply to large corporations once implemented by Malta. |
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(30)

Tackling aggressive tax planning remains key to improving the efficiency and fairness of tax systems. In view of the spillover effects of aggressive tax planning strategies between Member States, coordinated action to complement Union legislation through national policies by all Member States is paramount. Malta has taken steps to address aggressive tax planning practices by implementing previously agreed international and European initiatives. Malta further commits to tackling the issue in its recovery and resilience plan. The commitments to introduce transfer pricing rules and to commission an independent study on outbound and inbound payments (i.e. between Union residents and third-country residents), to be followed up by legislation in line with the study’s findings, point in the right direction. However, until withholding taxes on interest, dividends and royalty payments made by Malta-based companies to zero and low-tax jurisdictions (hereby intended to mean as any jurisdiction with a statutory corporate income tax rate below 9 %, the lowest statutory corporate income tax rate in the Union), or equivalent defensive measures, are applied by Malta to ensure that firms cannot shift their profits untaxed to third countries, the risks of double non-taxation of these profits remain high. Furthermore, the treatment of resident non-domiciled companies continues to pose a risk of double non-taxation for both companies and individuals. The issue will only be partly addressed by compliance with Council Directive (EU) 2022/2523 (15), which will only apply to large corporations once implemented by Malta.

| (31) | Fossil fuels continue to play a major role in Malta’s economy, making it highly dependent on energy imports and exposed to global price developments, although Malta does not directly import oil or gas from Russia. In 2021, fossil fuels comprised the bulk of Malta's electricity generation, while renewables accounted for only 11,9 %. Malta has sizeable offshore solar and wind energy potential, which is unused. The government's commitment to adopt offshore renewable energy technologies in future and to indicate its non-binding share to the Union’s offshore renewable targets is a positive policy shift, but concrete projects have yet to be identified. The capacity and flexibility of the electricity grid are a bottleneck for the integration of renewables and for increasing the efficiency, reliability and security of the power supply. Investment in grid modernisation, including from Malta’s REPowerEU grant budget, is necessary in order to address that bottleneck. Malta is improving its security of energy supply by building a second electricity interconnector with Italy. |
| --- | --- |

(31)

Fossil fuels continue to play a major role in Malta’s economy, making it highly dependent on energy imports and exposed to global price developments, although Malta does not directly import oil or gas from Russia. In 2021, fossil fuels comprised the bulk of Malta's electricity generation, while renewables accounted for only 11,9 %. Malta has sizeable offshore solar and wind energy potential, which is unused. The government's commitment to adopt offshore renewable energy technologies in future and to indicate its non-binding share to the Union’s offshore renewable targets is a positive policy shift, but concrete projects have yet to be identified. The capacity and flexibility of the electricity grid are a bottleneck for the integration of renewables and for increasing the efficiency, reliability and security of the power supply. Investment in grid modernisation, including from Malta’s REPowerEU grant budget, is necessary in order to address that bottleneck. Malta is improving its security of energy supply by building a second electricity interconnector with Italy.

| (32) | Malta’s contribution to the Union’s energy efficiency targets for 2030 is low and energy consumption in residential buildings continues to increase. Malta could scale up energy efficiency measures and reduce energy demand by: encouraging the installation of solar panels on all new buildings; ensuring the deployment of suitable solar energy installations on all new public and non-residential buildings with a useful floor area over 250 m2; addressing legal obstacles; and providing additional economic incentives to houseowners. The use of digital technology, such as applications to monitor and regulate energy use, could help increase energy efficiency. Effective implementation of the new national regulatory framework for the construction industry would increase the quality (including the energy efficiency) of buildings and the safety of the construction process. Malta’s consumption of natural gas has increased by 12,7 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, an opposite trend to the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). Even though Malta qualifies for an exemption from that target, Malta is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17). |
| --- | --- |

(32)

Malta’s contribution to the Union’s energy efficiency targets for 2030 is low and energy consumption in residential buildings continues to increase. Malta could scale up energy efficiency measures and reduce energy demand by: encouraging the installation of solar panels on all new buildings; ensuring the deployment of suitable solar energy installations on all new public and non-residential buildings with a useful floor area over 250 m2; addressing legal obstacles; and providing additional economic incentives to houseowners. The use of digital technology, such as applications to monitor and regulate energy use, could help increase energy efficiency. Effective implementation of the new national regulatory framework for the construction industry would increase the quality (including the energy efficiency) of buildings and the safety of the construction process. Malta’s consumption of natural gas has increased by 12,7 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, an opposite trend to the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). Even though Malta qualifies for an exemption from that target, Malta is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17).

| (33) | In addition, in the light of the continuing reliance on private cars, road transport emissions continue to grow, forming Malta’s largest source of non-ETS greenhouse gas emissions. The share of zero-emission vehicles is much lower than the Union average and is increasing very slowly. Reducing emissions and traffic congestion would require Malta to improve public transport (punctuality, decreased journey time), deploy intelligent transport systems (to improve traffic flows, safety and the enforcement of traffic rules), and invest in ‘soft mobility’ infrastructure for safe alternatives to private car use (such as safe, segregated and interconnected pavements and cycling/e-scooter routes). |
| --- | --- |

(33)

In addition, in the light of the continuing reliance on private cars, road transport emissions continue to grow, forming Malta’s largest source of non-ETS greenhouse gas emissions. The share of zero-emission vehicles is much lower than the Union average and is increasing very slowly. Reducing emissions and traffic congestion would require Malta to improve public transport (punctuality, decreased journey time), deploy intelligent transport systems (to improve traffic flows, safety and the enforcement of traffic rules), and invest in ‘soft mobility’ infrastructure for safe alternatives to private car use (such as safe, segregated and interconnected pavements and cycling/e-scooter routes).

| (34) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, shortages of workers were reported in Malta for six occupations that require specific skills or knowledge for the green transition, including manufacturing workers and construction workers. |
| --- | --- |

(34)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, shortages of workers were reported in Malta for six occupations that require specific skills or knowledge for the green transition, including manufacturing workers and construction workers.

| (35) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1). |
| --- | --- |

(35)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1).

| (36) | In view of the close interlinkages between the economies of euro area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Malta, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area. |
| --- | --- |

(36)

In view of the close interlinkages between the economies of euro area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Malta, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third and fourth recommendations set out in the 2023 Recommendation on the euro area.

HEREBY RECOMMENDS that Malta take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 5,9 % (19).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

2.

Continue the steady implementation of its recovery and resilience plan and, following the recent submission of the addendum, including the REPowerEU chapter, rapidly start the implementation of the related measures. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Effectively address features of the tax system that may facilitate aggressive tax planning by individuals and multinationals, including by ensuring sufficient taxation of outbound payments of interest, royalties and dividends, and amend the rules for non-domiciled companies.

4.

Reduce reliance on fossil fuels by accelerating the deployment of renewable energies, including offshore wind and solar energy, and upgrade and expand the capacity of the electricity grid system, including transmission, distribution and battery storage. Reduce energy demand through improved energy efficiency, in particular in residential buildings. Reduce emissions from road transport by addressing traffic congestion through improved service quality in public transport, intelligent transport systems and investment in 'soft mobility' infrastructure. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 11941/2021 INIT; ST 11941/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Malta (OJ C 304, 29.7.2021, p. 83).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided a contractionary contribution of 0,3 percentage points of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Malta and delivering a Council opinion on the 2022 Stability Programme of Malta (OJ C 334, 1.9.2022, p. 146).

11

(12)  Based on the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Malta, which is used to measure the fiscal stance, is estimated at 9,5 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a neutral contribution of 0,0 percentage points of GDP.

13

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (OJ L 328, 22.12.2022, p. 1).

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

16

(17)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

17

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

18

(19)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,5 % of GDP for 2024, as described in recital 23.

19

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/176 |
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1.9.2023

EN

Official Journal of the European Union

C 312/176

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of the Netherlands and delivering a Council opinion on the 2023 Stability Programme of the Netherlands

(2023/C 312/19)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified the Netherlands 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. On the same date, the Commission also adopted an opinion on the Netherlands' 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified the Netherlands 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. On the same date, the Commission also adopted an opinion on the Netherlands' 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
| --- | --- |

(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and to ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
| --- | --- |

(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and to ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
| --- | --- |

(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 8 July 2022, the Netherlands 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 set out in Annex V to that Regulation. On 4 October 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for the Netherlands (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that the Netherlands 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. |
| --- | --- |

(9)

On 8 July 2022, the Netherlands 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 set out in Annex V to that Regulation. On 4 October 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for the Netherlands (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that the Netherlands 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 28 April 2023, the Netherlands submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 the Netherlands' biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 28 April 2023, the Netherlands submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 the Netherlands' biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for the Netherlands. It assessed the Netherlands' progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of the Netherlands' implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 the Netherlands' progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for the Netherlands. It assessed the Netherlands' progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of the Netherlands' implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 the Netherlands' progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for the Netherlands and published its results on 24 May 2023. The Commission concluded that the Netherlands is experiencing macroeconomic imbalances. In particular, vulnerabilities relating to high private debt levels and a large current account surplus, which have cross-border relevance, persist despite some signs of reduction. The current account surplus, despite recent data revisions, and private debt are large by international standards as well as above the fundamentals of the economy. The large current account surplus dropped in 2022, driven by worsening terms of trade, with the current account in constant prices increasing, and by a widening of the deficit in primary incomes. With improving terms of trade, the surplus is expected to rebound markedly in 2023 and stabilise in 2024. Limited policy progress has been made but more needs to be done to reduce obstacles to investment. Non-financial corporation and household debt remains high: the latter is more of a concern as it makes households vulnerable to shocks, with those risks exacerbated by the high and rising overvaluation of house prices. Going forward, debt is expected to continue on its moderately decreasing path. Despite moderately falling house prices, pressure on the housing market remains, especially as new housing construction remains significantly below government targets. At the same time, debt-financed homeownership continues to be subsidised by favourable taxation, while policies regarding the private rental market risk undermining its development. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for the Netherlands and published its results on 24 May 2023. The Commission concluded that the Netherlands is experiencing macroeconomic imbalances. In particular, vulnerabilities relating to high private debt levels and a large current account surplus, which have cross-border relevance, persist despite some signs of reduction. The current account surplus, despite recent data revisions, and private debt are large by international standards as well as above the fundamentals of the economy. The large current account surplus dropped in 2022, driven by worsening terms of trade, with the current account in constant prices increasing, and by a widening of the deficit in primary incomes. With improving terms of trade, the surplus is expected to rebound markedly in 2023 and stabilise in 2024. Limited policy progress has been made but more needs to be done to reduce obstacles to investment. Non-financial corporation and household debt remains high: the latter is more of a concern as it makes households vulnerable to shocks, with those risks exacerbated by the high and rising overvaluation of house prices. Going forward, debt is expected to continue on its moderately decreasing path. Despite moderately falling house prices, pressure on the housing market remains, especially as new housing construction remains significantly below government targets. At the same time, debt-financed homeownership continues to be subsidised by favourable taxation, while policies regarding the private rental market risk undermining its development.

| (13) | According to data validated by Eurostat, the Netherlands' general government budget balance decreased from a deficit of 2,4 % of GDP in 2021 to a balanced budget in 2022, while general government debt fell from 52,5 % of GDP at the end of 2021 to 51,0 % at the end of 2022. |
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(13)

According to data validated by Eurostat, the Netherlands' general government budget balance decreased from a deficit of 2,4 % of GDP in 2021 to a balanced budget in 2022, while general government debt fell from 52,5 % of GDP at the end of 2021 to 51,0 % at the end of 2022.

| (14) | The general government balance has been impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of VAT on energy and of the excise duty on petrol and diesel, while such fiscal policy expenditure-increasing measures included compensation for energy bills in November and December and support for low-income households with high energy bills. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely a solidarity contribution in application of Council Regulation (EU) 2022/1854 (7) at a rate of 33 %. The Commission estimates the net budgetary cost of those measures at 0,6 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,3 % of GDP in 2022, from 1,8 % in 2021. |
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(14)

The general government balance has been impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of VAT on energy and of the excise duty on petrol and diesel, while such fiscal policy expenditure-increasing measures included compensation for energy bills in November and December and support for low-income households with high energy bills. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely a solidarity contribution in application of Council Regulation (EU) 2022/1854 (7) at a rate of 33 %. The Commission estimates the net budgetary cost of those measures at 0,6 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,3 % of GDP in 2022, from 1,8 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 the Netherlands (8) pursue a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 the Netherlands (8) pursue a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (9) in 2022 was supportive, at – 0,5 % of GDP, as recommended by the Council. As recommended by the Council, the Netherlands continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,1 percentage points to the fiscal stance (10). The Netherlands therefore did not preserve nationally financed investment, as recommended by the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 0,4 percentage points to the fiscal stance. The Netherlands therefore kept the growth in nationally financed current expenditure sufficiently under control. |
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(16)

According to the Commission estimates, the fiscal stance (9) in 2022 was supportive, at – 0,5 % of GDP, as recommended by the Council. As recommended by the Council, the Netherlands continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,1 percentage points to the fiscal stance (10). The Netherlands therefore did not preserve nationally financed investment, as recommended by the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 0,4 percentage points to the fiscal stance. The Netherlands therefore kept the growth in nationally financed current expenditure sufficiently under control.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,6 % in 2023 and 1,4 % in 2024. By comparison, the Commission's 2023 spring forecast projects a slightly higher real GDP growth of 1,8 % in 2023 and slightly lower growth of 1,2 % in 2024. This is mainly due to small differences in the domestic demand outlook in both years. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,6 % in 2023 and 1,4 % in 2024. By comparison, the Commission's 2023 spring forecast projects a slightly higher real GDP growth of 1,8 % in 2023 and slightly lower growth of 1,2 % in 2024. This is mainly due to small differences in the domestic demand outlook in both years.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 3,0 % of GDP in 2023. The increase in 2023 mainly reflects the cost of the energy package, rising interest expenditure, additional spending plans related to societal challenges, such as the green transition, education and housing supply. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 49,3 % at the end of 2022 to 48,4 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 2,1 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the fact that the government balance outcome data for 2022 turned out better than assumed in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 49,3 % at the end of 2023. The difference is due to the fact that the outcome data for 2022 turned out higher than assumed in the 2023 Stability Programme, as a result of a high stock-flow adjustment in 2022. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 3,0 % of GDP in 2023. The increase in 2023 mainly reflects the cost of the energy package, rising interest expenditure, additional spending plans related to societal challenges, such as the green transition, education and housing supply. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 49,3 % at the end of 2022 to 48,4 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 2,1 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to the fact that the government balance outcome data for 2022 turned out better than assumed in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio, of 49,3 % at the end of 2023. The difference is due to the fact that the outcome data for 2022 turned out higher than assumed in the 2023 Stability Programme, as a result of a high stock-flow adjustment in 2022.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular, the reduction of the excise duty on petrol and diesel and the support of low-income households, as well as new measures, such as a price cap on electricity and gas and the support scheme to energy-intensive SMEs. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 1,1 % of GDP in 2023 (11). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not 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 Council Recommendation of 12 July 2022 (12), is estimated in the Commission's 2023 spring forecast at 0,5 % 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 remain stable compared to 2022. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular, the reduction of the excise duty on petrol and diesel and the support of low-income households, as well as new measures, such as a price cap on electricity and gas and the support scheme to energy-intensive SMEs. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 1,1 % of GDP in 2023 (11). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and do not 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 Council Recommendation of 12 July 2022 (12), is estimated in the Commission's 2023 spring forecast at 0,5 % 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 remain stable compared to 2022.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that the Netherlands take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. The Netherlands should stand ready to adjust current spending to the evolving situation. The Netherlands 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that the Netherlands take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. The Netherlands should stand ready to adjust current spending to the evolving situation. The Netherlands 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,1 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 0,5 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,9 % 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 0,4 % of GDP. The expansionary contribution of nationally financed net primary current expenditure is therefore only partly 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 (net of discretionary revenue measures) is also driven by untargeted energy measures, permanent increases in public-sector wages and social benefits and higher spending on healthcare. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2023, while nationally financed investment provided a neutral contribution to the fiscal stance of 0,0 percentage points. Therefore, the Netherlands plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, such as investing and facilitating the development of offshore wind parks, incentivising the use of hydrogen and improving the digital literacy of students, which are partly funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,1 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 0,5 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,9 % 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 0,4 % of GDP. The expansionary contribution of nationally financed net primary current expenditure is therefore only partly 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 (net of discretionary revenue measures) is also driven by untargeted energy measures, permanent increases in public-sector wages and social benefits and higher spending on healthcare. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2023, while nationally financed investment provided a neutral contribution to the fiscal stance of 0,0 percentage points. Therefore, the Netherlands plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, such as investing and facilitating the development of offshore wind parks, incentivising the use of hydrogen and improving the digital literacy of students, which are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 2,6 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of energy measures. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 48,7 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 1,7 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly thanks to the base effect from the lower projected deficit-to-GDP ratio in 2023. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 48,8 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 2,6 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of energy measures. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 48,7 % at the end of 2024. On the basis of policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 1,7 % of GDP in 2024. This is lower than the deficit projected in the 2023 Stability Programme, mainly thanks to the base effect from the lower projected deficit-to-GDP ratio in 2023. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 48,8 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(23)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 3,5 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,1 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. However, according to the Commission's 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 3,5 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,1 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. However, according to the Commission's 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (25) | Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow at 1,7 % in 2024 which is below the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is in line with the savings from the full phasing-out of energy support measures. |
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(25)

Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow at 1,7 % in 2024 which is below the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is in line with the savings from the full phasing-out of energy support measures.

| (26) | According to the 2023 Stability Programme, government investment is expected to increase from 3,4 % of GDP in 2023 to 3,5 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include reforms and investments in the field of education, research and development, labour market and the green and digital transitions, which are also part of the recovery and resilience plan. |
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(26)

According to the 2023 Stability Programme, government investment is expected to increase from 3,4 % of GDP in 2023 to 3,5 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments, that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include reforms and investments in the field of education, research and development, labour market and the green and digital transitions, which are also part of the recovery and resilience plan.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to increase to 2,8 % by 2026 and 3,2 % of GDP in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP until 2026 and increase above 3 % of GDP in 2027. According to the 2023 Stability programme, the general government debt-to-GDP ratio is expected to increase from 48,7 % at the end of 2024 to 52,7 % by the end of 2027. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to increase to 2,8 % by 2026 and 3,2 % of GDP in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP until 2026 and increase above 3 % of GDP in 2027. According to the 2023 Stability programme, the general government debt-to-GDP ratio is expected to increase from 48,7 % at the end of 2024 to 52,7 % by the end of 2027.

| (28) | Rapidly rising house prices in recent years have resulted in an overvalued housing market. However, with financial conditions tightening, the housing market reached a turning point in mid-2022 as house prices started to decrease in response to rising mortgage interest rates. Mortgage debt relative to GDP remains high in the Netherlands, by international standards. This is driven by relatively high borrowing limits (loan-to-value) and substantial tax relief on mortgage payments. Although the mortgage interest tax deductibility is being reduced gradually, it remains high. The resulting high household debt makes households vulnerable to economic shocks, which is especially relevant now that risks of house price corrections have increased. At the same time, the private rental market is relatively small, which results in a limited supply of affordable and available alternatives to buying a house. The lack of affordable rental housing also undermines labour mobility. Removing obstacles that are currently holding back investments, including in residential construction, could allow the government to successfully execute its plans for an increase in housing supply and could therefore contribute to external rebalancing as well as the better functioning of the housing market. |
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(28)

Rapidly rising house prices in recent years have resulted in an overvalued housing market. However, with financial conditions tightening, the housing market reached a turning point in mid-2022 as house prices started to decrease in response to rising mortgage interest rates. Mortgage debt relative to GDP remains high in the Netherlands, by international standards. This is driven by relatively high borrowing limits (loan-to-value) and substantial tax relief on mortgage payments. Although the mortgage interest tax deductibility is being reduced gradually, it remains high. The resulting high household debt makes households vulnerable to economic shocks, which is especially relevant now that risks of house price corrections have increased. At the same time, the private rental market is relatively small, which results in a limited supply of affordable and available alternatives to buying a house. The lack of affordable rental housing also undermines labour mobility. Removing obstacles that are currently holding back investments, including in residential construction, could allow the government to successfully execute its plans for an increase in housing supply and could therefore contribute to external rebalancing as well as the better functioning of the housing market.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investment to be implemented by 2026. While the Netherlands' recovery and resilience plan was only adopted in 2022, its implementation is now underway. Proceeding swiftly with the negotiation of the operational agreement will help the implementation of the recovery and resilience plan and it is necessary for the submission of the first payment request, which is expected by the end of 2023. Implementation is ongoing, at this stage, risks of non-absorption appear limited given the relatively small financial allocation. Preparations of a REPowerEU chapter are ongoing. 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 the Netherlands' 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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investment to be implemented by 2026. While the Netherlands' recovery and resilience plan was only adopted in 2022, its implementation is now underway. Proceeding swiftly with the negotiation of the operational agreement will help the implementation of the recovery and resilience plan and it is necessary for the submission of the first payment request, which is expected by the end of 2023. Implementation is ongoing, at this stage, risks of non-absorption appear limited given the relatively small financial allocation. Preparations of a REPowerEU chapter are ongoing. 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 the Netherlands' 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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all the Netherlands' cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in the Netherlands. |
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(30)

The Commission approved all the Netherlands' cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in the Netherlands.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, the Netherlands faces a number of additional challenges related to labour market segmentation, labour and skills shortages, reliance on fossil fuels and excessive nitrogen deposits. |
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(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, the Netherlands faces a number of additional challenges related to labour market segmentation, labour and skills shortages, reliance on fossil fuels and excessive nitrogen deposits.

| (32) | The share of flexible employment (both workers on flexible and temporary contracts and the self-employed without employees) in the labour market remains high in the Netherlands. This points to an increasing risk of labour market segmentation, with particularly distortive effects at the margins of the labour market. This can amplify inequality in opportunities and weigh on productivity. A certain degree of flexibility in the labour market can contribute to the adaptability of the economy and may also better accommodate individual preferences. However, the excessive use of flexible types of employment can have negative effects for workers and the wider economy. For example, participation in training and lifelong learning is a challenge for those with flexible contract employment arrangements, and this in turn reduces investment in skills. In cooperation with the social partners, the Dutch government intends to address the differences between permanent and flexible work arrangements. Plans include the abolishment of zero-hours contracts and the replacement of ‘on-call’ contracts in their present form with a new type of contract providing more income security for workers, and improvements to the job security of temporary agency workers. Rapid progress in implementing those plans will be important to ensure that the choice of a certain type of employment contract is driven by job-specific needs or the preferences of job holders, while also improving the employment and social position of people in flexible employment and reducing labour market segmentation. |
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(32)

The share of flexible employment (both workers on flexible and temporary contracts and the self-employed without employees) in the labour market remains high in the Netherlands. This points to an increasing risk of labour market segmentation, with particularly distortive effects at the margins of the labour market. This can amplify inequality in opportunities and weigh on productivity. A certain degree of flexibility in the labour market can contribute to the adaptability of the economy and may also better accommodate individual preferences. However, the excessive use of flexible types of employment can have negative effects for workers and the wider economy. For example, participation in training and lifelong learning is a challenge for those with flexible contract employment arrangements, and this in turn reduces investment in skills. In cooperation with the social partners, the Dutch government intends to address the differences between permanent and flexible work arrangements. Plans include the abolishment of zero-hours contracts and the replacement of ‘on-call’ contracts in their present form with a new type of contract providing more income security for workers, and improvements to the job security of temporary agency workers. Rapid progress in implementing those plans will be important to ensure that the choice of a certain type of employment contract is driven by job-specific needs or the preferences of job holders, while also improving the employment and social position of people in flexible employment and reducing labour market segmentation.

| (33) | Labour and skills shortages were already a feature of the Dutch labour market before the COVID-19 pandemic, but have become more widespread across sectors since then. Sectors such as information and communication technologies (ICT), healthcare, education and technical jobs face structural shortages, which already existed before the COVID-19 pandemic and are expected to persist, partly due to demographic developments. Despite a high overall participation rate, the Netherlands still has a pool of untapped and underutilised potential workers, such as people with a migrant background and those working in part-time employment. Once in a part-time job, few employees choose to increase their hours worked. This can be partially explained by the high marginal tax rates, obligations (or the anticipation of future obligations) related to informal care of children or other family members and/or the quality of work and work-life balance. To tackle labour and skills shortages, it will be necessary to take a comprehensive approach, while also addressing sector-specific needs and barriers and productivity-enhancing investment. In this regard, a combination of policies could be considered, which could include: (i) further reducing the marginal tax rate and/or improving the transparency of the marginal tax rate that individuals face; (ii) increasing wages in sectors with structural shortages, in particular those with a concentration of public and semi-public employers; (iii) promoting quality of work and work-life balance; (iv) improving career guidance; and (v) improving access to high-quality and affordable childcare. Furthermore, strengthening upskilling or reskilling opportunities via targeted and tailored measures, in particular for those at the margins of the labour market and the inactive, could help alleviate labour and skills shortages and improve social outcomes. |
| --- | --- |

(33)

Labour and skills shortages were already a feature of the Dutch labour market before the COVID-19 pandemic, but have become more widespread across sectors since then. Sectors such as information and communication technologies (ICT), healthcare, education and technical jobs face structural shortages, which already existed before the COVID-19 pandemic and are expected to persist, partly due to demographic developments. Despite a high overall participation rate, the Netherlands still has a pool of untapped and underutilised potential workers, such as people with a migrant background and those working in part-time employment. Once in a part-time job, few employees choose to increase their hours worked. This can be partially explained by the high marginal tax rates, obligations (or the anticipation of future obligations) related to informal care of children or other family members and/or the quality of work and work-life balance. To tackle labour and skills shortages, it will be necessary to take a comprehensive approach, while also addressing sector-specific needs and barriers and productivity-enhancing investment. In this regard, a combination of policies could be considered, which could include: (i) further reducing the marginal tax rate and/or improving the transparency of the marginal tax rate that individuals face; (ii) increasing wages in sectors with structural shortages, in particular those with a concentration of public and semi-public employers; (iii) promoting quality of work and work-life balance; (iv) improving career guidance; and (v) improving access to high-quality and affordable childcare. Furthermore, strengthening upskilling or reskilling opportunities via targeted and tailored measures, in particular for those at the margins of the labour market and the inactive, could help alleviate labour and skills shortages and improve social outcomes.

| (34) | Although the Netherlands has introduced measures to reduce its dependency on Russian fossil fuels, oil and natural gas accounted for 38 % and 41 % respectively of its energy mix, making the Dutch economy vulnerable to global price developments. Additional effort is needed for the Netherlands to achieve the Union 2030 renewable energy targets. Despite increased ambitions for installing additional renewable energy capacity, the share of renewables in final energy consumption amounted to only 13,0 % in 2021, which is below the politically agreed target at the Union level and the Union average of 21,8 %. As a result, the Netherlands continues to be among the worst performing Member States in terms of the renewables share in gross final energy consumption, having one of the largest gaps between the 2021 share and the 2030 targets. The expansion of the electricity grid, for both transmission and distribution, is essential to speed up the deployment of both onshore and offshore renewable energy infrastructure. Due to the progressively increasing congestion of the electricity grid, network operators are frequently forced to refuse grid access requests from new electricity producers and consumers. With gas consumption in dwellings accounting for around 25 % of total natural gas consumption in the Netherlands, energy efficiency improvements in the building stock (for instance through minimum energy performance standards to trigger renovations and more rigorous enforcement of energy audit requirements for industry) can contribute significantly towards further reducing carbon emissions and dependency on fossil fuels. The Netherlands' consumption of natural gas dropped by 29 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (17). The Netherlands is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (18). |
| --- | --- |

(34)

Although the Netherlands has introduced measures to reduce its dependency on Russian fossil fuels, oil and natural gas accounted for 38 % and 41 % respectively of its energy mix, making the Dutch economy vulnerable to global price developments. Additional effort is needed for the Netherlands to achieve the Union 2030 renewable energy targets. Despite increased ambitions for installing additional renewable energy capacity, the share of renewables in final energy consumption amounted to only 13,0 % in 2021, which is below the politically agreed target at the Union level and the Union average of 21,8 %. As a result, the Netherlands continues to be among the worst performing Member States in terms of the renewables share in gross final energy consumption, having one of the largest gaps between the 2021 share and the 2030 targets. The expansion of the electricity grid, for both transmission and distribution, is essential to speed up the deployment of both onshore and offshore renewable energy infrastructure. Due to the progressively increasing congestion of the electricity grid, network operators are frequently forced to refuse grid access requests from new electricity producers and consumers. With gas consumption in dwellings accounting for around 25 % of total natural gas consumption in the Netherlands, energy efficiency improvements in the building stock (for instance through minimum energy performance standards to trigger renovations and more rigorous enforcement of energy audit requirements for industry) can contribute significantly towards further reducing carbon emissions and dependency on fossil fuels. The Netherlands' consumption of natural gas dropped by 29 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (17). The Netherlands is encouraged to keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (18).

| (35) | Due to the negative effects of excessive nitrogen deposits in natural areas resulting mainly from the intensive Dutch agricultural sector, the issuing of permits for certain nitrogen-emitting projects, in particular construction projects, is currently blocked. The Dutch government is taking action to reduce nitrogen deposits, in particular through integrated area programmes at provincial level. Further support is needed to make agriculture more sustainable while ensuring competitiveness through for instance support for the reduction of livestock, the acceleration of the transition to circular and/or organic agriculture and increasing digitalisation and innovation. |
| --- | --- |

(35)

Due to the negative effects of excessive nitrogen deposits in natural areas resulting mainly from the intensive Dutch agricultural sector, the issuing of permits for certain nitrogen-emitting projects, in particular construction projects, is currently blocked. The Dutch government is taking action to reduce nitrogen deposits, in particular through integrated area programmes at provincial level. Further support is needed to make agriculture more sustainable while ensuring competitiveness through for instance support for the reduction of livestock, the acceleration of the transition to circular and/or organic agriculture and increasing digitalisation and innovation.

| (36) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in the Netherlands for 108 occupations that required specific skills or knowledge for the green transition, including environmental-protection professionals, insulation workers, and civil-engineering technicians. |
| --- | --- |

(36)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in the Netherlands for 108 occupations that required specific skills or knowledge for the green transition, including environmental-protection professionals, insulation workers, and civil-engineering technicians.

| (37) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (19) is reflected in recommendation (1). |
| --- | --- |

(37)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (19) is reflected in recommendation (1).

| (38) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For the Netherlands, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third, fourth and fifth recommendations set out in the 2023 Recommendation on the euro area. |
| --- | --- |

(38)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investment to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For the Netherlands, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, third, fourth and fifth recommendations set out in the 2023 Recommendation on the euro area.

| (39) | In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities related to high private debt and vulnerabilities linked to a high current account surplus. Recommendations (2) and (4) contribute to addressing recommendation (1) in as much as higher investment is concerned. Recommendation (1) contributes to both addressing imbalances and implementing the recommendation set out in the 2023 Recommendation on the euro-area, in line with recital 38, |
| --- | --- |

(39)

In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities related to high private debt and vulnerabilities linked to a high current account surplus. Recommendations (2) and (4) contribute to addressing recommendation (1) in as much as higher investment is concerned. Recommendation (1) contributes to both addressing imbalances and implementing the recommendation set out in the 2023 Recommendation on the euro-area, in line with recital 38,

HEREBY RECOMMENDS that the Netherlands take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 3,5 % (20).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Reduce the household debt bias and distortions in the housing market. Support the availability and affordability of housing on the private rental market. Remove obstacles holding back investments, including in residential construction.

2.

Proceed with the steady implementation of its recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Reduce incentives to use flexible or temporary contracts. Taking into account sector-specific needs, address structural labour and skills shortages, including by tapping into underutilised labour potential and strengthening upskilling and reskilling opportunities, in particular for those at the margins of the labour market and the inactive.

4.

Reduce reliance on fossil fuels by accelerating the deployment of renewables, improving framework conditions in order to boost investment in the expansion of electricity transmission and distribution grids, and extending and accelerating energy efficiency measures in order to reduce energy consumption, in particular in the built environment. Support the transition towards sustainable agriculture. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 12275/22 INIT; ST 12275/22 ADD 1.

6

(7)  Council Regulation (EU) 2022/1854 of 6 October 2022 on emergency intervention to address high energy prices (OJ L 261 I, 7.10.2022, p. 1).

7

(8)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of the Netherlands (OJ C 304, 29.7.2021, p. 88).

8

(9)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

9

(10)  Other nationally financed capital expenditure provided an expansionary contribution of 0,2 percentage points of GDP.

10

(11)  That figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as, where relevant, capital expenditure measures.

11

(12)  Council Recommendation of 12 July 2022 on the National Reform Programme of the Netherlands and delivering a Council opinion on the 2022 Stability Programme of the Netherlands (OJ C 334, 1.9.2022, p. 154).

12

(13)  On the basis of the Commission's 2023 spring forecast, the medium-term (10-year average) potential output growth of the Netherlands, which is used to measure the fiscal stance, is estimated at 7,9 % in nominal terms.

13

(14)  Other nationally financed capital expenditure is projected to provide a expansionary contribution of – 0,2 percentage points of GDP.

14

(15)  Article 5 of Regulation (EC) No 1466/97 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.

15

(16)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

16

(17)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

17

(18)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

18

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

19

(20)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 24.

20

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/186 |
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1.9.2023

EN

Official Journal of the European Union

C 312/186

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Austria and delivering a Council opinion on the 2023 Stability Programme of Austria

(2023/C 312/20)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Austria as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Austria’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (3) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Austria as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Austria’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (3) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s enonomies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s enonomies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
| --- | --- |

(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
| --- | --- |

(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (4) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023 aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
| --- | --- |

(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (4) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023 aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated and be formulated on the basis of net primary expenditure, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework. It recommended that all Member States should continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
| --- | --- |

(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated and be formulated on the basis of net primary expenditure, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework. It recommended that all Member States should continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 30 April 2021, Austria 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 set out inAnnex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Austria (5). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Austria 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. |
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(9)

On 30 April 2021, Austria 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 set out inAnnex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Austria (5). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Austria 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 26 April 2023, Austria submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Austria’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 26 April 2023, Austria submitted its 2023 National Reform Programme and its 2023 Stability Programme, in line with Article 4(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 Austria’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Austria. It assessed Austria’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Austria’s implementation of the recovery and resilience plan. On the basis of thatanalysis, the country report identified gaps with regard 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 Austria’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Austria. It assessed Austria’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Austria’s implementation of the recovery and resilience plan. On the basis of thatanalysis, the country report identified gaps with regard 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 Austria’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Austria’s general government deficit decreased from 5,8 % of GDP in 2021 to 3,2 % in 2022, while general government debt fell from 82,3 % of GDP at the end of 2021 to 78,4 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Austria, as its general government deficit in 2022 exceeded the 3 %-of-GDP Treaty reference value. The report concluded that the deficit criterion was fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Austria should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(12)

According to data validated by Eurostat, Austria’s general government deficit decreased from 5,8 % of GDP in 2021 to 3,2 % in 2022, while general government debt fell from 82,3 % of GDP at the end of 2021 to 78,4 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Austria, as its general government deficit in 2022 exceeded the 3 %-of-GDP Treaty reference value. The report concluded that the deficit criterion was fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Austria should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the postponement of the introduction of a CO2-price, reduction of levies on energy, and tax allowances for commuters; while such fiscal policy expenditure-increasing measures included energy cost subsidies to companies, lump-sum transfers to households, and direct payments to pensioners. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers. The Commission estimates the net budgetary cost of those measures at 1,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,2 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 4,3 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the postponement of the introduction of a CO2-price, reduction of levies on energy, and tax allowances for commuters; while such fiscal policy expenditure-increasing measures included energy cost subsidies to companies, lump-sum transfers to households, and direct payments to pensioners. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers. The Commission estimates the net budgetary cost of those measures at 1,5 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,2 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 4,3 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Austria (6) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Austria (6) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (15) | According to the Commission estimates, the fiscal stance (7) in 2022 was supportive, at – 2,8 % of GDP, as recommended by the Council. Also as recommended by the Council, Austria continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,1 percentage point to the fiscal stance (8). Austria therefore did not preserve nationally financed investment which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 1,8 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,5 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,2 % of GDP). Austria therefore kept the growth in nationally financed current expenditure sufficiently under control. |
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(15)

According to the Commission estimates, the fiscal stance (7) in 2022 was supportive, at – 2,8 % of GDP, as recommended by the Council. Also as recommended by the Council, Austria continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a contractionary contribution of 0,1 percentage point to the fiscal stance (8). Austria therefore did not preserve nationally financed investment which is not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 1,8 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,5 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,2 % of GDP). Austria therefore kept the growth in nationally financed current expenditure sufficiently under control.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast. The government projects real GDP to grow by 0,3 % in 2023 and by 1,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a higher real GDP growth of 0,4 % in 2023 and a lower real GDP growth rate of 1,6 % in 2024, mainly due to higher growth contribution from private consumption in 2023 and a lower growth contribution from public consumption in 2024. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast. The government projects real GDP to grow by 0,3 % in 2023 and by 1,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a higher real GDP growth of 0,4 % in 2023 and a lower real GDP growth rate of 1,6 % in 2024, mainly due to higher growth contribution from private consumption in 2023 and a lower growth contribution from public consumption in 2024.

| (17) | In its 2023 Stability Programme, the government expects that the general government deficit will remain at 3,2 % of GDP in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 78,4 % at the end of 2022 to 77,0 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 2,4 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to differences in the expectations of the budgetary impact of some energy-related measures, especially regarding energy subsidies to companies. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio of 75,4 % at the end of 2023. The difference is due to the difference in the expected government deficit. |
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(17)

In its 2023 Stability Programme, the government expects that the general government deficit will remain at 3,2 % of GDP in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 78,4 % at the end of 2022 to 77,0 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 2,4 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to differences in the expectations of the budgetary impact of some energy-related measures, especially regarding energy subsidies to companies. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio of 75,4 % at the end of 2023. The difference is due to the difference in the expected government deficit.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: an electricity price brake) and new measures such as a new scheme for energy cost subsidies to companies. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers. Taking those revenues into account the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,8 % of GDP in 2023 (9). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (10), is estimated in the Commission’s 2023 spring forecast at 0,4 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: an electricity price brake) and new measures such as a new scheme for energy cost subsidies to companies. The cost of those measures continues to be partly offset by taxes on windfall profits of energy suppliers. Taking those revenues into account the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,8 % of GDP in 2023 (9). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (10), is estimated in the Commission’s 2023 spring forecast at 0,4 % of GDP in 2023 (compared to 0,2 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP.

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Austria take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (11), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Austria should stand ready to adjust current spending to the evolving situation. Austria 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Austria take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (11), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Austria should stand ready to adjust current spending to the evolving situation. Austria 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 1,0 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2,8 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 percentage points 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 0,2 % of GDP. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,3 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage point. Therefore, Austria plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (12). It plans to finance public investment for the green and digital transitions, and for energy security, such as the participation in the important project of common European interest on Microelectronics and Connectivity, digitalisation of small and medium-sized enterprises and the public administration as well as replacement of heating systems, which are partly funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be contractionary (+ 1,0 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (‒ 2,8 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 percentage points 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 0,2 % of GDP. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,3 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage point. Therefore, Austria plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (12). It plans to finance public investment for the green and digital transitions, and for energy security, such as the participation in the important project of common European interest on Microelectronics and Connectivity, digitalisation of small and medium-sized enterprises and the public administration as well as replacement of heating systems, which are partly funded by the Facility and other Union funds.

| (21) | According to the 2023 Stability Programme the general government deficit is expected to decline to 1,6 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of energy-related measures. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 75,1 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 1,3 % of GDP in 2024. This is similar to the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 73,3 % at the end of 2024. |
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(21)

According to the 2023 Stability Programme the general government deficit is expected to decline to 1,6 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of energy-related measures. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 75,1 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 1,3 % of GDP in 2024. This is similar to the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 73,3 % at the end of 2024.

| (22) | The 2023 Stability Programme envisages the phasing-out of almost all of the energy support measures in 2024 assuming that energy prices remain on a downward path. The Commission also assumes almost full phasing-out of energy support measures (net cost at 0,1 % of GDP in 2024). Those estimates are based on the assumption of no renewed energy price increases. |
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(22)

The 2023 Stability Programme envisages the phasing-out of almost all of the energy support measures in 2024 assuming that energy prices remain on a downward path. The Commission also assumes almost full phasing-out of energy support measures (net cost at 0,1 % of GDP in 2024). Those estimates are based on the assumption of no renewed energy price increases.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (13). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (14) in 2024 should not exceed 4,6 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,8 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. |
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(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (13). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (14) in 2024 should not exceed 4,6 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1,8 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024.

| (24) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 4,0 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission forecast is less than the savings from the full phasing-out of energy support measures, due to expenditures that are dependent on inflation developments in 2023, for example pension expenditures, compensation of employees, and some social benefits, as well as due to some not yet phased-out energy measures. |
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(24)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects net nationally financed primary expenditure to grow at 4,0 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission forecast is less than the savings from the full phasing-out of energy support measures, due to expenditures that are dependent on inflation developments in 2023, for example pension expenditures, compensation of employees, and some social benefits, as well as due to some not yet phased-out energy measures.

| (25) | According to the 2023 Stability Programme, government investment is expected to decrease from 3,5 % of GDP in 2023 to 3,4 % of GDP in 2024. The lower investment reflects lower nationally financed investment. |
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(25)

According to the 2023 Stability Programme, government investment is expected to decrease from 3,5 % of GDP in 2023 to 3,4 % of GDP in 2024. The lower investment reflects lower nationally financed investment.

| (26) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 1,4 % of GDP in 2025 and to 1,3 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 75,1 % at the end of 2024 to 71,4 % by the end of 2026. Austria faces medium risks to fiscal sustainability in the long term, which are mainly due to budget pressures related to population ageing (in particular, this includes rising expenditure for long-term care and healthcare), and increased debt due to measures to tackle the economic and social consequences of the COVID-19 and energy crises. The long-term care and healthcare sectors are also facing labour shortages, which are in part linked to the unattractiveness of working in these sectors. A care reform package recently implemented to address labour shortages, which raises wages and provides transfers to caregivers in the short term, is a good step in making the profession more attractive but will also raise fiscal costs. In 2021, a task force on long-term care proposed measures to improve the adequacy of care while preserving fiscal sustainability. These measures include establishing a coordinated control mechanism with clear responsibilities assigned across various levels of government, which would help to raise the quality and comparability of public spending, for example, by defining uniform principles for tariffs for long-term care services. The ongoing negotiations on the federal fiscal framework provide an opportunity to support the implementation of such a mechanism. |
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(26)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 1,4 % of GDP in 2025 and to 1,3 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 75,1 % at the end of 2024 to 71,4 % by the end of 2026. Austria faces medium risks to fiscal sustainability in the long term, which are mainly due to budget pressures related to population ageing (in particular, this includes rising expenditure for long-term care and healthcare), and increased debt due to measures to tackle the economic and social consequences of the COVID-19 and energy crises. The long-term care and healthcare sectors are also facing labour shortages, which are in part linked to the unattractiveness of working in these sectors. A care reform package recently implemented to address labour shortages, which raises wages and provides transfers to caregivers in the short term, is a good step in making the profession more attractive but will also raise fiscal costs. In 2021, a task force on long-term care proposed measures to improve the adequacy of care while preserving fiscal sustainability. These measures include establishing a coordinated control mechanism with clear responsibilities assigned across various levels of government, which would help to raise the quality and comparability of public spending, for example, by defining uniform principles for tariffs for long-term care services. The ongoing negotiations on the federal fiscal framework provide an opportunity to support the implementation of such a mechanism.

| (27) | The healthcare system proved to be resilient during the COVID-19 pandemic. However, healthcare spending is projected to increase by 1,2 percentage points of GDP by 2070. Additionally, preventive measures and outpatient primary healthcare remain underused, while many healthcare services are still provided by hospitals, which is a costly and inefficient way to provide care. The recovery and resilience plan will help to strengthen outpatient primary healthcare, in particular by supporting new and existing primary healthcare centres in local areas. However, in view of fiscal sustainability concerns, it will be crucial to ensure that patients are guided through the health system in a consistent way, including by making sure that the increased availability of primary healthcare services will translate into lower utilisation of existing hospital or ambulatory specialist healthcare services. |
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(27)

The healthcare system proved to be resilient during the COVID-19 pandemic. However, healthcare spending is projected to increase by 1,2 percentage points of GDP by 2070. Additionally, preventive measures and outpatient primary healthcare remain underused, while many healthcare services are still provided by hospitals, which is a costly and inefficient way to provide care. The recovery and resilience plan will help to strengthen outpatient primary healthcare, in particular by supporting new and existing primary healthcare centres in local areas. However, in view of fiscal sustainability concerns, it will be crucial to ensure that patients are guided through the health system in a consistent way, including by making sure that the increased availability of primary healthcare services will translate into lower utilisation of existing hospital or ambulatory specialist healthcare services.

| (28) | Austria’s fiscal framework currently relies on a complex system of intergovernmental transfers between federal and regional authorities, providing limited incentives for efficient public spending. The lack of tax autonomy makes funding of expenditure across federal levels highly dependent on this system. In 2022, only 7,2 % of all public revenues were own-source revenues of the federal States (15). At the same time, essential services such as healthcare, childcare and public transport investment depend partially on expenditure by the federal States and municipalities. Demographic change and the green transition further exacerbate the cost pressure on the federal States and municipalities, while own source revenues are not linked to expenditure dynamics. The current fiscal framework is prone to inefficiencies and a lack of transparency, as it blurs the link between the tax burden and government expenditure. Better aligning own-source revenues with sub-central government spending and strengthening transparency and coordination are crucial for improving the overall quality of public spending. Facilitating regional tax autonomy by reforming the property tax system could be used to improve fiscal federalism and the overall tax system. The ongoing negotiations, which started in late 2022, provide an opportunity to make progress. |
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(28)

Austria’s fiscal framework currently relies on a complex system of intergovernmental transfers between federal and regional authorities, providing limited incentives for efficient public spending. The lack of tax autonomy makes funding of expenditure across federal levels highly dependent on this system. In 2022, only 7,2 % of all public revenues were own-source revenues of the federal States (15). At the same time, essential services such as healthcare, childcare and public transport investment depend partially on expenditure by the federal States and municipalities. Demographic change and the green transition further exacerbate the cost pressure on the federal States and municipalities, while own source revenues are not linked to expenditure dynamics. The current fiscal framework is prone to inefficiencies and a lack of transparency, as it blurs the link between the tax burden and government expenditure. Better aligning own-source revenues with sub-central government spending and strengthening transparency and coordination are crucial for improving the overall quality of public spending. Facilitating regional tax autonomy by reforming the property tax system could be used to improve fiscal federalism and the overall tax system. The ongoing negotiations, which started in late 2022, provide an opportunity to make progress.

| (29) | There is still scope for shifting the tax burden away from labour to more growth-friendly and inclusive revenue sources. The tax system is characterised by a high burden on labour, stemming from payroll taxes and social security contributions, with social security contributions being borne by both employees and employers. This creates a drag on job creation and participation in the labour market, especially for low-wage and second earners. At the same time, other sources of revenues that are less detrimental to fair and sustainable growth, such as environmental or property taxes, remain underutilised, even after taking recent reforms into account. Environmentally harmful subsidies hamper the green transition. The recent eco-social tax reform provides tax relief to households and businesses and lays the foundation for pricing CO2 emissions outside of the scope of the EU emissions trading system (EU ETS). Furthermore, the automatic indexation of personal income tax with inflation is a notable reform that strongly reduces the increase in the personal income tax burden for taxpayers through tax bracket creep. Nevertheless, structural challenges persist and there is scope for further reducing the burden on labour, to boost job creation and labour supply, especially for low-income earners. Making better use of more growth-friendly taxes could also help create the necessary budget space and improve the fairness of the tax system. |
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(29)

There is still scope for shifting the tax burden away from labour to more growth-friendly and inclusive revenue sources. The tax system is characterised by a high burden on labour, stemming from payroll taxes and social security contributions, with social security contributions being borne by both employees and employers. This creates a drag on job creation and participation in the labour market, especially for low-wage and second earners. At the same time, other sources of revenues that are less detrimental to fair and sustainable growth, such as environmental or property taxes, remain underutilised, even after taking recent reforms into account. Environmentally harmful subsidies hamper the green transition. The recent eco-social tax reform provides tax relief to households and businesses and lays the foundation for pricing CO2 emissions outside of the scope of the EU emissions trading system (EU ETS). Furthermore, the automatic indexation of personal income tax with inflation is a notable reform that strongly reduces the increase in the personal income tax burden for taxpayers through tax bracket creep. Nevertheless, structural challenges persist and there is scope for further reducing the burden on labour, to boost job creation and labour supply, especially for low-income earners. Making better use of more growth-friendly taxes could also help create the necessary budget space and improve the fairness of the tax system.

| (30) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. Proceeding swiftly with the implementation of the plan is essential due to the temporary nature of the Facility in place until 2026. The implementation of Austria’s recovery and resilience plan is well underway. Austria submitted one payment request, corresponding to 44 milestones and targets in the plan and resulting in an overall disbursement of EUR 700 million on 20 April 2023. Beyond the first payment request, the implementation of the plan is on track. Austria is expected to submit a request to modify a few measures due to objective circumstances, such as price increases and supply chain shortages. The preparation of a new REPowerEU chapter is also underway and the Austrian authorities are working closely with the Commission services to submit it shortly. 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 Austria’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(30)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. Proceeding swiftly with the implementation of the plan is essential due to the temporary nature of the Facility in place until 2026. The implementation of Austria’s recovery and resilience plan is well underway. Austria submitted one payment request, corresponding to 44 milestones and targets in the plan and resulting in an overall disbursement of EUR 700 million on 20 April 2023. Beyond the first payment request, the implementation of the plan is on track. Austria is expected to submit a request to modify a few measures due to objective circumstances, such as price increases and supply chain shortages. The preparation of a new REPowerEU chapter is also underway and the Austrian authorities are working closely with the Commission services to submit it shortly. 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 Austria’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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (31) | The Commission approved all Austria’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Austria. |
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(31)

The Commission approved all Austria’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Austria.

| (32) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Austria faces a number of additional challenges related to the labour market. Austria’s strong social protection system and extensive policy measures limited the social impact of the COVID-19 pandemic. Austria performs well on most dimensions of the European Pillar of Social Rights, but some challenges remain. In particular, these include the underused labour market potential of women, low-qualified workers, older workers and people with a migrant background. This is particularly problematic given the shortage of skilled labour. Unlocking the unused potential of these groups could reduce the pressure on the Austrian labour market. |
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(32)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Austria faces a number of additional challenges related to the labour market. Austria’s strong social protection system and extensive policy measures limited the social impact of the COVID-19 pandemic. Austria performs well on most dimensions of the European Pillar of Social Rights, but some challenges remain. In particular, these include the underused labour market potential of women, low-qualified workers, older workers and people with a migrant background. This is particularly problematic given the shortage of skilled labour. Unlocking the unused potential of these groups could reduce the pressure on the Austrian labour market.

| (33) | Although the female employment rate in Austria is higher than the Union average, the country has the second highest rate of part-time employment of women. More than half of Austrian women worked part-time in 2022 and women are over-represented in low-paying sectors. This indicates a significant opportunity for increasing the full-time participation of women in the labour market. However, the insufficient provision of affordable and high-quality childcare, in particular in rural areas, makes it challenging for mothers to participate more actively in the labour market. Austria has one of the lowest rates of formal childcare for children under three years of age in the Union, with only 28 % of children under the age of three in formal childcare. To address these issues, it is crucial to increase the supply of quality childcare by improving quality standards and extending availability, and to encourage full-time employment, for example, through tax incentives. Bringing more women into full-time work could also help close Austria’s persistently high gender pay gap, as well the high gender pension gap, while addressing labour market shortages. |
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(33)

Although the female employment rate in Austria is higher than the Union average, the country has the second highest rate of part-time employment of women. More than half of Austrian women worked part-time in 2022 and women are over-represented in low-paying sectors. This indicates a significant opportunity for increasing the full-time participation of women in the labour market. However, the insufficient provision of affordable and high-quality childcare, in particular in rural areas, makes it challenging for mothers to participate more actively in the labour market. Austria has one of the lowest rates of formal childcare for children under three years of age in the Union, with only 28 % of children under the age of three in formal childcare. To address these issues, it is crucial to increase the supply of quality childcare by improving quality standards and extending availability, and to encourage full-time employment, for example, through tax incentives. Bringing more women into full-time work could also help close Austria’s persistently high gender pay gap, as well the high gender pension gap, while addressing labour market shortages.

| (34) | There is still potential to improve the integration of several disadvantaged groups into the labour market, in particular low-skilled workers and people with a migrant background. Around 45 % of the long-term unemployed in Austria have completed at most lower secondary school. People with a migrant background generally have a significantly lower labour market participation than native-born residents, and future income levels for children in Austria are often determined by those of their parents. Although Austria’s recovery and resilience plan includes measures to promote reskilling and upskilling for low-skilled workers and the long-term unemployed, these measures do not fully address the underlying participation problem for people with a migrant background and low-skilled workers. In order to break Austria’s persistent intergenerational link between educational outcomes of parents and their children (16), it is crucial to increase the availability of high-quality early childhood education, all-day schooling and improved digital infrastructure. To integrate recent migrants and other disadvantaged groups, schools could provide better individual mentoring, language courses could be made more accessible and Austria’s apprenticeship system could be used more effectively. At the same time, it is essential to provide sufficient opportunities for lifelong learning, to target disadvantaged groups in all age groups. |
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(34)

There is still potential to improve the integration of several disadvantaged groups into the labour market, in particular low-skilled workers and people with a migrant background. Around 45 % of the long-term unemployed in Austria have completed at most lower secondary school. People with a migrant background generally have a significantly lower labour market participation than native-born residents, and future income levels for children in Austria are often determined by those of their parents. Although Austria’s recovery and resilience plan includes measures to promote reskilling and upskilling for low-skilled workers and the long-term unemployed, these measures do not fully address the underlying participation problem for people with a migrant background and low-skilled workers. In order to break Austria’s persistent intergenerational link between educational outcomes of parents and their children (16), it is crucial to increase the availability of high-quality early childhood education, all-day schooling and improved digital infrastructure. To integrate recent migrants and other disadvantaged groups, schools could provide better individual mentoring, language courses could be made more accessible and Austria’s apprenticeship system could be used more effectively. At the same time, it is essential to provide sufficient opportunities for lifelong learning, to target disadvantaged groups in all age groups.

| (35) | There is scope to improve the labour market participation of older workers, i.e. people aged 55–64. Recently, the long-term trend of increasing labour market participation of older workers has slowed significantly, while the overall activity rate of older workers is below the Union average. Adapting the tasks of employees to their work-life cycle and accommodating the needs of ageing individuals will become increasingly important for keeping the ageing population in the workforce longer. Better incentives to increase the effective retirement age, such as lower labour taxation or non-wage labour costs for those working for longer, would help alleviate shortages in the Austrian labour market. |
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(35)

There is scope to improve the labour market participation of older workers, i.e. people aged 55–64. Recently, the long-term trend of increasing labour market participation of older workers has slowed significantly, while the overall activity rate of older workers is below the Union average. Adapting the tasks of employees to their work-life cycle and accommodating the needs of ageing individuals will become increasingly important for keeping the ageing population in the workforce longer. Better incentives to increase the effective retirement age, such as lower labour taxation or non-wage labour costs for those working for longer, would help alleviate shortages in the Austrian labour market.

| (36) | Russia’s invasion of Ukraine has exposed the vulnerability of Austria’s energy supply security. Although Austria managed to reduce its reliance on gas imports from Russia, which were down to 57 % of its total gas imports in 2022 compared to 80 % in 2021, they remain significantly above the Union average. To diversify its energy sources, the government introduced financial incentives for companies to import gas from non-Russian sources and established a strategic gas reserve in 2022. Nevertheless, Austria still faces significant challenges in ensuring energy security. The country still lacks a clearly defined near-term path to fully decouple from Russian gas imports. Moreover, there remains underused potential in the production and transmission of renewable gases such as hydrogen, especially for sectors and regions vulnerable to supply disruptions. |
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(36)

Russia’s invasion of Ukraine has exposed the vulnerability of Austria’s energy supply security. Although Austria managed to reduce its reliance on gas imports from Russia, which were down to 57 % of its total gas imports in 2022 compared to 80 % in 2021, they remain significantly above the Union average. To diversify its energy sources, the government introduced financial incentives for companies to import gas from non-Russian sources and established a strategic gas reserve in 2022. Nevertheless, Austria still faces significant challenges in ensuring energy security. The country still lacks a clearly defined near-term path to fully decouple from Russian gas imports. Moreover, there remains underused potential in the production and transmission of renewable gases such as hydrogen, especially for sectors and regions vulnerable to supply disruptions.

| (37) | In 2021, the share of renewable energy in Austria stood at 36 % of final energy consumption, which is significantly above the Union average. To achieve Austria’s climate objectives, which include reaching climate neutrality by 2040, the country needs to further expand this share. The 2021 Renewables Expansion Act, a reform included in the recovery and resilience plan, has created a framework that will help increase the share of renewable energy in electricity consumption. The reform aims to achieve a yearly electricity generation capacity of 27 TWh from renewables by 2030, which will contribute to the country’s target of reaching 100 % renewable electricity consumption by that year, up from the current 81 % in 2020. However, further expansion of renewables still faces challenges, such as the length of spatial planning and permitting procedures, a complex division of powers between the federal and regional governments and staffing issues in the administration. Austria has taken a first step in introducing a more streamlined environmental impact assessment for renewable energy projects. In addition, Austria could better align spatial zoning with its green transition goals, fix issues with staffing and increase investment in network infrastructure such as storage, distribution, and transmission. The expansion of renewable energy would also benefit from putting in place dedicated acceleration areas for renewables (in particular for wind) with short and simple permitting procedures, and from recognising renewable energy as an overriding public interest, in line with the more ambitious renewable energy targets in the ‘Fit for 55’ package and the REPowerEU plan. Furthermore, additional sources of renewable energy, such as geothermal energy, could be further explored. |
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(37)

In 2021, the share of renewable energy in Austria stood at 36 % of final energy consumption, which is significantly above the Union average. To achieve Austria’s climate objectives, which include reaching climate neutrality by 2040, the country needs to further expand this share. The 2021 Renewables Expansion Act, a reform included in the recovery and resilience plan, has created a framework that will help increase the share of renewable energy in electricity consumption. The reform aims to achieve a yearly electricity generation capacity of 27 TWh from renewables by 2030, which will contribute to the country’s target of reaching 100 % renewable electricity consumption by that year, up from the current 81 % in 2020. However, further expansion of renewables still faces challenges, such as the length of spatial planning and permitting procedures, a complex division of powers between the federal and regional governments and staffing issues in the administration. Austria has taken a first step in introducing a more streamlined environmental impact assessment for renewable energy projects. In addition, Austria could better align spatial zoning with its green transition goals, fix issues with staffing and increase investment in network infrastructure such as storage, distribution, and transmission. The expansion of renewable energy would also benefit from putting in place dedicated acceleration areas for renewables (in particular for wind) with short and simple permitting procedures, and from recognising renewable energy as an overriding public interest, in line with the more ambitious renewable energy targets in the ‘Fit for 55’ package and the REPowerEU plan. Furthermore, additional sources of renewable energy, such as geothermal energy, could be further explored.

| (38) | Austria’s consumption of natural gas dropped by 19 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Austria could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 accordance with Council Regulation (EU) 2022/1369 (17). In addition, increasing the level of ambition for energy efficiency in the building and manufacturing sectors would reduce reliance on fossil fuels. Austria’s long-term renovation strategy sets clear milestones for 2050 and aims to achieve an 80 % decarbonisation of its building stock. The recovery and resilience plan also aims to phase out fossil fuel boilers in the building sector and replace them with renewable heating technology or district heating. However, Austria’s 2030 energy efficiency targets are not ambitious enough to meet the objectives of the ‘Fit for 55’ package and the REPowerEU plan. A new Energy Efficiency Law, which is expected in 2023 and aims to reduce final energy consumption by 18 % by 2030, should address this issue. Overall, it will be essential for Austria to accelerate investment in the deep renovation of buildings, replace fossil fuels with renewables in heating, and better manage energy consumption through utility digitalisation (such as smart meters and thermostats). Furthermore, it will be crucial that the current slow pace at which buildings are undergoing thermal renovation is speeded up. The timely implementation of the Renewable Heating Law, a flagship reform in the Austrian recovery and resilience plan, will be key to tackling the issue. |
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(38)

Austria’s consumption of natural gas dropped by 19 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Austria could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 accordance with Council Regulation (EU) 2022/1369 (17). In addition, increasing the level of ambition for energy efficiency in the building and manufacturing sectors would reduce reliance on fossil fuels. Austria’s long-term renovation strategy sets clear milestones for 2050 and aims to achieve an 80 % decarbonisation of its building stock. The recovery and resilience plan also aims to phase out fossil fuel boilers in the building sector and replace them with renewable heating technology or district heating. However, Austria’s 2030 energy efficiency targets are not ambitious enough to meet the objectives of the ‘Fit for 55’ package and the REPowerEU plan. A new Energy Efficiency Law, which is expected in 2023 and aims to reduce final energy consumption by 18 % by 2030, should address this issue. Overall, it will be essential for Austria to accelerate investment in the deep renovation of buildings, replace fossil fuels with renewables in heating, and better manage energy consumption through utility digitalisation (such as smart meters and thermostats). Furthermore, it will be crucial that the current slow pace at which buildings are undergoing thermal renovation is speeded up. The timely implementation of the Renewable Heating Law, a flagship reform in the Austrian recovery and resilience plan, will be key to tackling the issue.

| (39) | Embarking on the green transition will also include the reduction of emissions in several sectors, especially those stemming from transport, as those sectors have significant potential for emissions reductions. Austria currently serves as a significant transit country for transalpine road freight. Despite a number of sustainable transport investments under the Austrian recovery and resilience plan, a further reduction of transport-related emissions, while simultaneously addressing transport poverty, will be essential for achieving climate neutrality. Developing additional transport solutions, such as connecting the ‘last mile’, and alternatives to car use, will also be key, especially in rural areas. |
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(39)

Embarking on the green transition will also include the reduction of emissions in several sectors, especially those stemming from transport, as those sectors have significant potential for emissions reductions. Austria currently serves as a significant transit country for transalpine road freight. Despite a number of sustainable transport investments under the Austrian recovery and resilience plan, a further reduction of transport-related emissions, while simultaneously addressing transport poverty, will be essential for achieving climate neutrality. Developing additional transport solutions, such as connecting the ‘last mile’, and alternatives to car use, will also be key, especially in rural areas.

| (40) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Austria for 17 occupations that require specific skills or knowledge for the green transition, including civil engineering technicians, roofers and mechanical engineers. Under its Green Jobs Master Plan, Austria has introduced a green job platform to help match labour demand and supply. The implementation of that Master Plan will be key to ensuring a timely transition to the green economy. In its Just Transition Action Plan on training and re-skilling, Austria has laid out measures to enhance skilled labour supply in the renewable energy sector, incentivise up-skilling of the labour force and improve educational standards. |
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(40)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Austria for 17 occupations that require specific skills or knowledge for the green transition, including civil engineering technicians, roofers and mechanical engineers. Under its Green Jobs Master Plan, Austria has introduced a green job platform to help match labour demand and supply. The implementation of that Master Plan will be key to ensuring a timely transition to the green economy. In its Just Transition Action Plan on training and re-skilling, Austria has laid out measures to enhance skilled labour supply in the renewable energy sector, incentivise up-skilling of the labour force and improve educational standards.

| (41) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1). |
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(41)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (18) is reflected in recommendation (1).

| (42) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Austria, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area, |
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(42)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Austria, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Austria take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally-financed net primary expenditure in 2024 to not more than 4,6 % (19).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Ensure the adequacy and fiscal sustainability of the long-term care system and the fiscal sustainability of the health care system. Simplify and rationalise fiscal relationships and responsibilities across layers of government and align financing and spending responsibilities. Improve the tax mix to support inclusive and sustainable growth.

2.

Continue the steady implementation of its recovery and resilience plan and 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.

Boost the labour market participation of women, including by enhancing quality childcare services, and of older workers. Improve labour market outcomes for disadvantaged groups, such as low-skilled jobseekers and people with a migrant background, including by raising their levels of basic skills.

4.

Reduce overall reliance on fossil fuels and diversify gas supply sources in order to significantly decrease dependence on Russia. Accelerate the deployment of renewable energy and the necessary infrastructure, in particular by simplifying permitting procedures and putting in place dedicated acceleration areas. Improve energy efficiency. Reduce emissions, in particular in the transport sector. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

3

(4)  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).

4

(5)  ST 10159/2021 INIT; ST 10159/2021 COR 1; ST 10159/2021 ADD 1.

5

(6)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Austria (OJ C 304, 29.7.2021, p. 93).

6

(7)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

7

(8)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,9 percentage points of GDP. This expansionary contribution is largely driven by the purchase of a strategic gas reserve of about 0,8 % of GDP.

8

(9)  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.

9

(10)  Council Recommendation of 12 July 2022 on the National Reform Programme of Austria and delivering a Council opinion on the 2022 Stability Programme of Austria (OJ C 334, 1.9.2022, p. 162).

10

(11)  Based on the Commission’s 2023 spring forecast, potential output growth of Austria, which is used to measure the fiscal stance, in the medium-term (10-year average), is estimated at 8,6 % in nominal terms.

11

(12)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,9 percentage points of GDP. This contractionary contribution is a result of the purchase of a strategic gas reserve in 2022.

12

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

13

(14)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

14

(15)  This figure refers to subsector 1312 in the European System of Accounts 2010 (ESA).

15

(16)  Education and Training Monitor 2022 of the European Commission – country report on Austria.

16

(17)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

17

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

18

(19)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 23.

19

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/197 |
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1.9.2023

EN

Official Journal of the European Union

C 312/197

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Poland and delivering a Council opinion on the 2023 Convergence Programme of Poland

(2023/C 312/21)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

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

Having regard to the opinion of the Social Protection Committee,

Having regard to the opinion of the Economic Policy Committee,

Whereas:

| (1) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), 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. As such, an in-depth review would not be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), 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. As such, an in-depth review would not be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity. |
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(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union’s competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a Communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a Communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependency on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependency on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthening policy coordination. 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 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthening policy coordination. 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 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 3 May 2021, 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 set out in Annex V to that Regulation. On 17 June 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Poland (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating 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. |
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(9)

On 3 May 2021, 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 set out in Annex V to that Regulation. On 17 June 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Poland (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating 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 2023, 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. |
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(10)

On 27 April 2023, 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) | On 24 May 2023, the Commission published the 2023 country report for Poland. 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. On the basis of that analysis, the country report identified gaps with regard 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 in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Poland. 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. On the basis of that analysis, the country report identified gaps with regard 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 in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, 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 to 49,1 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. |
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(12)

According to data validated by Eurostat, 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 to 49,1 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That 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, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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 taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduced rates of value added tax and excise duties on energy and fuels, while such fiscal policy 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 those measures at 1,9 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering 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 temporary emergency measures related to the COVID-19 crisis dropped to 0,7 % of GDP in 2022, from 2,4 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduced rates of value added tax and excise duties on energy and fuels, while such fiscal policy 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 those measures at 1,9 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering 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 temporary emergency measures related to the COVID-19 crisis 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 (7) pursue a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Poland (7) 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 (8) 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 Facility. Expenditure financed by grants under the Facility and other Union 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 (9). 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. That significant expansionary contribution included the additional impact of measures taken 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 cost of offering temporary protection to displaced persons from Ukraine (0,5 % of GDP). Poland therefore sufficiently kept under control the growth in nationally financed current expenditure. |
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(15)

According to the Commission estimates, the fiscal stance (8) 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 Facility. Expenditure financed by grants under the Facility and other Union 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 (9). 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. That significant expansionary contribution included the additional impact of measures taken 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 cost of offering 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 2023 Convergence Programme is in line with the Commission’s 2023 spring Forecast for 2023 and thereafter. The government projects real GDP to grow by 0,9 % in 2023 and 2,8 % in 2024. By comparison, the Commission’s 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. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is in line with the Commission’s 2023 spring Forecast for 2023 and thereafter. The government projects real GDP to grow by 0,9 % in 2023 and 2,8 % in 2024. By comparison, the Commission’s 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 2023 Convergence 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’s 2023 spring forecast projects a government deficit of 5,0 % of GDP for 2023. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to measures providing extraordinary aid to farmers which were not yet specified in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 50,5 % at the end of 2023. |
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(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 2023 Convergence 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’s 2023 spring forecast projects a government deficit of 5,0 % of GDP for 2023. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to measures providing extraordinary aid to farmers which were not yet specified in the 2023 Convergence Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 50,5 % at the end of 2023.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the measures taken 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 support measures to energy-intensive industries. The cost of those measures is partly offset by taxes on windfall profits of gas and electricity producers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,7 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 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 general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,7 % of GDP. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the measures taken 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 support measures to energy-intensive industries. The cost of those measures is partly offset by taxes on windfall profits of gas and electricity producers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 1,7 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission’s 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 general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,7 % of GDP.

| (19) | In its Recommendation of 12 July 2022, the Council recommended 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 (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended 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 (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission’s 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 an 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 cost of offering 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 Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union 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 (13). Therefore, Poland plans to finance additional investment through the Facility and other Union 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 Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission’s 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 an 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 cost of offering 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 Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union 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 (13). Therefore, Poland plans to finance additional investment through the Facility and other Union 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 Facility and other Union funds.

| (21) | According to the 2023 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. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase to 52,4 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,7 % of GDP in 2024. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to measures not yet specified in the Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 53,0 % at the end of 2024. |
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(21)

According to the 2023 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. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to increase to 52,4 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 3,7 % of GDP in 2024. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to measures not yet specified in the Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 53,0 % at the end of 2024.

| (22) | The 2023 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 is based on 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 and do not fully preserve the price signal to reduce energy demand and increase energy efficiency. |
| --- | --- |

(22)

The 2023 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 is based on 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 and do not fully preserve the price signal to reduce energy demand and increase energy efficiency.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) 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, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to 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’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
| --- | --- |

(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (15) 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, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to 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’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (24) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects the 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’s 2023 spring 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. |
| --- | --- |

(24)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects the 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’s 2023 spring 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 2023 Convergence Programme, government investment is expected to remain stable at 4,2 % of GDP in 2024, similar level as in 2023. The 2023 Convergence 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. |
| --- | --- |

(25)

According to the 2023 Convergence Programme, government investment is expected to remain stable at 4,2 % of GDP in 2024, similar level as in 2023. The 2023 Convergence 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 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to decline to 2,9 % of GDP in 2025 and remain at that level in 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2025. According to the 2023 Convergence 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. |
| --- | --- |

(26)

The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to decline to 2,9 % of GDP in 2025 and remain at that level in 2026. Therefore, the general government deficit is planned to decrease below 3 % of GDP in 2025. According to the 2023 Convergence 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. Better targeting of benefits would lead to more efficient use of public resources in combatting poverty and supporting those most in need. |
| --- | --- |

(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. 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 ageing population poses challenges for the Polish pension system. The existing pension system assumes a retirement age that does 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 regimes 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 ageing-related spending pressures. |
| --- | --- |

(28)

The rapidly ageing population poses challenges for the Polish pension system. The existing pension system assumes a retirement age that does 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 regimes 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 ageing-related spending pressures.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, 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. Strengthening 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 precondition 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 recovery and resilience plan, 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. In 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 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 that plan, in order to ensure broad ownership of the overall policy agenda. |
| --- | --- |

(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, 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. Strengthening 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 precondition 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 recovery and resilience plan, 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. In 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 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 that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Poland’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving a balanced territorial development in Poland. |
| --- | --- |

(30)

The Commission approved all Poland’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving a balanced territorial development in Poland.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Poland faces a number of additional challenges related to the investment climate, energy policy and the green transition. |
| --- | --- |

(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, 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 rule of law, including the independence of the judiciary, as identified in rulings by the Court of Justice of the European Union (the ‘Court of Justice’) and the European Court of Human Rights. Furthermore, on 15 February 2023, the Commission referred Poland to the Court of Justice for violations of Union law by the Polish Constitutional Tribunal and its case law, violations that particularly challenge the primacy of Union law. |
| --- | --- |

(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 rule of law, including the independence of the judiciary, as identified in rulings by the Court of Justice of the European Union (the ‘Court of Justice’) and the European Court of Human Rights. Furthermore, on 15 February 2023, the Commission referred Poland to the Court of Justice for violations of Union law by the Polish Constitutional Tribunal and its case law, violations that particularly challenge the primacy of Union 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 13 % in 2021. 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 Member States. Poland still has ample scope to address regulatory and administrative barriers to accelerating 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. Those 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. |
| --- | --- |

(33)

Poland’s energy mix is heavily dominated by fossil fuels, with coal accounting for around 60 % of it and renewable energy sources just 13 % in 2021. 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 Member States. Poland still has ample scope to address regulatory and administrative barriers to accelerating 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. Those 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 dropped by 13 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, slightly below the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). Poland is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17). 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. More 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 Member States. 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. |
| --- | --- |

(34)

Poland’s consumption of natural gas dropped by 13 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, slightly below the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (16). Poland is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (17). 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. More 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 Member States. 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 grew by 88,3 %, in stark contrast to the decrease by 7,5 % in the Union on average. Even with the additional measures included in Poland’s energy and climate plan, by 2030, greenhouse gas emissions from that 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. |
| --- | --- |

(35)

Between 2005 and 2021, greenhouse gas emissions from domestic transport (except aviation) in Poland grew by 88,3 %, in stark contrast to the decrease by 7,5 % in the Union on average. Even with the additional measures included in Poland’s energy and climate plan, by 2030, greenhouse gas emissions from that 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 creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those 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 constrained production in industry (63,4 % of firms) and construction (74,6 % of firms). |
| --- | --- |

(36)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those 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 constrained production in industry (63,4 % of firms) and construction (74,6 % of firms).

| (37) | In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (18) is reflected in recommendation (1), |
| --- | --- |

(37)

In the light of the Commission’s assessment, the Council has examined the 2023 Convergence Programme and its opinion (18) is reflected in recommendation (1),

HEREBY RECOMMENDS that Poland take action in 2023 and 2024 to:

1.

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 % (19).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order 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 financial interests of the Union in order 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 the implementation thereof. 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, including by safeguarding judicial independence.

4.

Accelerate the phasing-out of fossil fuels and the deployment of renewable energy. Reform the legal framework for grid connection permitting 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 for buildings and decarbonise the heat supply in district heating in order to address energy poverty. Further promote sustainable public transport modes. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition, including for building renovation.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 9728/2022 INIT; ST 9728/2022 ADD 1.

6

(7)  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).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,8 percentage points of GDP, largely reflecting government support to financial institutions.

9

(10)  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.

10

(11)  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).

11

(12)  On the basis of the Commission’s 2023 spring 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.

12

(13)  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.

13

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

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

16

(17)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

17

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

18

(19)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,5 % of GDP for 2024, as described in recital 23.

19

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/206 |
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1.9.2023

EN

Official Journal of the European Union

C 312/206

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Portugal and delivering a Council opinion on the 2023 Stability Programme of Portugal

(2023/C 312/22)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Portugal as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would be needed. On the same date, the Commission also adopted an opinion on Portugal's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Portugal as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would be needed. On the same date, the Commission also adopted an opinion on Portugal's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 22 April 2021, Portugal 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Portugal (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Portugal 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. |
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(9)

On 22 April 2021, Portugal 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Portugal (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Portugal 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 29 April 2023, Portugal submitted its 2023 National Reform Programme and, on 29 April 2023, its 2023 Stability Programme, in line with Article 4(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 Portugal's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 29 April 2023, Portugal submitted its 2023 National Reform Programme and, on 29 April 2023, its 2023 Stability Programme, in line with Article 4(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 Portugal's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Portugal. It assessed Portugal's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Portugal implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Portugal's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Portugal. It assessed Portugal's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Portugal implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Portugal's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Portugal and published its results on 24 May 2023. The Commission concluded that Portugal is experiencing macroeconomic imbalances. In particular, vulnerabilities related to high private, government and external debt are receding but remain present. After a temporary interruption due to the outbreak of the COVID-19 pandemic, private-sector and government debt ratios returned to declining paths in 2021 and are expected to continue declining, favoured by economic growth. While those ratios are now below pre-pandemic levels, they still remain at elevated levels. The clearly negative net international investment position improved as well, both before and after the COVID-19 pandemic, and external indebtedness is projected to further recede, supported by continued economic growth despite some slowdown in 2023. The small current account deficit worsened marginally in 2022, reflecting higher energy prices, but that deterioration was mitigated by the further marked recovery in exports, in particular tourism exports. Going forward, the assumed continued easing of energy prices and a further increase in tourism exports, as well as ongoing policies in support of energy efficiency and renewables, are projected to balance the current account and to further support the adjustment of the net international investment position. House prices have grown strongly for several years, while non-performing loans continued to decline from already moderate levels. The further reduction of vulnerabilities could be hindered by the impact of the tightening of financial conditions and an uncertain external environment, and their potential impact on economic growth. Policy progress has been favourable, with a particular focus on the recovery and resilience plan, and the continuing implementation of the recovery and resilience plan should deliver further improvements. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Portugal and published its results on 24 May 2023. The Commission concluded that Portugal is experiencing macroeconomic imbalances. In particular, vulnerabilities related to high private, government and external debt are receding but remain present. After a temporary interruption due to the outbreak of the COVID-19 pandemic, private-sector and government debt ratios returned to declining paths in 2021 and are expected to continue declining, favoured by economic growth. While those ratios are now below pre-pandemic levels, they still remain at elevated levels. The clearly negative net international investment position improved as well, both before and after the COVID-19 pandemic, and external indebtedness is projected to further recede, supported by continued economic growth despite some slowdown in 2023. The small current account deficit worsened marginally in 2022, reflecting higher energy prices, but that deterioration was mitigated by the further marked recovery in exports, in particular tourism exports. Going forward, the assumed continued easing of energy prices and a further increase in tourism exports, as well as ongoing policies in support of energy efficiency and renewables, are projected to balance the current account and to further support the adjustment of the net international investment position. House prices have grown strongly for several years, while non-performing loans continued to decline from already moderate levels. The further reduction of vulnerabilities could be hindered by the impact of the tightening of financial conditions and an uncertain external environment, and their potential impact on economic growth. Policy progress has been favourable, with a particular focus on the recovery and resilience plan, and the continuing implementation of the recovery and resilience plan should deliver further improvements.

| (13) | According to data validated by Eurostat, Portugal's general government deficit decreased from 2,9 % of GDP in 2021 to 0,4 % in 2022, while general government debt fell from 125,4 % of GDP at the end of 2021 to 113,9 % at the end of 2022. |
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(13)

According to data validated by Eurostat, Portugal's general government deficit decreased from 2,9 % of GDP in 2021 to 0,4 % in 2022, while general government debt fell from 125,4 % of GDP at the end of 2021 to 113,9 % at the end of 2022.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a general fuel tax reduction and the carbon rate update freeze under the fuel tax, while such fiscal policy expenditure-increasing measures included a one-time payment support payable in October 2022 for different population groups, such as pensioners, employees, children and the youth, lump-sum payments to low-income households most vulnerable to rising energy prices, and an allocation to the national electricity system to reduce electricity grid tariffs. The Commission estimates the net budgetary cost of those measures at 2,0 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 2,0 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a general fuel tax reduction and the carbon rate update freeze under the fuel tax, while such fiscal policy expenditure-increasing measures included a one-time payment support payable in October 2022 for different population groups, such as pensioners, employees, children and the youth, lump-sum payments to low-income households most vulnerable to rising energy prices, and an allocation to the national electricity system to reduce electricity grid tariffs. The Commission estimates the net budgetary cost of those measures at 2,0 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 2,0 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Portugal (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Portugal preserve nationally financed investment and limit the growth of nationally financed current expenditure. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Portugal (7) use the Facility to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. Moreover, the Council recommended that Portugal preserve nationally financed investment and limit the growth of nationally financed current expenditure.

| (16) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 1,5 % of GDP. As recommended by the Council, Portugal continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,2 % of GDP in 2022 (1,7 % of GDP in 2021). That decrease in expenditures in 2022 was due to the lower expenditure financed by other Union funds, while that financed by the Facility increased between 2021 and 2022. Nationally financed investment provided a contractionary contribution of 0,1 percentage points to the fiscal stance (9). Portugal therefore did not preserve nationally financed investment, which was not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 1,9 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 2,0 % of GDP). Portugal therefore sufficiently limited the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 1,5 % of GDP. As recommended by the Council, Portugal continued to support the recovery with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,2 % of GDP in 2022 (1,7 % of GDP in 2021). That decrease in expenditures in 2022 was due to the lower expenditure financed by other Union funds, while that financed by the Facility increased between 2021 and 2022. Nationally financed investment provided a contractionary contribution of 0,1 percentage points to the fiscal stance (9). Portugal therefore did not preserve nationally financed investment, which was not in line with the Council recommendation. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 1,9 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 2,0 % of GDP). Portugal therefore sufficiently limited the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is cautious in 2023 and in line with the Commission's 2023 spring forecast thereafter. The government projects real GDP to grow by 1,8 % in 2023 and 2,0 % in 2024. By comparison, the Commission's 2023 spring forecast projects higher real GDP growth of 2,4 % in 2023 and somewhat lower growth of 1,8 % in 2024. The difference is explained by a higher growth contribution from net exports in the Commission's 2023 spring forecast, while the government expects higher investment growth in both 2023 and 2024. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is cautious in 2023 and in line with the Commission's 2023 spring forecast thereafter. The government projects real GDP to grow by 1,8 % in 2023 and 2,0 % in 2024. By comparison, the Commission's 2023 spring forecast projects higher real GDP growth of 2,4 % in 2023 and somewhat lower growth of 1,8 % in 2024. The difference is explained by a higher growth contribution from net exports in the Commission's 2023 spring forecast, while the government expects higher investment growth in both 2023 and 2024.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will remain at 0,4 % of GDP in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 113,9 % at the end of 2022 to 107,5 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 0,1 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to higher revenue projected in the Commission's 2023 spring forecast, namely from both indirect and direct taxes. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 106,2 % at the end of 2023. The difference is mainly due to the more favourable debt-reducing growth-interest rate differential projected in the Commission's 2023 spring forecast. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will remain at 0,4 % of GDP in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 113,9 % at the end of 2022 to 107,5 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 0,1 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to higher revenue projected in the Commission's 2023 spring forecast, namely from both indirect and direct taxes. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio, of 106,2 % at the end of 2023. The difference is mainly due to the more favourable debt-reducing growth-interest rate differential projected in the Commission's 2023 spring forecast.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular lump-sum payments to low-income households most vulnerable to increased energy prices, the general fuel tax reduction and the carbon rate update freeze under the fuel tax, as well as measures already announced in 2022 but with an impact on the government balance in 2023, such as the allocation to support the transitional regime for stabilising gas prices paid by firms that remains in force throughout the year. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,8 % of GDP in 2023 (10). Most of the measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (compared to 1 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular lump-sum payments to low-income households most vulnerable to increased energy prices, the general fuel tax reduction and the carbon rate update freeze under the fuel tax, as well as measures already announced in 2022 but with an impact on the government balance in 2023, such as the allocation to support the transitional regime for stabilising gas prices paid by firms that remains in force throughout the year. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,8 % of GDP in 2023 (10). Most of the measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (compared to 1 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Portugal ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Portugal should stand ready to adjust current spending to the evolving situation. Portugal 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Portugal ensure in 2023 a prudent fiscal policy, in particular by limiting the growth of nationally financed primary current expenditure below medium-term potential output growth (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Portugal should stand ready to adjust current spending to the evolving situation. Portugal 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 0,7 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 1,5 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 percentage points to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected contractionary contribution of nationally financed primary current expenditure is due, in substance, to the reduced costs of the support measures (targeted and untargeted) to households and firms in response to energy price hikes (by 1,1 percentage points of GDP). The main drivers of growth in nationally financed primary current expenditure (net of new revenue measures) are the persistent pressures on public current spending, including on public-sector wages and pensions, driven in particular by permanent rises in public-sector wages and discretionary pension increases. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,2 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,3 percentage points (13). Therefore, Portugal plans to finance investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, including through industry decarbonisation projects, production of renewable hydrogen and other renewable gases, and the digitalisation of schools, which are partly funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 0,7 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 1,5 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a contractionary contribution of 0,3 percentage points to the fiscal stance. Therefore, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. The projected contractionary contribution of nationally financed primary current expenditure is due, in substance, to the reduced costs of the support measures (targeted and untargeted) to households and firms in response to energy price hikes (by 1,1 percentage points of GDP). The main drivers of growth in nationally financed primary current expenditure (net of new revenue measures) are the persistent pressures on public current spending, including on public-sector wages and pensions, driven in particular by permanent rises in public-sector wages and discretionary pension increases. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,2 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,3 percentage points (13). Therefore, Portugal plans to finance investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment (14). It plans to finance public investment for the green and digital transitions, and for energy security, including through industry decarbonisation projects, production of renewable hydrogen and other renewable gases, and the digitalisation of schools, which are partly funded by the Facility and other Union funds.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 0,2 % of GDP in 2024. The decrease in 2024 mainly reflects the planned containment of current expenditure, notably in intermediate consumption, compensation of employees and subsidies, along with a sustained growth on the revenue side. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 103,0 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 0,1 % of GDP in 2024. This is slightly lower than the deficit projected in the 2023 Stability Programme, mainly due to the more buoyant revenue growth, particularly in taxes, projected in the Commission's 2023 spring forecast. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 103,1 % at the end of 2024. |
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(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 0,2 % of GDP in 2024. The decrease in 2024 mainly reflects the planned containment of current expenditure, notably in intermediate consumption, compensation of employees and subsidies, along with a sustained growth on the revenue side. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 103,0 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 0,1 % of GDP in 2024. This is slightly lower than the deficit projected in the 2023 Stability Programme, mainly due to the more buoyant revenue growth, particularly in taxes, projected in the Commission's 2023 spring forecast. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 103,1 % at the end of 2024.

| (23) | The 2023 Stability Programme does not include information on the phasing-out of energy support measures in 2024. The Commission currently assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increase. |
| --- | --- |

(23)

The 2023 Stability Programme does not include information on the phasing-out of energy support measures in 2024. The Commission currently assumes the full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increase.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 1,8 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,8 % of GDP in 2023) should be phased out in 2023, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. |
| --- | --- |

(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (15). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (16) in 2024 should not exceed 1,8 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,8 % of GDP in 2023) should be phased out in 2023, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit.

| (25) | Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,8 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is less than the savings from the full phasing-out of the energy support measures. This is due to measures with a projected permanent expenditure-increasing impact and to revenue-reducing personal income tax reforms. |
| --- | --- |

(25)

Assuming unchanged policies, the Commission's 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,8 % in 2024, which is above the recommended growth rate. The adjustment projected in the Commission's 2023 spring forecast is less than the savings from the full phasing-out of the energy support measures. This is due to measures with a projected permanent expenditure-increasing impact and to revenue-reducing personal income tax reforms.

| (26) | According to the 2023 Stability Programme, government investment is expected to increase from 3,2 % of GDP in 2023 to 3,4 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include measures to modernise and simplify public financial management and to upgrade public financial management information systems, such as the development of a model for monitoring the budgetary and financial execution of general government, the operationalisation of the state accounting entity, as well as the integration of programme budgeting and spending reviews in the regular budgetary process, which are part of the recovery and resilience plan. |
| --- | --- |

(26)

According to the 2023 Stability Programme, government investment is expected to increase from 3,2 % of GDP in 2023 to 3,4 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include measures to modernise and simplify public financial management and to upgrade public financial management information systems, such as the development of a model for monitoring the budgetary and financial execution of general government, the operationalisation of the state accounting entity, as well as the integration of programme budgeting and spending reviews in the regular budgetary process, which are part of the recovery and resilience plan.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 0,1 % of GDP in 2025, to achieve a balanced budgetary position in 2026 and later to reach a small surplus of 0,1 % of GDP in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 103,0 % at the end of 2024 to 92,0 % by the end of 2027. A more growth-friendly composition of public finances, on both the revenue and expenditure sides of the public budget, would strengthen Portugal's long-term fiscal sustainability while improving the business environment and contributing to sustainable and inclusive growth. Tax benefits are widely used in the Portuguese tax system, with more than 500 tax benefits spread over more than 60 legal texts. This increases complexity and diminishes the system's transparency, while at the same time resulting in forgone revenue. The cost efficiency of existing tax benefits would benefit from being systematically monitored and assessed, allowing for significant improvements in this area. Furthermore, State and municipal surcharges complicate the corporate income tax system, which creates an additional burden for both the tax administration and businesses. The efficiency of Portugal's revenue administration could be strengthened to encourage voluntary compliance, while helping reduce tax evasion and fraud. The administrative cost of tax collection is high and has further increased in recent years (by approximately 5 % from 2018 to 2020). At the same time, the time taken to pay taxes in Portugal appears to be longer than in other Member States. The already high outstanding tax arrears continued to increase (they stood at 45,9 % of total revenue by the end of 2020, well above the Union average). |
| --- | --- |

(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to gradually decline to 0,1 % of GDP in 2025, to achieve a balanced budgetary position in 2026 and later to reach a small surplus of 0,1 % of GDP in 2027. Therefore, the general government deficit is planned to remain below 3 % of GDP over the Programme horizon. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 103,0 % at the end of 2024 to 92,0 % by the end of 2027. A more growth-friendly composition of public finances, on both the revenue and expenditure sides of the public budget, would strengthen Portugal's long-term fiscal sustainability while improving the business environment and contributing to sustainable and inclusive growth. Tax benefits are widely used in the Portuguese tax system, with more than 500 tax benefits spread over more than 60 legal texts. This increases complexity and diminishes the system's transparency, while at the same time resulting in forgone revenue. The cost efficiency of existing tax benefits would benefit from being systematically monitored and assessed, allowing for significant improvements in this area. Furthermore, State and municipal surcharges complicate the corporate income tax system, which creates an additional burden for both the tax administration and businesses. The efficiency of Portugal's revenue administration could be strengthened to encourage voluntary compliance, while helping reduce tax evasion and fraud. The administrative cost of tax collection is high and has further increased in recent years (by approximately 5 % from 2018 to 2020). At the same time, the time taken to pay taxes in Portugal appears to be longer than in other Member States. The already high outstanding tax arrears continued to increase (they stood at 45,9 % of total revenue by the end of 2020, well above the Union average).

| (28) | The capacity of benefits under Portugal's social protection system to reduce poverty is low and decreased further in 2021, while the evolution of the share of people at risk of poverty was among the worst in the Union (increasing by 2,4 percentage points), against a backdrop of general stability in most Member States. The adequacy of the minimum income remains low and is well below the poverty threshold. Such figures challenge Portugal's capacity to attain the poverty reduction goals set out in the European Pillar of Social Rights Action Plan. At the same time, the social protection system remains complex, as various types of social benefits appear to serve similar objectives. The ensuing complexity and fragmentation results in relatively low take-up rates and a lack of effective focus on people who are most in need, hampering the coverage and ultimately the adequacy of social benefits. The simplification of existing benefits together with a timely implementation of the national strategy to combat poverty will increase Portugal's capacity to face future social challenges. |
| --- | --- |

(28)

The capacity of benefits under Portugal's social protection system to reduce poverty is low and decreased further in 2021, while the evolution of the share of people at risk of poverty was among the worst in the Union (increasing by 2,4 percentage points), against a backdrop of general stability in most Member States. The adequacy of the minimum income remains low and is well below the poverty threshold. Such figures challenge Portugal's capacity to attain the poverty reduction goals set out in the European Pillar of Social Rights Action Plan. At the same time, the social protection system remains complex, as various types of social benefits appear to serve similar objectives. The ensuing complexity and fragmentation results in relatively low take-up rates and a lack of effective focus on people who are most in need, hampering the coverage and ultimately the adequacy of social benefits. The simplification of existing benefits together with a timely implementation of the national strategy to combat poverty will increase Portugal's capacity to face future social challenges.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Portugal's recovery and resilience plan is underway, albeit with risk of some delays. Portugal submitted two payment requests, corresponding to 58 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 2,98 billion. The Portuguese recovery and resilience plan is ambitious and complex in nature. Strong governance and continuous monitoring of the plan are essential to minimise the risk of delays. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Portugal'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. On 26 May 2023, Portugal submitted an amendment of its plan, revised with new measures, including a REPowerEU chapter, and taking into account the increased maximum financial contribution (17). In accordance with Article 14(6) of Regulation (EU) 2021/241, Portugal also submitted its request for additional loan support under the Facility. |
| --- | --- |

(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Portugal's recovery and resilience plan is underway, albeit with risk of some delays. Portugal submitted two payment requests, corresponding to 58 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of EUR 2,98 billion. The Portuguese recovery and resilience plan is ambitious and complex in nature. Strong governance and continuous monitoring of the plan are essential to minimise the risk of delays. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Portugal'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. On 26 May 2023, Portugal submitted an amendment of its plan, revised with new measures, including a REPowerEU chapter, and taking into account the increased maximum financial contribution (17). In accordance with Article 14(6) of Regulation (EU) 2021/241, Portugal also submitted its request for additional loan support under the Facility.

| (30) | The Commission approved all Portugal's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Portugal. |
| --- | --- |

(30)

The Commission approved all Portugal's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Portugal.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Portugal faces a number of additional challenges related to the circular economy, energy and the green transition. |
| --- | --- |

(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Portugal faces a number of additional challenges related to the circular economy, energy and the green transition.

| (32) | Portugal is far below the Union average in making progress towards a circular economy, in resource productivity in industries and with regard to waste management indicators, with marked regional differences. The average municipal recycling rate is particularly low (30,5 % in 2021, far from the Union target of 50 % by 2020) and varies by region. Achieving the Union targets for the next decade, including reaching 55 % recycling of municipal waste by 2025, will require significant efforts. Improvements are needed to increase the prevention, minimisation, sorting, reuse and recycling of waste, in line with the higher steps in the waste hierarchy, thereby diverting waste away from landfills and incinerators, and to modernise waste recycling and treatment facilities. Examples of how to better achieve those objectives include increasing landfill and incineration charges, introducing a residual waste tax and raising charges on municipalities that fail to meet recycling targets. In addition, the process could be accelerated by extending the separate collection of waste and further developing schemes such as ‘pay-as-you-throw’, ‘deposit return’ and Extended Producer Responsibility. |
| --- | --- |

(32)

Portugal is far below the Union average in making progress towards a circular economy, in resource productivity in industries and with regard to waste management indicators, with marked regional differences. The average municipal recycling rate is particularly low (30,5 % in 2021, far from the Union target of 50 % by 2020) and varies by region. Achieving the Union targets for the next decade, including reaching 55 % recycling of municipal waste by 2025, will require significant efforts. Improvements are needed to increase the prevention, minimisation, sorting, reuse and recycling of waste, in line with the higher steps in the waste hierarchy, thereby diverting waste away from landfills and incinerators, and to modernise waste recycling and treatment facilities. Examples of how to better achieve those objectives include increasing landfill and incineration charges, introducing a residual waste tax and raising charges on municipalities that fail to meet recycling targets. In addition, the process could be accelerated by extending the separate collection of waste and further developing schemes such as ‘pay-as-you-throw’, ‘deposit return’ and Extended Producer Responsibility.

| (33) | Despite the progress made, including in the context of the energy crisis, Portugal remains highly dependent on imported fossil fuels, with oil and gas making up 45 % and 23 % respectively of its energy mix in 2021. In addition, Portugal's high dependency on gas for electricity production poses risks in terms of security of supply, especially considering the scarcity of hydroelectric power due to more frequent droughts. To accelerate the decarbonisation efforts, a number of measures could be further pursued that build on and go beyond the reforms and investments that are part of Portugal's recovery and resilience plan. To accelerate the take-up of renewables, Portugal could follow up on the progress it made last year on streamlining its permitting process, including by increasing the capacity of the administration dealing with permitting, increasing digitalisation in renewables production and introducing more favourable spatial planning arrangements for offshore wind, the potential for which remains under-exploited. Further action to promote self-consumption, including rooftop solar, and renewable energy communities would also be beneficial. In spite of growth, the number of renewable energy communities in Portugal is still low, and there is scope to facilitate their licensing and to create incentives schemes. |
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(33)

Despite the progress made, including in the context of the energy crisis, Portugal remains highly dependent on imported fossil fuels, with oil and gas making up 45 % and 23 % respectively of its energy mix in 2021. In addition, Portugal's high dependency on gas for electricity production poses risks in terms of security of supply, especially considering the scarcity of hydroelectric power due to more frequent droughts. To accelerate the decarbonisation efforts, a number of measures could be further pursued that build on and go beyond the reforms and investments that are part of Portugal's recovery and resilience plan. To accelerate the take-up of renewables, Portugal could follow up on the progress it made last year on streamlining its permitting process, including by increasing the capacity of the administration dealing with permitting, increasing digitalisation in renewables production and introducing more favourable spatial planning arrangements for offshore wind, the potential for which remains under-exploited. Further action to promote self-consumption, including rooftop solar, and renewable energy communities would also be beneficial. In spite of growth, the number of renewable energy communities in Portugal is still low, and there is scope to facilitate their licensing and to create incentives schemes.

| (34) | As more renewables are integrated, further investment to expand the storage and network capacity will be essential to safeguard the balance of the electricity grid. Portugal could benefit from strengthening its electricity interconnections, as the interconnection level with Spain is still low compared to its 2030 targets. The status of the transmission and distribution grid could be improved through the reinforcement of the internal grid, additional investments in electricity storage and further digitalisation of the grid. The relatively low roll-out of smart meters hampers the development of a decentralised system of renewable energy production. To address its high degree of reliance on fossil fuels in buildings and reduce energy consumption, Portugal needs to accelerate its efforts on energy efficiency beyond what is set out in the Portuguese recovery and resilience plan and cohesion policy programmes. Further measures should also contribute to addressing the high share of the Portuguese population experiencing energy poverty. Stepping up efforts to incentivise deep renovations, including by delivering technical assistance to applicants, could accelerate the take-up of renovation projects. In addition, Portugal could benefit from a strengthened framework for financial schemes to leverage private investment for energy-efficient renovation. By doing so, Portugal could target more grant-based resources towards households in need. Portugal's consumption of natural gas has dropped by 16 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Portugal could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19). |
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(34)

As more renewables are integrated, further investment to expand the storage and network capacity will be essential to safeguard the balance of the electricity grid. Portugal could benefit from strengthening its electricity interconnections, as the interconnection level with Spain is still low compared to its 2030 targets. The status of the transmission and distribution grid could be improved through the reinforcement of the internal grid, additional investments in electricity storage and further digitalisation of the grid. The relatively low roll-out of smart meters hampers the development of a decentralised system of renewable energy production. To address its high degree of reliance on fossil fuels in buildings and reduce energy consumption, Portugal needs to accelerate its efforts on energy efficiency beyond what is set out in the Portuguese recovery and resilience plan and cohesion policy programmes. Further measures should also contribute to addressing the high share of the Portuguese population experiencing energy poverty. Stepping up efforts to incentivise deep renovations, including by delivering technical assistance to applicants, could accelerate the take-up of renovation projects. In addition, Portugal could benefit from a strengthened framework for financial schemes to leverage private investment for energy-efficient renovation. By doing so, Portugal could target more grant-based resources towards households in need. Portugal's consumption of natural gas has dropped by 16 % in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (18). Portugal could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (19).

| (35) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Portugal is facing shortages of skills needed for the green transition, in particular in the construction and manufacturing sectors. It would benefit from strengthening its policies for upskilling and reskilling linked to the green transition. |
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(35)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Portugal is facing shortages of skills needed for the green transition, in particular in the construction and manufacturing sectors. It would benefit from strengthening its policies for upskilling and reskilling linked to the green transition.

| (36) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1). |
| --- | --- |

(36)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (20) is reflected in recommendation (1).

| (37) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Portugal, recommendations (1), (2) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro-area. |
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(37)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Portugal, recommendations (1), (2) and (4) contribute to the implementation of the first, second and third recommendations set out in the 2023 Recommendation on the euro-area.

| (38) | In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to government debt. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 37, |
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(38)

In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to government debt. Recommendation (2) contributes to addressing recommendation (1). Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendations set out in the 2023 Recommendation on the euro area, in line with recital 37,

HEREBY RECOMMENDS that Portugal take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 1,8 % (21), unless a higher reference rate in net nationally financed primary expenditure growth is estimated to be compatible with Portugal reaching its medium-term budgetary objective of – 0,5 % of GDP, inter alia if interest expenditure is lower than currently projected by the Commission.

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Improve the effectiveness of the tax and social protection systems, in particular by prioritising the simplification of both frameworks, strengthening the efficiency of their respective administrations and reducing the associated administrative burden.

2.

Accelerate the implementation of its recovery and resilience plan, including by ensuring adequate administrative capacity and, following the recent submission of the addendum, including the REPowerEU chapter and the additional loan request, rapidly start the implementation of the related measures. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Improve the conditions for the transition towards a circular economy, in particular by increasing waste prevention, recycling and reuse in order to divert waste away from landfills and incinerators.

4.

Reduce overall reliance on fossil fuels. Further accelerate the deployment of renewables by further simplifying and digitalising permitting in order to allow for additional wind, in particular offshore, and solar electricity production, as well as promoting self-consumption and renewable energy communities. Increase electricity interconnection capacity and upgrade the electricity transmission and distribution grids, enabling investment in electricity storage and digitalisation of the grid, including a faster roll-out of smart meters. Accelerate investment in energy efficiency by promoting financial schemes to attract private investment and supporting households in need. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10149/21; ST 10149/21 ADD 1; ST 10149/21 ADD 1 REV 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Portugal (OJ C 304, 29.7.2021, p. 102).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,2 percentage points of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Portugal and delivering a Council opinion on the 2022 Stability Programme of Portugal (OJ C 334, 1.9.2022, p. 181).

11

(12)  Based on the Commission's 2023 spring forecast, the medium-term (10-year average) potential output growth of Portugal is estimated at 7,6 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0,3 percentage point of GDP, notably driven by the estimated reduced capital transfers to state-owned enterprises in 2023.

13

(14)  Expenditure financed by Recovery and Resilience Facility grants and other Union funds amounted to 2,2 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,3 percentage point. Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,1 percentage point of GDP.

14

(15)  Article 5 of Regulation (EC) No 1466/97 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.

15

(16)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

16

(17)  The maximum financial contribution for Portugal was updated on 30 June 2022 to an amount of EUR 15,5 billion in grants, in line with Article 11(2) of Regulation (EU) 2021/241.

17

(18)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

18

(19)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

19

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

20

(21)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3% of GDP for 2024, as described in recital 24.

21

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/216 |
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1.9.2023

EN

Official Journal of the European Union

C 312/216

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Romania and delivering a Council opinion on the 2023 Convergence Programme of Romania

(2023/C 312/23)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

Having regard to the recommendation of the European Commission,

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 (3), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Romania as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, 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 and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Romania as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, 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 and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability, and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability, and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 31 May 2021, Romania 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 set out in Annex V to that Regulation. On 3 November 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Romania (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Romania 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. |
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(9)

On 31 May 2021, Romania 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 set out in Annex V to that Regulation. On 3 November 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Romania (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Romania 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 11 May 2023, Romania submitted its 2023 National Reform Programme and, on 10 May 2023, its 2023 Convergence Programme, in line with Article 4(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 Romania's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 11 May 2023, Romania submitted its 2023 National Reform Programme and, on 10 May 2023, its 2023 Convergence Programme, in line with Article 4(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 Romania's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Romania. It assessed Romania's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Romania's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Romania's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Romania. It assessed Romania's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Romania's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Romania's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Romania and published its results on 24 May 2023. The Commission concluded that Romania is experiencing macroeconomic imbalances. In particular, its vulnerabilities relate to external accounts linked to large government deficits, while overheating pressures have increased. The large current account deficit worsened considerably after the recession caused by the COVID-19 pandemic and made the economy vulnerable to external funding shocks. The continuation of large current account deficit risks driving the net international investment position further into negative territory. Signs of overheating are clearly visible, with core inflation uncomfortably high, wage growth well in double digit territory and a relatively low unemployment rate. Cost competitiveness indicators are expected to stabilise, but structural issues persist. The exchange rate appears to be above the level suggested by fundamentals and remains heavily managed. The government deficit has been large for several years and has accounted for much of the excess of demand and of the subsequent external deficits; even though the government deficit is improving, it is still forecast to remain significant in 2023 and 2024. The narrowing of the government deficit in 2022 was mainly driven by marked nominal GDP growth, which in turn rests much on overheating domestic demand. Risk premia and sovereign borrowing costs are significantly higher than in the pre-pandemic years. Given the ongoing tightening in global liquidity conditions, it will be important to reverse ongoing trends. Going forward, fiscal adjustment should be the preferred way to bring demand more in line with supply and to contain domestic and external deficits. The full implementation of tax and pension reforms included in the recovery and resilience plan as well as adherence to fiscal targets under the excessive deficit procedure would go a long way in containing current dynamics. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Romania and published its results on 24 May 2023. The Commission concluded that Romania is experiencing macroeconomic imbalances. In particular, its vulnerabilities relate to external accounts linked to large government deficits, while overheating pressures have increased. The large current account deficit worsened considerably after the recession caused by the COVID-19 pandemic and made the economy vulnerable to external funding shocks. The continuation of large current account deficit risks driving the net international investment position further into negative territory. Signs of overheating are clearly visible, with core inflation uncomfortably high, wage growth well in double digit territory and a relatively low unemployment rate. Cost competitiveness indicators are expected to stabilise, but structural issues persist. The exchange rate appears to be above the level suggested by fundamentals and remains heavily managed. The government deficit has been large for several years and has accounted for much of the excess of demand and of the subsequent external deficits; even though the government deficit is improving, it is still forecast to remain significant in 2023 and 2024. The narrowing of the government deficit in 2022 was mainly driven by marked nominal GDP growth, which in turn rests much on overheating domestic demand. Risk premia and sovereign borrowing costs are significantly higher than in the pre-pandemic years. Given the ongoing tightening in global liquidity conditions, it will be important to reverse ongoing trends. Going forward, fiscal adjustment should be the preferred way to bring demand more in line with supply and to contain domestic and external deficits. The full implementation of tax and pension reforms included in the recovery and resilience plan as well as adherence to fiscal targets under the excessive deficit procedure would go a long way in containing current dynamics.

| (13) | On 3 April 2020, the Council adopted Decision (EU) 2020/509 (7) on the existence of an excessive deficit in Romania due to the country's non-compliance with the deficit criterion in 2019. On 3 April 2020, the Council also issued a Recommendation (8) with a view to bringing an end to the situation of an excessive government deficit in Romania by 2022 at the latest. Considering the deep contraction in economic activity linked to the COVID-19 pandemic and the related need for fiscal policies to support the recovery, on 18 June 2021 the Council issued a new Recommendation (9) to put an end to the situation of an excessive deficit in Romania by 2024 at the latest. In its Recommendation of 18 June 2021, the Council recommended Romania to reduce its general government deficit to 8,0 % of GDP in 2021, 6,2 % of GDP in 2022, 4,4 % of GDP in 2023 and 2,9 % of GDP in 2024. This was consistent with a nominal growth rate of net primary government expenditure of 3,4 % in 2021, 1,3 % in 2022, 0,9 % in 2023 and 0,0 % in 2024. It corresponded to an annual structural adjustment of 0,7 % of GDP in 2021, 1,8 % of GDP in 2022, 1,7 % of GDP in 2023 and 1,5 % of GDP in 2024. The Recommendation of 18 June 2021 also specified that any windfall gains should be used to reduce the general government deficit, and that Romania should ensure the full and effective application of its national fiscal framework. Finally, the Council also stated that to ensure the success of the medium-term fiscal strategy, it will be important to support the fiscal consolidation with comprehensive reforms. |
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(13)

On 3 April 2020, the Council adopted Decision (EU) 2020/509 (7) on the existence of an excessive deficit in Romania due to the country's non-compliance with the deficit criterion in 2019. On 3 April 2020, the Council also issued a Recommendation (8) with a view to bringing an end to the situation of an excessive government deficit in Romania by 2022 at the latest. Considering the deep contraction in economic activity linked to the COVID-19 pandemic and the related need for fiscal policies to support the recovery, on 18 June 2021 the Council issued a new Recommendation (9) to put an end to the situation of an excessive deficit in Romania by 2024 at the latest. In its Recommendation of 18 June 2021, the Council recommended Romania to reduce its general government deficit to 8,0 % of GDP in 2021, 6,2 % of GDP in 2022, 4,4 % of GDP in 2023 and 2,9 % of GDP in 2024. This was consistent with a nominal growth rate of net primary government expenditure of 3,4 % in 2021, 1,3 % in 2022, 0,9 % in 2023 and 0,0 % in 2024. It corresponded to an annual structural adjustment of 0,7 % of GDP in 2021, 1,8 % of GDP in 2022, 1,7 % of GDP in 2023 and 1,5 % of GDP in 2024. The Recommendation of 18 June 2021 also specified that any windfall gains should be used to reduce the general government deficit, and that Romania should ensure the full and effective application of its national fiscal framework. Finally, the Council also stated that to ensure the success of the medium-term fiscal strategy, it will be important to support the fiscal consolidation with comprehensive reforms.

| (14) | According to data validated by Eurostat, Romania's general government deficit decreased from 7,1 % of GDP in 2021 to 6,2 % of GDP in 2022, while general government debt fell from 48,6 % of GDP at the end of 2021 to 47,3 % at the end of 2022. This is in line with the 2022 headline deficit target recommended by the Council. The adjustment in the structural balance for 2022 was 0,4 percentage points of GDP, well below the recommended 1,8 percentage points of GDP. This calls for careful analysis based on the expenditure benchmark. In 2022, net primary expenditure growth (adjusted for one-offs and for the fiscal policy measures on the revenue side) was 14,1 %, above the recommended 1,3 %. The improvement in the structural balance almost stalled in 2022, even though government revenues were materially higher than expected, boosted by strong real GDP growth, high inflation, and a favourable composition of economic growth. On the expenditure side, public wages and purchases of goods and services fell as a share of nominal GDP due to partial indexation and a self-imposed ceiling on purchases. However, most other expenditure items grew much faster than planned, in part due to large inflation surprises, implying that part of revenue windfall gains was used to finance additional expenditure relative to plans. |
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(14)

According to data validated by Eurostat, Romania's general government deficit decreased from 7,1 % of GDP in 2021 to 6,2 % of GDP in 2022, while general government debt fell from 48,6 % of GDP at the end of 2021 to 47,3 % at the end of 2022. This is in line with the 2022 headline deficit target recommended by the Council. The adjustment in the structural balance for 2022 was 0,4 percentage points of GDP, well below the recommended 1,8 percentage points of GDP. This calls for careful analysis based on the expenditure benchmark. In 2022, net primary expenditure growth (adjusted for one-offs and for the fiscal policy measures on the revenue side) was 14,1 %, above the recommended 1,3 %. The improvement in the structural balance almost stalled in 2022, even though government revenues were materially higher than expected, boosted by strong real GDP growth, high inflation, and a favourable composition of economic growth. On the expenditure side, public wages and purchases of goods and services fell as a share of nominal GDP due to partial indexation and a self-imposed ceiling on purchases. However, most other expenditure items grew much faster than planned, in part due to large inflation surprises, implying that part of revenue windfall gains was used to finance additional expenditure relative to plans.

| (15) | The general government balance has been impacted by fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy measures included price caps for electricity and natural gas tariffs for both household and non-household consumers. It also included special payments to low-income pensioners, food vouchers for low-income households (including pensioners and students) and fuel subsidies. The cost of those measures was partially offset by new taxes on the windfall profits of domestic energy-producing companies. The Commission estimates the net budgetary cost of those measures at 0,4 % of GDP in 2022. The general government balance has also been marginally impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,0 to 0,1 % of GDP in 2022. |
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(15)

The general government balance has been impacted by fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy measures included price caps for electricity and natural gas tariffs for both household and non-household consumers. It also included special payments to low-income pensioners, food vouchers for low-income households (including pensioners and students) and fuel subsidies. The cost of those measures was partially offset by new taxes on the windfall profits of domestic energy-producing companies. The Commission estimates the net budgetary cost of those measures at 0,4 % of GDP in 2022. The general government balance has also been marginally impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,0 to 0,1 % of GDP in 2022.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is relatively cautious and more favourable than the Commission's 2023 spring forecast thereafter. The government projects real GDP to grow by 2,8 % in 2023 and 4,8 % in 2024. By comparison, the Commission's 2023 spring forecast projects real GDP growth of 3,2 % in 2023 and 3,5 % in 2024. The Commission's significantly lower growth forecast for 2024 reflects the Commission's view on the delayed impact of monetary tightening on the economy. It also reflects the Commission's view that the Romanian economy is currently operating close to its potential level, which seems reasonable given high and sticky core inflation rates and relatively low unemployment rate. This limits the potential for non-inflationary growth. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is relatively cautious and more favourable than the Commission's 2023 spring forecast thereafter. The government projects real GDP to grow by 2,8 % in 2023 and 4,8 % in 2024. By comparison, the Commission's 2023 spring forecast projects real GDP growth of 3,2 % in 2023 and 3,5 % in 2024. The Commission's significantly lower growth forecast for 2024 reflects the Commission's view on the delayed impact of monetary tightening on the economy. It also reflects the Commission's view that the Romanian economy is currently operating close to its potential level, which seems reasonable given high and sticky core inflation rates and relatively low unemployment rate. This limits the potential for non-inflationary growth.

| (17) | In its 2023 Convergence Programme, the government expects that the general government deficit will decrease from 6,2 % of GDP in 2022 to 4,4 % in 2023, as recommended by the Council. The large decrease reflects planned expenditure restraint, including significant declines in the real wages of public workers, and some revenue-enhancing measures, including an increase in the dividend tax rate, a reduction in the threshold to benefit from the low tax rate under the micro-enterprise regime, and increases in VAT rates on selected products. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 47,3 % at the end of 2022 to 47,1 % at the end of 2023. |
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(17)

In its 2023 Convergence Programme, the government expects that the general government deficit will decrease from 6,2 % of GDP in 2022 to 4,4 % in 2023, as recommended by the Council. The large decrease reflects planned expenditure restraint, including significant declines in the real wages of public workers, and some revenue-enhancing measures, including an increase in the dividend tax rate, a reduction in the threshold to benefit from the low tax rate under the micro-enterprise regime, and increases in VAT rates on selected products. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 47,3 % at the end of 2022 to 47,1 % at the end of 2023.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, namely price caps for electricity and natural gas tariffs, subsidies for low-income groups of the population and special payments to low-income pensioners. The cost of those measures continues to be largely offset by taxes on the windfall profits of domestic energy suppliers and on trading margins. Taking those revenues into account, the net budgetary cost of the support measures in 2023 is estimated at 0,3 % of GDP. Most of the measures in 2023 are targeted at the most vulnerable households, although they do not fully preserve the price signal to reduce energy demand and increase energy efficiency. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, namely price caps for electricity and natural gas tariffs, subsidies for low-income groups of the population and special payments to low-income pensioners. The cost of those measures continues to be largely offset by taxes on the windfall profits of domestic energy suppliers and on trading margins. Taking those revenues into account, the net budgetary cost of the support measures in 2023 is estimated at 0,3 % of GDP. Most of the measures in 2023 are targeted at the most vulnerable households, although they do not fully preserve the price signal to reduce energy demand and increase energy efficiency.

| (19) | The Commission 2023 spring forecast projects a government deficit of 4,7 % of GDP for 2023. This is 0,3 percentage point of GDP higher than the deficit projected in the 2023 Convergence Programme, mainly due to higher projected expenditure, particularly in goods and services, social transfers and other current expenditure, which are all expected to increase much more slowly than inflation in the 2023 Convergence Programme. The Commission also projects slightly higher tax revenue growth than the 2023 Convergence Programme, mostly reflecting higher GDP growth. The Commission's 2023 spring forecast projects a slightly lower general government debt-to-GDP ratio (45,6 % at the end of 2023) than in the 2023 Convergence Programme. |
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(19)

The Commission 2023 spring forecast projects a government deficit of 4,7 % of GDP for 2023. This is 0,3 percentage point of GDP higher than the deficit projected in the 2023 Convergence Programme, mainly due to higher projected expenditure, particularly in goods and services, social transfers and other current expenditure, which are all expected to increase much more slowly than inflation in the 2023 Convergence Programme. The Commission also projects slightly higher tax revenue growth than the 2023 Convergence Programme, mostly reflecting higher GDP growth. The Commission's 2023 spring forecast projects a slightly lower general government debt-to-GDP ratio (45,6 % at the end of 2023) than in the 2023 Convergence Programme.

| (20) | The projected 2023 headline deficit in the Commission's 2023 spring forecast is 0,3 percentage points of GDP above the headline deficit target recommended by the Council. The structural adjustment is estimated at around 1,5 % of GDP, reflecting declines in real wages in the public sector and a freeze in new hirings of public employees, as well as the revenue measures described above. However, the adjustment is slightly lower than the recommended 1,7 percentage points of GDP. This calls for a careful analysis based on the expenditure benchmark. In 2023, net primary expenditure growth (adjusted for one-offs and for the fiscal policy measures on the revenue side) is projected at 8,3 % in the Commission's 2023 spring forecast, above the recommended 0,9 %. Thus, all three indicators point to a risk of deviation from the recommended adjustment. In a context of high inflation, government expenditure will continue to increase faster than recommended by the Council on 18 June 2021. Based on a careful analysis, Romania is at risk of non-compliance with the fiscal targets for 2023 set out in the Council Recommendation of 18 June 2021. |
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(20)

The projected 2023 headline deficit in the Commission's 2023 spring forecast is 0,3 percentage points of GDP above the headline deficit target recommended by the Council. The structural adjustment is estimated at around 1,5 % of GDP, reflecting declines in real wages in the public sector and a freeze in new hirings of public employees, as well as the revenue measures described above. However, the adjustment is slightly lower than the recommended 1,7 percentage points of GDP. This calls for a careful analysis based on the expenditure benchmark. In 2023, net primary expenditure growth (adjusted for one-offs and for the fiscal policy measures on the revenue side) is projected at 8,3 % in the Commission's 2023 spring forecast, above the recommended 0,9 %. Thus, all three indicators point to a risk of deviation from the recommended adjustment. In a context of high inflation, government expenditure will continue to increase faster than recommended by the Council on 18 June 2021. Based on a careful analysis, Romania is at risk of non-compliance with the fiscal targets for 2023 set out in the Council Recommendation of 18 June 2021.

| (21) | According to the 2023 Convergence Programme, the general government deficit is expected to decline to 2,9 % of GDP in 2024, in line with the Council Recommendation of 18 June 2021, under the excessive deficit procedure. The decrease planned in 2024 mainly reflects continued expenditure restraint, with a projected decline in government expenditure from 38,4 % of GDP to 36,9 % of GDP. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease to 46,1 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 4,4 % of GDP in 2024. This is higher than the deficit projected in the 2023 Convergence Programme, since announced measures do not seem sufficient to reach the fiscal effort recommended by the Council in the excessive deficit procedure. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio (46,1 %) at the end of 2024. |
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(21)

According to the 2023 Convergence Programme, the general government deficit is expected to decline to 2,9 % of GDP in 2024, in line with the Council Recommendation of 18 June 2021, under the excessive deficit procedure. The decrease planned in 2024 mainly reflects continued expenditure restraint, with a projected decline in government expenditure from 38,4 % of GDP to 36,9 % of GDP. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease to 46,1 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 4,4 % of GDP in 2024. This is higher than the deficit projected in the 2023 Convergence Programme, since announced measures do not seem sufficient to reach the fiscal effort recommended by the Council in the excessive deficit procedure. The Commission's 2023 spring forecast projects a higher general government debt-to-GDP ratio (46,1 %) at the end of 2024.

| (22) | The projected 2024 headline deficit in the Commission's 2023 spring forecast is 1,5 percentage points of GDP above the headline deficit target recommended by the Council, while the adjustment in the structural balance is forecast to be only 0,3 percentage point of GDP in 2024, compared to the recommended 1,5 percentage points of GDP. This calls for a careful analysis based on the expenditure benchmark. In 2024, net primary expenditure growth (adjusted for one-offs and for the fiscal policy measures on the revenue side) is projected at 9,5 % in the Commission's 2023 spring forecast, above the recommended 0,0 %. Thus, all three indicators point to a risk of deviation from the recommended adjustment. The absence of significant fiscal efforts projected for 2024 partly reflects the impact of indexation rules in Romania (the 2024 indexation round for pensions and the minimum wage will reflect the high inflation rates recorded in 2022). It should be noted, however, that the recovery and resilience plan includes several measures and reforms that, if adopted and implemented in time, could deliver a significant increase in government revenue as soon as 2024 and help achieve the deficit target. Overall, based on a careful analysis, Romania is at risk of non-compliance with the fiscal targets for 2024 set out in the Council Recommendation of 18 June 2021. Considering the risks of not meeting the recommended fiscal targets in 2023 and 2024, additional budgetary measures appear to be needed to comply with the adjustment path and achieve the correction of the excessive deficit by 2024, and to strengthen the external position. |
| --- | --- |

(22)

The projected 2024 headline deficit in the Commission's 2023 spring forecast is 1,5 percentage points of GDP above the headline deficit target recommended by the Council, while the adjustment in the structural balance is forecast to be only 0,3 percentage point of GDP in 2024, compared to the recommended 1,5 percentage points of GDP. This calls for a careful analysis based on the expenditure benchmark. In 2024, net primary expenditure growth (adjusted for one-offs and for the fiscal policy measures on the revenue side) is projected at 9,5 % in the Commission's 2023 spring forecast, above the recommended 0,0 %. Thus, all three indicators point to a risk of deviation from the recommended adjustment. The absence of significant fiscal efforts projected for 2024 partly reflects the impact of indexation rules in Romania (the 2024 indexation round for pensions and the minimum wage will reflect the high inflation rates recorded in 2022). It should be noted, however, that the recovery and resilience plan includes several measures and reforms that, if adopted and implemented in time, could deliver a significant increase in government revenue as soon as 2024 and help achieve the deficit target. Overall, based on a careful analysis, Romania is at risk of non-compliance with the fiscal targets for 2024 set out in the Council Recommendation of 18 June 2021. Considering the risks of not meeting the recommended fiscal targets in 2023 and 2024, additional budgetary measures appear to be needed to comply with the adjustment path and achieve the correction of the excessive deficit by 2024, and to strengthen the external position.

| (23) | The 2023 Convergence Programme refers to reforms and investments planned under the recovery and resilience plan that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include significant reforms of the pension system (both special pensions and general systems), an ambitious tax reform, efforts to strengthen tax administration, and reforms of State-owned enterprises. The full implementation of these reforms would help achieve the deficit targets set by the Council under the excessive deficit procedure. |
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(23)

The 2023 Convergence Programme refers to reforms and investments planned under the recovery and resilience plan that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include significant reforms of the pension system (both special pensions and general systems), an ambitious tax reform, efforts to strengthen tax administration, and reforms of State-owned enterprises. The full implementation of these reforms would help achieve the deficit targets set by the Council under the excessive deficit procedure.

| (24) | The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures in 2025. The Commission also assumes the phasing-out of almost all energy support measures (net revenue of 0,1 % of GDP in 2024). This is based on the assumption of no renewed energy price increase. |
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(24)

The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures in 2025. The Commission also assumes the phasing-out of almost all energy support measures (net revenue of 0,1 % of GDP in 2024). This is based on the assumption of no renewed energy price increase.

| (25) | The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is targeted to remain at 2,9 % of GDP in 2025 and 2026, based on real GDP growing by 5,0 % in 2025 and 4,6 % in 2026, well above potential. Following a large reduction from 39,8 % in 2021 to 36,9 % in 2024, the expenditure-to-GDP ratio would remain roughly unchanged in 2025 and 2026. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 46,1 % at the end of 2024 to 45,4 % by the end of 2026. |
| --- | --- |

(25)

The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is targeted to remain at 2,9 % of GDP in 2025 and 2026, based on real GDP growing by 5,0 % in 2025 and 4,6 % in 2026, well above potential. Following a large reduction from 39,8 % in 2021 to 36,9 % in 2024, the expenditure-to-GDP ratio would remain roughly unchanged in 2025 and 2026. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 46,1 % at the end of 2024 to 45,4 % by the end of 2026.

| (26) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Romania's recovery and resilience plan is underway, albeit with increasing risk of delays. Romania submitted two payment requests, corresponding to 72 milestones and targets in the recovery and resilience plan and resulting in a disbursement of EUR 2,6 billion net of pre-financing for the first payment request, while the assessment of the second one is ongoing. Increasing risks of delays with the implementation of the recovery and resilience plan are due to the weak governance and limited capacity of the public administration. Tackling these issues, including through securing adequate human resources, is key for a better coordination of the plan and a timely implementation of investments. Moreover, the completion of important structural reforms will require continued political commitment and ownership. Given the considerable macroeconomic and fiscal relevance of the plan, a timely and full implementation of the measures would be crucial to contain external and fiscal vulnerabilities. The plan is expected to be revised in 2023, to include among others a REPowerEU chapter, while taking into account the reduction of non-repayable support due to Romania's strong economic recovery. Discussions to this end are ongoing. 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 Romania'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(26)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Romania's recovery and resilience plan is underway, albeit with increasing risk of delays. Romania submitted two payment requests, corresponding to 72 milestones and targets in the recovery and resilience plan and resulting in a disbursement of EUR 2,6 billion net of pre-financing for the first payment request, while the assessment of the second one is ongoing. Increasing risks of delays with the implementation of the recovery and resilience plan are due to the weak governance and limited capacity of the public administration. Tackling these issues, including through securing adequate human resources, is key for a better coordination of the plan and a timely implementation of investments. Moreover, the completion of important structural reforms will require continued political commitment and ownership. Given the considerable macroeconomic and fiscal relevance of the plan, a timely and full implementation of the measures would be crucial to contain external and fiscal vulnerabilities. The plan is expected to be revised in 2023, to include among others a REPowerEU chapter, while taking into account the reduction of non-repayable support due to Romania's strong economic recovery. Discussions to this end are ongoing. 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 Romania'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (27) | The Commission approved all of Romania's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Romania. |
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(27)

The Commission approved all of Romania's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Romania.

| (28) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Romania faces a number of additional challenges related to energy policy and the green transition. |
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(28)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Romania faces a number of additional challenges related to energy policy and the green transition.

| (29) | Romania faces decarbonisation-related challenges as the country still relies heavily on fossil fuels. The share of fossil fuels (coal, oil and gas) slightly increased in 2021 compared to 2020. It stood at 72 % in 2021, while renewable sources represented only about 20 %. Romania is the second largest gas producer in the Union, serving mostly the domestic market. A focus on the effective roll-out of renewables, a significantly more energy-efficient residential sector and the use of new technologies in industry would help Romania meet the Union and national energy and climate targets for 2030 set out in the 'Fit for 55' package. Romania's consumption of natural gas dropped by 20 % between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding 5 years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (10). Romania could pursue temporary gas demand reduction measures until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (11). |
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(29)

Romania faces decarbonisation-related challenges as the country still relies heavily on fossil fuels. The share of fossil fuels (coal, oil and gas) slightly increased in 2021 compared to 2020. It stood at 72 % in 2021, while renewable sources represented only about 20 %. Romania is the second largest gas producer in the Union, serving mostly the domestic market. A focus on the effective roll-out of renewables, a significantly more energy-efficient residential sector and the use of new technologies in industry would help Romania meet the Union and national energy and climate targets for 2030 set out in the 'Fit for 55' package. Romania's consumption of natural gas dropped by 20 % between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding 5 years, beyond the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (10). Romania could pursue temporary gas demand reduction measures until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (11).

| (30) | Increasing grid capacity is essential for reducing the use of fossil fuels and accelerating the energy transition. Decommissioned coal and lignite-fired power capacity, expected to be completed by 2032 as laid down in Romania's recovery and resilience plan, should be replaced by renewable energy sources. However, the existing transmission and distribution electricity grids limit the absorption of new renewables' capacity. Bottlenecks in the grid hinder the deployment of renewable energy. Investment is needed to upgrade and digitalise the existing grids in order to integrate new production from renewable sources and increase the interconnection capacity with neighbouring Member States, consistent with the climate objectives. Sufficient and advanced integrated system planning would be needed for grid upgrades and expansion (both at transmission and distribution level) to respond to demand and flexibility needs. Additionally, simplifying the designation of go-to areas and further streamlining related procedures, including simplifying the deployment of small-capacity renewables installations (such as solar panels) in buildings would improve the current situation, where obtaining permits for installing renewable power plants is relatively easy, but obtaining the necessary permits to connect them to the grid is more challenging. |
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(30)

Increasing grid capacity is essential for reducing the use of fossil fuels and accelerating the energy transition. Decommissioned coal and lignite-fired power capacity, expected to be completed by 2032 as laid down in Romania's recovery and resilience plan, should be replaced by renewable energy sources. However, the existing transmission and distribution electricity grids limit the absorption of new renewables' capacity. Bottlenecks in the grid hinder the deployment of renewable energy. Investment is needed to upgrade and digitalise the existing grids in order to integrate new production from renewable sources and increase the interconnection capacity with neighbouring Member States, consistent with the climate objectives. Sufficient and advanced integrated system planning would be needed for grid upgrades and expansion (both at transmission and distribution level) to respond to demand and flexibility needs. Additionally, simplifying the designation of go-to areas and further streamlining related procedures, including simplifying the deployment of small-capacity renewables installations (such as solar panels) in buildings would improve the current situation, where obtaining permits for installing renewable power plants is relatively easy, but obtaining the necessary permits to connect them to the grid is more challenging.

| (31) | In the building sector, higher national targets for 2030 would require additional financing for the country's building stock. The Romanian recovery and resilience plan envisages the renovation of 2,4 million m2 of public buildings and 4,4 million m2 of residential ones, while cohesion policy has earmarked funds for 1,6 million m2 of renovation in both sectors. However, poor access to information and finance in respect of energy renovations and renewable energy installations seriously hampers further improvements. In particular, better access to finance for households and small businesses to increase energy efficiency would significantly help reduce Romania's dependence on fossil fuels, while also addressing energy poverty. Additionally, regional and local authorities could provide more information on how to access energy renovation funds and on what type of small renewable energy installations could be deployed in buildings and households. |
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(31)

In the building sector, higher national targets for 2030 would require additional financing for the country's building stock. The Romanian recovery and resilience plan envisages the renovation of 2,4 million m2 of public buildings and 4,4 million m2 of residential ones, while cohesion policy has earmarked funds for 1,6 million m2 of renovation in both sectors. However, poor access to information and finance in respect of energy renovations and renewable energy installations seriously hampers further improvements. In particular, better access to finance for households and small businesses to increase energy efficiency would significantly help reduce Romania's dependence on fossil fuels, while also addressing energy poverty. Additionally, regional and local authorities could provide more information on how to access energy renovation funds and on what type of small renewable energy installations could be deployed in buildings and households.

| (32) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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, with the support of effective active labour market policies, are key to reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Romania for several occupations that require specific skills or knowledge for the green transition, including insulation workers, civil engineers and construction managers. |
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(32)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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, with the support of effective active labour market policies, are key to reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In 2022, labour shortages were reported in Romania for several occupations that require specific skills or knowledge for the green transition, including insulation workers, civil engineers and construction managers.

| (33) | In the light of the Commission's assessment, the Council has examined the 2023 Convergence Programme and its opinion (12) is reflected in recommendation (1). |
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(33)

In the light of the Commission's assessment, the Council has examined the 2023 Convergence Programme and its opinion (12) is reflected in recommendation (1).

| (34) | In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to external accounts, fuelled by large fiscal deficits and to re-emerging competitiveness issues. Recommendations (2) and (3) contribute to addressing recommendation (1), |
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(34)

In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to external accounts, fuelled by large fiscal deficits and to re-emerging competitiveness issues. Recommendations (2) and (3) contribute to addressing recommendation (1),

HEREBY RECOMMENDS that Romania take action in 2023 and 2024 to:

1.

Wind down the emergency energy support measures in force, using the related savings to reduce the government deficit, as soon as possible in 2023 and 2024. Should renewed energy price increases necessitate new or continued support measures, ensure that such support measures are targeted at protecting vulnerable households and firms, are fiscally affordable and preserve incentives for energy savings.

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

2.

Ensure effective governance and strengthen the administrative capacity in order to allow for a continued swift and steady implementation of the recovery and resilience plan. Swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Reduce reliance on fossil fuels and accelerate the energy transition, in particular by deploying renewable energy faster and improving grid capacity in order to allow new capacity to operate in the market. Increase energy efficiency and the ambition of building renovation efforts, including by providing better access to information and sustainable finance options. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 12319/2021; ST 12319/2021 ADD 1.

6

(7)  Council Decision (EU) 2020/509 of 3 April 2020 on the existence of an excessive deficit in Romania (OJ L 110, 8.4.2020, p. 58).

7

(8)  Council Recommendation of 3 April 2020 with a view to bringing an end to the situation of an excessive government deficit in Romania (OJ C 116, 8.4.2020, p. 1).

8

(9)  Council Recommendation of 18 June 2021 with a view to bringing an end to the situation of an excessive government deficit in Romania (OJ C 304, 29.7.2021, p. 111).

9

(10)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

10

(11)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

11

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

12

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/224 |
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1.9.2023

EN

Official Journal of the European Union

C 312/224

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Slovenia and delivering a Council opinion on the 2023 Stability Programme of Slovenia

(2023/C 312/24)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Slovenia as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Slovenia's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Slovenia as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Slovenia's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023-2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023-2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 30 April 2021, Slovenia 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 set out in Annex V to that Regulation. On 28 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Slovenia (6). The release of instalments is conditional on the adoption of a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Slovenia 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. |
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(9)

On 30 April 2021, Slovenia 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 set out in Annex V to that Regulation. On 28 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Slovenia (6). The release of instalments is conditional on the adoption of a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Slovenia 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 14 April 2023, Slovenia submitted its 2023 National Reform Programme and, on 26 April 2023, its 2023 Stability Programme, in line with Article 4(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 Slovenia's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 14 April 2023, Slovenia submitted its 2023 National Reform Programme and, on 26 April 2023, its 2023 Stability Programme, in line with Article 4(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 Slovenia's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Slovenia. It assessed Slovenia's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Slovenia's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Slovenia's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Slovenia. It assessed Slovenia's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Slovenia's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Slovenia's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Slovenia's general government deficit decreased from 4,6 % of GDP in 2021 to 3,0 % in 2022, while general government debt fell from 74,5 % of GDP at the end of 2021 to 69,9 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Slovenia, as its general government deficit is planned to exceed 3 %-of-GDP Treaty reference value in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Slovenia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(12)

According to data validated by Eurostat, Slovenia's general government deficit decreased from 4,6 % of GDP in 2021 to 3,0 % in 2022, while general government debt fell from 74,5 % of GDP at the end of 2021 to 69,9 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Slovenia, as its general government deficit is planned to exceed 3 %-of-GDP Treaty reference value in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Slovenia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the temporary lowering of value added tax (VAT) on electricity, gas, distance heating and firewood, of excise duties on fuels, gas and electricity and of CO2 tax on fuels; while such fiscal policy expenditure-increasing measures included increased child allowance for two months, energy allowance for socially vulnerable people, and subsidies for businesses based on prices paid compared to 2021. The Commission estimates the net budgetary cost of these measures at 1,0 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,0 % of GDP in 2022, from 4,1 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the temporary lowering of value added tax (VAT) on electricity, gas, distance heating and firewood, of excise duties on fuels, gas and electricity and of CO2 tax on fuels; while such fiscal policy expenditure-increasing measures included increased child allowance for two months, energy allowance for socially vulnerable people, and subsidies for businesses based on prices paid compared to 2021. The Commission estimates the net budgetary cost of these measures at 1,0 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,0 % of GDP in 2022, from 4,1 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Slovenia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Slovenia (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 1,2 % of GDP, as recommended by the Council. As recommended by the Council, Slovenia continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and by other Union funds amounted to 0,7 % of GDP in 2022 (0,8 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,7 percentage points to the fiscal stance (9). Slovenia 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 0,4 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,0 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Slovenia therefore kept the growth in nationally financed current expenditure sufficiently under control. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was supportive, at – 1,2 % of GDP, as recommended by the Council. As recommended by the Council, Slovenia continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and by other Union funds amounted to 0,7 % of GDP in 2022 (0,8 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,7 percentage points to the fiscal stance (9). Slovenia 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 0,4 percentage points to the fiscal stance. That significant expansionary contribution included the additional impact of fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1,0 % of GDP), as well as the cost of offering temporary protection to displaced persons from Ukraine (0,1 % of GDP). Slovenia therefore kept the growth in nationally financed current expenditure sufficiently under control.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission's 2023 spring forecast for 2023 and in line with it thereafter. The government projects real GDP to grow by 1,8 % in 2023 and 2,5 % in 2024. By comparison, the Commission's 2023 spring forecast projects a lower real GDP growth of 1,2 % in 2023 and 2,2 % in 2024, mainly due to lower growth contribution from net exports. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is more favourable than the Commission's 2023 spring forecast for 2023 and in line with it thereafter. The government projects real GDP to grow by 1,8 % in 2023 and 2,5 % in 2024. By comparison, the Commission's 2023 spring forecast projects a lower real GDP growth of 1,2 % in 2023 and 2,2 % in 2024, mainly due to lower growth contribution from net exports.

| (17) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 4,1 % of GDP in 2023. The increase in 2023 mainly reflects higher public investment due to the end of the absorption period of the previous multiannual financial framework for the years 2014 to 2020 and high subsidies. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 69,9 % at the end of 2022 to 68,9 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 3,7 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to lower public investment because of constraints in absorption capacity and lower absorption of energy-related subsidies and measures adopted to mitigate the economic and social impact of the increase in energy prices. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio of 69,1 % at the end of 2023. |
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(17)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 4,1 % of GDP in 2023. The increase in 2023 mainly reflects higher public investment due to the end of the absorption period of the previous multiannual financial framework for the years 2014 to 2020 and high subsidies. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 69,9 % at the end of 2022 to 68,9 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 3,7 % of GDP for 2023. This is lower than the deficit projected in the 2023 Stability Programme, mainly due to lower public investment because of constraints in absorption capacity and lower absorption of energy-related subsidies and measures adopted to mitigate the economic and social impact of the increase in energy prices. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio of 69,1 % at the end of 2023.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: temporary lowering of VAT on electricity, gas, distance heating and firewood, of excise duties on fuels, gas and electricity and of CO2 tax on fuels) and new measures such as a new and larger scheme for subsidies for businesses based on prices paid compared to 2021 and compensation for distributors of electricity and natural gas that supply customers (for instance households or small and medium-sized enterprises) whose electricity and natural gas prices are subject to price ceilings set by the government. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,9 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,6 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,0 % of GDP. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: temporary lowering of VAT on electricity, gas, distance heating and firewood, of excise duties on fuels, gas and electricity and of CO2 tax on fuels) and new measures such as a new and larger scheme for subsidies for businesses based on prices paid compared to 2021 and compensation for distributors of electricity and natural gas that supply customers (for instance households or small and medium-sized enterprises) whose electricity and natural gas prices are subject to price ceilings set by the government. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,9 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and many of them 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,6 % of GDP in 2022). Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 1,0 % of GDP.

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Slovenia take action to ensure that in 2023 the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Slovenia should stand ready to adjust current spending to the evolving situation. Slovenia 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Slovenia take action to ensure that in 2023 the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Slovenia should stand ready to adjust current spending to the evolving situation. Slovenia 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,2 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 1,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,3 % of GDP to the fiscal stance. This is despite the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,5 % 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 (net of discretionary revenue measures) is driven by higher subsidies (which include energy measures) and an increase in the public sector wage bill. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is amounted to 1,6 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Slovenia plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as railway infrastructure, prevention against floods, health, and research and innovation, which are funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,2 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (– 1,2 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,3 % of GDP to the fiscal stance. This is despite the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,5 % 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 (net of discretionary revenue measures) is driven by higher subsidies (which include energy measures) and an increase in the public sector wage bill. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is amounted to 1,6 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,1 percentage points (13). Therefore, Slovenia plans to finance additional investment through the Facility and other Union funds, and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as railway infrastructure, prevention against floods, health, and research and innovation, which are funded by the Facility and other Union funds.

| (21) | According to the 2023 Stability Programme the general government deficit is expected to decline to 2,8 % of GDP in 2024. The decrease in 2024 mainly reflects lower subsidies after a withdrawal of measures adopted to mitigate the economic impact of the increase in energy prices and lower public investment after the absorption of Union funds from the previous multiannual financial framework ends in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 66,5 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 2,9 % of GDP in 2024. This is higher than the deficit projected in the 2023 Stability Programme, mainly due to higher compensation of employees and social benefits. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 66,6 % at the end of 2024. |
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(21)

According to the 2023 Stability Programme the general government deficit is expected to decline to 2,8 % of GDP in 2024. The decrease in 2024 mainly reflects lower subsidies after a withdrawal of measures adopted to mitigate the economic impact of the increase in energy prices and lower public investment after the absorption of Union funds from the previous multiannual financial framework ends in 2023. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 66,5 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 2,9 % of GDP in 2024. This is higher than the deficit projected in the 2023 Stability Programme, mainly due to higher compensation of employees and social benefits. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 66,6 % at the end of 2024.

| (22) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(22)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 5,5 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,9 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission's 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,5 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 5,5 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,9 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission's 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (24) | Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow in 2024 at 3,0 %, which is below the recommended growth rate. |
| --- | --- |

(24)

Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow in 2024 at 3,0 %, which is below the recommended growth rate.

| (25) | According to the 2023 Stability Programme, government investment is expected to decrease from 6,4 % of GDP in 2023 to 5,5 % of GDP in 2024. The lower investment reflects lower nationally financed investment and lower overall investment financed by the Union, but higher investment through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include investments into railway infrastructure, health, research and innovations and elements of green and digital transition which are also part of the recovery and resilience plan. |
| --- | --- |

(25)

According to the 2023 Stability Programme, government investment is expected to decrease from 6,4 % of GDP in 2023 to 5,5 % of GDP in 2024. The lower investment reflects lower nationally financed investment and lower overall investment financed by the Union, but higher investment through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include investments into railway infrastructure, health, research and innovations and elements of green and digital transition which are also part of the recovery and resilience plan.

| (26) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 2,2 % of GDP in 2025 and to 1,3 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP from 2024 until the end of the 2023 Stability Programme horizon. According to the Programme, the general government debt-to-GDP ratio is expected to decrease from 66,5 % at the end of 2024 to 63,5 % by the end of 2026. |
| --- | --- |

(26)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the general government deficit is expected to decline to 2,2 % of GDP in 2025 and to 1,3 % by 2026. Therefore, the general government deficit is planned to remain below 3 % of GDP from 2024 until the end of the 2023 Stability Programme horizon. According to the Programme, the general government debt-to-GDP ratio is expected to decrease from 66,5 % at the end of 2024 to 63,5 % by the end of 2026.

| (27) | Healthcare spending is expected to increase by 1,5 percentage points of GDP between 2019 and 2070 and long-term care costs will double by 2055. Slovenia is facing medium fiscal sustainability risks in the medium term and high risks in the long term, driven by spending related to the ageing population. The country has started comprehensive reforms in healthcare and long-term care in recent years. However, implementation of the long-term care reform has been delayed and its financing in the medium and long term is still not ensured. The planning of the healthcare reform also suggests that it will be implemented in several steps, with a focus on access to high-quality services and on the improvement of social rights and inclusion. As this will put additional strain on public finances, it will be crucial for Slovenia to put forward a set of measures that establishes a stable revenue base that does not undermine the fiscal balance in the medium and long term. |
| --- | --- |

(27)

Healthcare spending is expected to increase by 1,5 percentage points of GDP between 2019 and 2070 and long-term care costs will double by 2055. Slovenia is facing medium fiscal sustainability risks in the medium term and high risks in the long term, driven by spending related to the ageing population. The country has started comprehensive reforms in healthcare and long-term care in recent years. However, implementation of the long-term care reform has been delayed and its financing in the medium and long term is still not ensured. The planning of the healthcare reform also suggests that it will be implemented in several steps, with a focus on access to high-quality services and on the improvement of social rights and inclusion. As this will put additional strain on public finances, it will be crucial for Slovenia to put forward a set of measures that establishes a stable revenue base that does not undermine the fiscal balance in the medium and long term.

| (28) | The amendments to the Personal Income Tax Act adopted in December 2022 reversed most of the previous amendments adopted in March 2022 that had been intended to reduce labour taxation and would have led to a negative budget impact of up to 1,3 % of GDP by 2025. Compared to the Union aggregate, Slovenia's tax revenues as share of GDP are slightly lower, and some relatively growth-friendly taxes are underused. Slovenia relies strongly on labour taxation: the share of labour taxes in total tax revenues is above the Union aggregate. Recurrent taxes on immovable property are relatively low in Slovenia (0,5 % of GDP versus an Union average of 1,1 % of GDP). A growth-friendly and green tax reform can support fiscal consolidation and sustainable growth in the longer term. Such a tax reform could facilitate a shift away from labour taxation, through a higher share of recurrent property taxes, and support the creation of jobs in the net-zero age and in other higher value-added industries. Lower labour taxes would also stimulate labour supply, including the supply of skilled and foreign workers. |
| --- | --- |

(28)

The amendments to the Personal Income Tax Act adopted in December 2022 reversed most of the previous amendments adopted in March 2022 that had been intended to reduce labour taxation and would have led to a negative budget impact of up to 1,3 % of GDP by 2025. Compared to the Union aggregate, Slovenia's tax revenues as share of GDP are slightly lower, and some relatively growth-friendly taxes are underused. Slovenia relies strongly on labour taxation: the share of labour taxes in total tax revenues is above the Union aggregate. Recurrent taxes on immovable property are relatively low in Slovenia (0,5 % of GDP versus an Union average of 1,1 % of GDP). A growth-friendly and green tax reform can support fiscal consolidation and sustainable growth in the longer term. Such a tax reform could facilitate a shift away from labour taxation, through a higher share of recurrent property taxes, and support the creation of jobs in the net-zero age and in other higher value-added industries. Lower labour taxes would also stimulate labour supply, including the supply of skilled and foreign workers.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Slovenia's recovery and resilience plan is underway, albeit with increasing risk of delays. Slovenia submitted one payment request, corresponding to 12 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of around EUR 49,6 million. To advance faster with the implementation of its recovery and resilience plan in the current challenging environment, it is necessary to strengthen Slovenia's governance structure and administrative capacity, as well as to ensure that the necessary decisions are taken without delays. This concerns in particular the structural reforms of healthcare, long-term care and pensions. The addendum of the recovery and resilience plan and the additional new REPowerEU chapter should establish a realistic timeline for the remaining payment requests and should be submitted swiftly to avoid any further delay or disruption in the implementation of the recovery and resilience plan. The swift inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investment to be financed in support of Slovenia'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
| --- | --- |

(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Slovenia's recovery and resilience plan is underway, albeit with increasing risk of delays. Slovenia submitted one payment request, corresponding to 12 milestones and targets in the recovery and resilience plan and resulting in an overall disbursement of around EUR 49,6 million. To advance faster with the implementation of its recovery and resilience plan in the current challenging environment, it is necessary to strengthen Slovenia's governance structure and administrative capacity, as well as to ensure that the necessary decisions are taken without delays. This concerns in particular the structural reforms of healthcare, long-term care and pensions. The addendum of the recovery and resilience plan and the additional new REPowerEU chapter should establish a realistic timeline for the remaining payment requests and should be submitted swiftly to avoid any further delay or disruption in the implementation of the recovery and resilience plan. The swift inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investment to be financed in support of Slovenia'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Slovenia's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience and achieving balanced territorial development in Slovenia. |
| --- | --- |

(30)

The Commission approved all Slovenia's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience and achieving balanced territorial development in Slovenia.

| (31) | Slovenia was effectively reliant on Russia as the single natural gas supplier to the country before Russia invaded Ukraine. Starting from 2023, however, Slovenia was able to secure approximately a third of its natural gas supply through imports from Algeria. Gas still plays an important role in Slovenia's energy mix (12 %) and is an essential energy source for industry, while also providing flexibility in the power sector. Industry and power-sector decarbonisation should therefore be advanced through the accelerated deployment of renewables and energy efficiency measures. In its national energy and climate plan, Slovenia set a 27 % target as its contribution to the Union's 2030 renewable energy target. This is significantly below the 37 % renewable share in 2030 calculated in accordance with Annex II to Regulation (EU) 2018/1999 of the European Parliament and of the Council (16). Slovenia reached its 2021 target for the share of energy from renewable sources in gross final consumption of energy (25 %) by using the Union mechanism for cross-border cooperation in line with Directive (EU) 2018/2001 of the European Parliament and of the Council (17) (through statistical transfers). Permitting procedures for grid-scale renewable energy installations remain a bottleneck, largely due to the complex and lengthy environmental procedures, especially for wind installations, where procedures can last up to several years. Slovenia will need to substantially strengthen its renewable energy target in its updated national energy and climate plan to reflect the more ambitious Union climate and energy targets in the ‘Fit for 55’ package and in the REPowerEU Plan. Slovenia's consumption of natural gas dropped by 14 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, slightly below the 15 % reduction target. Slovenia could enhance efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (18). |
| --- | --- |

(31)

Slovenia was effectively reliant on Russia as the single natural gas supplier to the country before Russia invaded Ukraine. Starting from 2023, however, Slovenia was able to secure approximately a third of its natural gas supply through imports from Algeria. Gas still plays an important role in Slovenia's energy mix (12 %) and is an essential energy source for industry, while also providing flexibility in the power sector. Industry and power-sector decarbonisation should therefore be advanced through the accelerated deployment of renewables and energy efficiency measures. In its national energy and climate plan, Slovenia set a 27 % target as its contribution to the Union's 2030 renewable energy target. This is significantly below the 37 % renewable share in 2030 calculated in accordance with Annex II to Regulation (EU) 2018/1999 of the European Parliament and of the Council (16). Slovenia reached its 2021 target for the share of energy from renewable sources in gross final consumption of energy (25 %) by using the Union mechanism for cross-border cooperation in line with Directive (EU) 2018/2001 of the European Parliament and of the Council (17) (through statistical transfers). Permitting procedures for grid-scale renewable energy installations remain a bottleneck, largely due to the complex and lengthy environmental procedures, especially for wind installations, where procedures can last up to several years. Slovenia will need to substantially strengthen its renewable energy target in its updated national energy and climate plan to reflect the more ambitious Union climate and energy targets in the ‘Fit for 55’ package and in the REPowerEU Plan. Slovenia's consumption of natural gas dropped by 14 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, slightly below the 15 % reduction target. Slovenia could enhance efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (18).

| (32) | The Slovenian recovery and resilience plan already includes significant reforms and investment aiming to: (i) raise the share of renewable energy sources in gross final energy consumption; (ii) facilitate access to and integration into the electricity grid for renewable energy source production facilities; (iii) improve the energy efficiency and renovations of public buildings; and (iv) enable the deployment of an infrastructure for alternative fuels. While the measures under the recovery and resilience plan are an important step in the diversification away from fossil fuels, more effort could be made to speed up the deployment of renewables across all sectors. This could involve the designation of priority areas for renewable energy installations, the further simplifying and shortening of permitting procedures, the strengthening of the grid and improvement of overall grid management (to enable the connection of more renewable energy installations, especially on the low- and medium voltage levels). Further focus on zero-emission transport and infrastructure would further help reduce greenhouse gas emissions and reliance on fossil fuels. |
| --- | --- |

(32)

The Slovenian recovery and resilience plan already includes significant reforms and investment aiming to: (i) raise the share of renewable energy sources in gross final energy consumption; (ii) facilitate access to and integration into the electricity grid for renewable energy source production facilities; (iii) improve the energy efficiency and renovations of public buildings; and (iv) enable the deployment of an infrastructure for alternative fuels. While the measures under the recovery and resilience plan are an important step in the diversification away from fossil fuels, more effort could be made to speed up the deployment of renewables across all sectors. This could involve the designation of priority areas for renewable energy installations, the further simplifying and shortening of permitting procedures, the strengthening of the grid and improvement of overall grid management (to enable the connection of more renewable energy installations, especially on the low- and medium voltage levels). Further focus on zero-emission transport and infrastructure would further help reduce greenhouse gas emissions and reliance on fossil fuels.

| (33) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Strengthening teaching in science, technology, engineering and mathematics could reinforce the capacity of the education system to successfully equip learners with competences for the green and digital transition. In 2022, labour shortages were reported in Slovenia for 66 occupations that require specific skills and competences for the green transition. The job vacancy rate increased across key sectors such as construction (from 3,5 % in 2015 to 7,0 % in 2022) and manufacturing (from 1,2 % in 2015 to 2,6 % in 2022), with both of those sectors above the respective Union averages of 4,0 % and 2,3 % in 2022. |
| --- | --- |

(33)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Strengthening teaching in science, technology, engineering and mathematics could reinforce the capacity of the education system to successfully equip learners with competences for the green and digital transition. In 2022, labour shortages were reported in Slovenia for 66 occupations that require specific skills and competences for the green transition. The job vacancy rate increased across key sectors such as construction (from 3,5 % in 2015 to 7,0 % in 2022) and manufacturing (from 1,2 % in 2015 to 2,6 % in 2022), with both of those sectors above the respective Union averages of 4,0 % and 2,3 % in 2022.

| (34) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (19) is reflected in recommendation (1). |
| --- | --- |

(34)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (19) is reflected in recommendation (1).

| (35) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Slovenia, recommendations (1), (2) and (3) contribute to the implementation of the first, second- and third recommendations set out in the 2023 Recommendation on the euro area, |
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(35)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Slovenia, recommendations (1), (2) and (3) contribute to the implementation of the first, second- and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Slovenia take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 5,5 % (20).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Ensure the long-term fiscal sustainability of the healthcare and long-term care systems. Rebalance tax revenues towards more growth-friendly and sustainable sources.

2.

Ensure an effective governance structure and strengthen the administrative capacity in order 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 the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Continue efforts to diversify gas imports and reduce overall reliance on fossil fuels by accelerating the deployment of renewables, in particular by further simplifying and shortening permitting procedures and strengthening the electricity grid, as well as improving the management thereof, including through digitalisation. Increase the implementation of energy efficiency measures, in particular in the building sector, promote the electrification of the transport sector, and step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10612/2021 INIT; ST 10612/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Slovenia (OJ C 304, 29.7.2021, p. 116).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,2 percentage points of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Slovenia and delivering a Council opinion on the 2022 Stability Programme of Slovenia (OJ C 334, 1.9.2022, p. 197).

11

(12)  Based on the Commission's spring 2023 forecast, potential output growth of Slovenia, which is used to measure the fiscal stance, in the medium-term (10-year average), is estimated at 10,1 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a neutral contribution of 0,0 percentage point of GDP.

13

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, p. 1).

16

(17)  Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (OJ L 328, 21.12.2018, p. 82).

17

(18)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

18

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

19

(20)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,5 % of GDP for 2024, as described in recital 23.

20

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/233 |
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1.9.2023

EN

Official Journal of the European Union

C 312/233

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Slovakia and delivering a Council opinion on the 2023 Stability Programme of Slovakia

(2023/C 312/25)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Slovakia 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. On the same date, the Commission also adopted an opinion on Slovakia’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Slovakia 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. On the same date, the Commission also adopted an opinion on Slovakia’s 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2023 Recommendation on the euro area’) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
| --- | --- |

(3)

While the Union’s economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union’s economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled ‘A Green Deal Industrial Plan for the Net-Zero Age’ (‘the Green Deal Industrial Plan’). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union’s net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union’s manufacturing capacity for the net-zero technologies and products required to meet the Union’s ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union’s dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union’s net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures to vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States’ stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure a plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures to vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions adopted on 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union’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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions adopted on 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 29 April 2021, Slovakia 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Slovakia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Slovakia 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. On 26 April 2023, Slovakia submitted a modified national recovery and resilience plan, including a REPowerEU chapter, to the Commission in accordance with Article 21c of Regulation (EU) 2021/241. The modified recovery and resilience plan also takes into account the updated maximum financial contribution, in accordance with Article 18(2) of Regulation (EU) 2021/241 and includes a reasoned request to the Commission to amend Council Implementing Decision of 13 July 2021 in accordance with Article 21(1) of Regulation (EU) 2021/241, because Slovakia considered the recovery and resilience plan to be partially no longer achievable due to objective circumstances. |
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(9)

On 29 April 2021, Slovakia 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 set out in Annex V to that Regulation. On 13 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Slovakia (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Slovakia 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. On 26 April 2023, Slovakia submitted a modified national recovery and resilience plan, including a REPowerEU chapter, to the Commission in accordance with Article 21c of Regulation (EU) 2021/241. The modified recovery and resilience plan also takes into account the updated maximum financial contribution, in accordance with Article 18(2) of Regulation (EU) 2021/241 and includes a reasoned request to the Commission to amend Council Implementing Decision of 13 July 2021 in accordance with Article 21(1) of Regulation (EU) 2021/241, because Slovakia considered the recovery and resilience plan to be partially no longer achievable due to objective circumstances.

| (10) | On 27 April 2023, Slovakia submitted its 2023 National Reform Programme and, on 27 April 2023, its 2023 Stability Programme, in line with Article 4(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 Slovakia’s biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 27 April 2023, Slovakia submitted its 2023 National Reform Programme and, on 27 April 2023, its 2023 Stability Programme, in line with Article 4(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 Slovakia’s biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Slovakia. It assessed Slovakia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Slovakia’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Slovakia’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Slovakia. It assessed Slovakia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Slovakia’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Slovakia’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Slovakia and published its results on 24 May 2023. The Commission concluded that Slovakia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to competitiveness, housing, household debt and external balance have been increasing, but overall seem contained in the near future and are expected to ease as economic conditions normalise. The economy was strongly hit by the energy prices shock with inflation rising fast. Core inflation and unit labour costs growth are well above the euro area average. While they are forecast to normalise, there is the risk that pressure on cost competitiveness could take time to unwind, and that strong domestic demand will continue to put pressures on external accounts. The current account deteriorated markedly in 2022 owing to higher energy import prices as well as marked falls in net exports of non-energy goods. The current account deficit is forecast to improve mildly but to remain large in 2023 and 2024, despite the falling energy prices. Nonetheless, external sustainability risks are assessed to be limited in the near term. Government deficits are forecast to be significant this year and next and to correct from 2024. House prices appear to be mildly overvalued after several years of marked growth. That occurred alongside high borrowing, which is now cooling, and a strong increase in household debt, which altogether present some risk for financial stability. However, the banking sector remains well capitalised, highly profitable and recording low non-performing loans. Continued efforts are needed to tackle Slovakia’s economic vulnerabilities. In particular, excess demand should be reined in to support the correction of the current account deficit and the core inflation differential vis-à-vis the rest of the euro area. That can be achieved by ensuring adequate fiscal consolidation and measures to address household debt, while retaining housing affordability through property taxation and measures supporting housing supply. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Slovakia and published its results on 24 May 2023. The Commission concluded that Slovakia is not experiencing macroeconomic imbalances. In particular, vulnerabilities relating to competitiveness, housing, household debt and external balance have been increasing, but overall seem contained in the near future and are expected to ease as economic conditions normalise. The economy was strongly hit by the energy prices shock with inflation rising fast. Core inflation and unit labour costs growth are well above the euro area average. While they are forecast to normalise, there is the risk that pressure on cost competitiveness could take time to unwind, and that strong domestic demand will continue to put pressures on external accounts. The current account deteriorated markedly in 2022 owing to higher energy import prices as well as marked falls in net exports of non-energy goods. The current account deficit is forecast to improve mildly but to remain large in 2023 and 2024, despite the falling energy prices. Nonetheless, external sustainability risks are assessed to be limited in the near term. Government deficits are forecast to be significant this year and next and to correct from 2024. House prices appear to be mildly overvalued after several years of marked growth. That occurred alongside high borrowing, which is now cooling, and a strong increase in household debt, which altogether present some risk for financial stability. However, the banking sector remains well capitalised, highly profitable and recording low non-performing loans. Continued efforts are needed to tackle Slovakia’s economic vulnerabilities. In particular, excess demand should be reined in to support the correction of the current account deficit and the core inflation differential vis-à-vis the rest of the euro area. That can be achieved by ensuring adequate fiscal consolidation and measures to address household debt, while retaining housing affordability through property taxation and measures supporting housing supply.

| (13) | According to data validated by Eurostat, Slovakia’s general government deficit decreased from 5,4 % of GDP in 2021 to 2,0 % in 2022, while general government debt fell from 61,0 % of GDP at the end of 2021 to 57,8 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Slovakia, as its general government deficit is planned to exceed 3 % of GDP in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Slovakia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(13)

According to data validated by Eurostat, Slovakia’s general government deficit decreased from 5,4 % of GDP in 2021 to 2,0 % in 2022, while general government debt fell from 61,0 % of GDP at the end of 2021 to 57,8 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Slovakia, as its general government deficit is planned to exceed 3 % of GDP in 2023. The report concluded that the deficit criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Slovakia should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy expenditure-increasing measures included benefits for households most exposed to high inflation, a one-time increase in the child allowance, a one-time payment of the ‘14th pension’, a one-time bonus paid to all employees in the public sector, and capped electricity and gas prices for unregulated companies. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely the solidarity contribution provided in accordance with Council Regulation (EU) 2022/1854 (7). The Commission estimates the net budgetary cost of those measures at 0,2 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 3,2 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy expenditure-increasing measures included benefits for households most exposed to high inflation, a one-time increase in the child allowance, a one-time payment of the ‘14th pension’, a one-time bonus paid to all employees in the public sector, and capped electricity and gas prices for unregulated companies. The cost of those measures was partly offset by new taxes on windfall profits of energy producers and suppliers, namely the solidarity contribution provided in accordance with Council Regulation (EU) 2022/1854 (7). The Commission estimates the net budgetary cost of those measures at 0,2 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,8 % of GDP in 2022, from 3,2 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Slovakia (8) maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Slovakia (8) maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (9) in 2022 was contractionary, at 1,3 % of GDP which was appropriate in a context of high inflation. As recommended by the Council, Slovakia continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,2 % of GDP in 2022 (1,3 % of GDP in 2021). The decrease in expenditure financed by grants under the Facility and other Union funds in 2022 was due to the low absorption of the Union structural funds and postponements of the realised expenditures from grants under the Facility. Nationally financed investment provided an expansionary contribution of 0,2 percentage points to the fiscal stance (10). Slovakia 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 a contractionary contribution of 1,3 percentage points to the fiscal stance. Slovakia therefore sufficiently kept under control the growth in nationally financed current expenditure. |
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(16)

According to the Commission estimates, the fiscal stance (9) in 2022 was contractionary, at 1,3 % of GDP which was appropriate in a context of high inflation. As recommended by the Council, Slovakia continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 1,2 % of GDP in 2022 (1,3 % of GDP in 2021). The decrease in expenditure financed by grants under the Facility and other Union funds in 2022 was due to the low absorption of the Union structural funds and postponements of the realised expenditures from grants under the Facility. Nationally financed investment provided an expansionary contribution of 0,2 percentage points to the fiscal stance (10). Slovakia 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 a contractionary contribution of 1,3 percentage points to the fiscal stance. Slovakia therefore sufficiently kept under control the growth in nationally financed current expenditure.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,3 % in 2023 and 1,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a higher real GDP growth of 1,7 % in 2023 and 2,1 % in 2024, mainly due to a faster than expected recovery in exports as supply chain bottlenecks are expected to disappear and the economic outlook of Slovakia’s main export destinations improved. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission’s 2023 spring forecast for 2023 and thereafter. The government projects real GDP to grow by 1,3 % in 2023 and 1,8 % in 2024. By comparison, the Commission’s 2023 spring forecast projects a higher real GDP growth of 1,7 % in 2023 and 2,1 % in 2024, mainly due to a faster than expected recovery in exports as supply chain bottlenecks are expected to disappear and the economic outlook of Slovakia’s main export destinations improved.

| (18) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 6,3 % of GDP in 2023. The increase in 2023 mainly reflects the measures adopted to mitigate the economic and social impact of the increase in energy prices, as well as other measures like increasing the tax bonus and child allowances, and introducing a parental bonus. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 57,8 % at the end of 2022 to 58,7 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 6,1 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 58,3 % at the end of 2023. |
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(18)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 6,3 % of GDP in 2023. The increase in 2023 mainly reflects the measures adopted to mitigate the economic and social impact of the increase in energy prices, as well as other measures like increasing the tax bonus and child allowances, and introducing a parental bonus. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 57,8 % at the end of 2022 to 58,7 % at the end of 2023. The Commission’s 2023 spring forecast projects a government deficit of 6,1 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 58,3 % at the end of 2023.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a cap on electricity and gas prices for unregulated companies, and new measures such as a cap on electricity, gas and heating supply prices for households and for regulated (small) companies. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely the solidarity contribution linked to Regulation (EU) 2022/1854, the special levy for water management construction company, and the cap on revenue for electricity producers with excessive profits. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 2,0 % of GDP in 2023 (11). The measures in 2023 do not appear to be targeted at 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, no targeted support measures are to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (12) (compared to 0,2 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to decrease by 0,1 percentage point of GDP compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022, in particular a cap on electricity and gas prices for unregulated companies, and new measures such as a cap on electricity, gas and heating supply prices for households and for regulated (small) companies. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely the solidarity contribution linked to Regulation (EU) 2022/1854, the special levy for water management construction company, and the cap on revenue for electricity producers with excessive profits. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission’s 2023 spring forecast at 2,0 % of GDP in 2023 (11). The measures in 2023 do not appear to be targeted at 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, no targeted support measures are to be taken into account in the assessment of compliance with the Council Recommendation of 12 July 2022 (12) (compared to 0,2 % of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to decrease by 0,1 percentage point of GDP compared to 2022. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at 0,8 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Slovakia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Slovakia should stand ready to adjust current spending to the evolving situation. Slovakia 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Slovakia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. At the same time, Slovakia should stand ready to adjust current spending to the evolving situation. Slovakia 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (– 6,2 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (1,3 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 4,4 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,2 % of GDP. This also includes lower cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % 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 (net of discretionary revenue measures) is driven by untargeted energy measures, permanent wage increases for healthcare professionals, and the reduction in value added tax (VAT) rates on the food and leisure sectors. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,8 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage point (14). Slovakia plans to finance additional investment through the Facility and other Union funds, and it projects to preserve nationally financed investment (15). It plans to finance public investment for the green and digital transitions, and for energy security, such as the National Strategy for Research, Development and Innovation, aiming to increase flexibility and shorten the time of purchasing services and involve a wider range of suppliers, including small and medium-sized companies. |
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(21)

In 2023, the fiscal stance is projected in the Commission’s 2023 spring forecast to be expansionary (– 6,2 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (1,3 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 4,4 % of GDP to the fiscal stance. This includes the reduced cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0,2 % of GDP. This also includes lower cost of offering temporary protection to displaced persons from Ukraine (by 0,1 % 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 (net of discretionary revenue measures) is driven by untargeted energy measures, permanent wage increases for healthcare professionals, and the reduction in value added tax (VAT) rates on the food and leisure sectors. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 2,8 % of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,1 percentage point (14). Slovakia plans to finance additional investment through the Facility and other Union funds, and it projects to preserve nationally financed investment (15). It plans to finance public investment for the green and digital transitions, and for energy security, such as the National Strategy for Research, Development and Innovation, aiming to increase flexibility and shorten the time of purchasing services and involve a wider range of suppliers, including small and medium-sized companies.

| (22) | According to the 2023 Stability Programme the general government deficit is expected to decline to 4,7 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of measures mitigating the economic and social impact of the increase in energy prices. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 59,3 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,8 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 58,7 % at the end of 2024. |
| --- | --- |

(22)

According to the 2023 Stability Programme the general government deficit is expected to decline to 4,7 % of GDP in 2024. The decrease in 2024 mainly reflects the phasing-out of measures mitigating the economic and social impact of the increase in energy prices. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase to 59,3 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission’s 2023 spring forecast projects a government deficit of 4,8 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission’s 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 58,7 % at the end of 2024.

| (23) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
| --- | --- |

(23)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission also assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (24) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (16). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (17) in 2024 should not exceed 5,7 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if persistent, and strengthening the external position. At the same time, the remaining energy support measures (currently estimated by the Commission at 2 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(24)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (16). Taking into account fiscal sustainability considerations and the need to reduce the deficit to below the 3 %-of-GDP Treaty reference value, an improvement in the structural balance of at least 0,7 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission’s methodology, the growth in net nationally financed primary expenditure (17) in 2024 should not exceed 5,7 %, as reflected in this Recommendation. This will also contribute to reducing core inflation, which is well above the euro area average, and which could lead to competitiveness losses if persistent, and strengthening the external position. At the same time, the remaining energy support measures (currently estimated by the Commission at 2 % of GDP in 2023) should be phased out, if energy market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth rate for 2024. In addition, according to the Commission’s 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (25) | Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,5 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is due to permanent expenditure measures such as higher compensation of public employees, the family package including a tax bonus and increased child allowances, as well as the introduction of a parental bonus under the pension reform. |
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(25)

Assuming unchanged policies, the Commission’s 2023 spring forecast projects the net nationally financed primary expenditure to grow at 2,5 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission’s 2023 spring forecast is less than the savings from the full phasing-out of energy support measures, which is due to permanent expenditure measures such as higher compensation of public employees, the family package including a tax bonus and increased child allowances, as well as the introduction of a parental bonus under the pension reform.

| (26) | According to the 2023 Stability Programme, government investment is expected to decrease from 5,1 % of GDP in 2023 to 4,0 % of GDP in 2024. The lower investment reflects lower investment financed by the Union, namely through the structural funds. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. These include a recently approved reform introducing expenditure ceilings and pension reform, which are also part of the recovery and resilience plan. |
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(26)

According to the 2023 Stability Programme, government investment is expected to decrease from 5,1 % of GDP in 2023 to 4,0 % of GDP in 2024. The lower investment reflects lower investment financed by the Union, namely through the structural funds. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. These include a recently approved reform introducing expenditure ceilings and pension reform, which are also part of the recovery and resilience plan.

| (27) | The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the government targets project the deficit to reach 3,2 % of GDP in 2025 and 2,2 % in 2026. The government deficit is therefore expected to fall below the 3 %-of-GDP Treaty reference value in 2026. |
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(27)

The 2023 Stability Programme outlines a medium-term fiscal path until 2026. According to the 2023 Stability Programme, the government targets project the deficit to reach 3,2 % of GDP in 2025 and 2,2 % in 2026. The government deficit is therefore expected to fall below the 3 %-of-GDP Treaty reference value in 2026.

| (28) | Slovakia’s tax system shows potential to be reformed to boost economic efficiency, promote environmental and fiscal sustainability and improve fairness. The labour tax burden is particularly high for low-income earners compared to other Member States. In contrast, environmental and property taxation is not used to its full potential. Changing the tax mix could support growth and also help encourage the green transition and environmental sustainability. Despite the economy’s high energy intensity, revenue from environmental taxes stood at 2,5 % in 2021, close to the Union average. Environmental charges relating to waste management and air pollution do not sufficiently promote efficient use of resources and do not reduce costs for the environment and society. Environmental taxes and charges are not indexed, and this reduces green revenue over time. Road taxes and vehicle registration fees do not sufficiently reflect emission intensity. Overall, the transport taxation share of total tax revenues is only 0,58 %, compared to the Union average of 1 %. On property taxation, revenues from recurrent taxes on property were relatively low in 2021 (0,5 % of GDP, compared to the Union average of 1,2 %). Slovakia does not currently have sufficient data to enable the property tax base to be updated and indexed in line with market values, although this could also partly curb the continuing strong demand for housing and related strong house price growth. In addition, further efforts to simplify taxes and improve tax compliance can increase public revenues and in turn support fiscal sustainability and improve fairness. In 2020, the VAT tax compliance gap in Slovakia continued its downward trend. It fell from 15 % in 2019 to 13,9 % of total expected VAT revenues in 2020 but still remains above the Union average (9,1 %). Further improvements in tax administration, including in electronic invoicing, pre-filled tax returns and more digitalisation, could help further reduce the leaks in the tax system. |
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(28)

Slovakia’s tax system shows potential to be reformed to boost economic efficiency, promote environmental and fiscal sustainability and improve fairness. The labour tax burden is particularly high for low-income earners compared to other Member States. In contrast, environmental and property taxation is not used to its full potential. Changing the tax mix could support growth and also help encourage the green transition and environmental sustainability. Despite the economy’s high energy intensity, revenue from environmental taxes stood at 2,5 % in 2021, close to the Union average. Environmental charges relating to waste management and air pollution do not sufficiently promote efficient use of resources and do not reduce costs for the environment and society. Environmental taxes and charges are not indexed, and this reduces green revenue over time. Road taxes and vehicle registration fees do not sufficiently reflect emission intensity. Overall, the transport taxation share of total tax revenues is only 0,58 %, compared to the Union average of 1 %. On property taxation, revenues from recurrent taxes on property were relatively low in 2021 (0,5 % of GDP, compared to the Union average of 1,2 %). Slovakia does not currently have sufficient data to enable the property tax base to be updated and indexed in line with market values, although this could also partly curb the continuing strong demand for housing and related strong house price growth. In addition, further efforts to simplify taxes and improve tax compliance can increase public revenues and in turn support fiscal sustainability and improve fairness. In 2020, the VAT tax compliance gap in Slovakia continued its downward trend. It fell from 15 % in 2019 to 13,9 % of total expected VAT revenues in 2020 but still remains above the Union average (9,1 %). Further improvements in tax administration, including in electronic invoicing, pre-filled tax returns and more digitalisation, could help further reduce the leaks in the tax system.

| (29) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Slovakia’s recovery and resilience plan has so far been well underway, however it is facing some challenges going forward. Slovakia submitted two payment requests, corresponding to 30 milestones and targets in the plan and resulting in an overall disbursement of EUR 1,11 billion. Slovakia has been among the Member States with the fastest progress in the implementation of the recovery and resilience plan, but potential headwinds due to administrative capacity bottlenecks, together with the need to start working on additional measures of the REPowerEU chapter submitted by Slovakia as part of its plan amendment, submitted on 26 April 2023, call for strengthened focus on implementation. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Slovakia'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(29)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Slovakia’s recovery and resilience plan has so far been well underway, however it is facing some challenges going forward. Slovakia submitted two payment requests, corresponding to 30 milestones and targets in the plan and resulting in an overall disbursement of EUR 1,11 billion. Slovakia has been among the Member States with the fastest progress in the implementation of the recovery and resilience plan, but potential headwinds due to administrative capacity bottlenecks, together with the need to start working on additional measures of the REPowerEU chapter submitted by Slovakia as part of its plan amendment, submitted on 26 April 2023, call for strengthened focus on implementation. The inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Slovakia'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (30) | The Commission approved all Slovakia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Slovakia. |
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(30)

The Commission approved all Slovakia’s cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transitions, increasing economic and social resilience, and achieving balanced territorial development in Slovakia.

| (31) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Slovakia faces a number of additional challenges related to energy and the green transition. |
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(31)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Slovakia faces a number of additional challenges related to energy and the green transition.

| (32) | Progress by Slovakia in reducing net greenhouse gas emissions has largely stalled in recent years. The country remains a structurally energy-intensive economy with a high dependency on fossil fuel imports. The primary energy intensity of Slovakia stood at around 80 % above the Union average in 2020, while its final energy consumption increased by 13,5 % between 2015 and 2021. Slovakia achieved some progress on energy import diversification in 2022, but gas saving measures have not been sufficiently deployed. Slovakia's consumption of natural gas dropped by 1 % (18) in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, well below the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (19). Slovakia is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (20). The share of imports of natural gas from Russia has been reduced from 85 % to about 50 % since summer 2022. While the reforms included in the recovery and resilience plan have led to a significant increase in the available capacity for connecting renewables to the grid in Slovakia, only a small share of the free capacity has been used to connect new renewable installations. A faster uptake of renewables would help achieve climate goals and reduce Slovakia's dependence on fossil fuel imports (including from Russia), easing the risk of energy poverty amid volatile energy prices. The cumulative installed capacity of solar and wind energy was around 7 % of total installed capacity in 2022, the second lowest level in the Union. |
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(32)

Progress by Slovakia in reducing net greenhouse gas emissions has largely stalled in recent years. The country remains a structurally energy-intensive economy with a high dependency on fossil fuel imports. The primary energy intensity of Slovakia stood at around 80 % above the Union average in 2020, while its final energy consumption increased by 13,5 % between 2015 and 2021. Slovakia achieved some progress on energy import diversification in 2022, but gas saving measures have not been sufficiently deployed. Slovakia's consumption of natural gas dropped by 1 % (18) in the period between August 2022 and March 2023, compared with the average gas consumption over the same period in the preceding five years, well below the 15 % reduction target laid down in Council Regulation (EU) 2022/1369 (19). Slovakia is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 pursuant to Council Regulation (EU) 2023/706 (20). The share of imports of natural gas from Russia has been reduced from 85 % to about 50 % since summer 2022. While the reforms included in the recovery and resilience plan have led to a significant increase in the available capacity for connecting renewables to the grid in Slovakia, only a small share of the free capacity has been used to connect new renewable installations. A faster uptake of renewables would help achieve climate goals and reduce Slovakia's dependence on fossil fuel imports (including from Russia), easing the risk of energy poverty amid volatile energy prices. The cumulative installed capacity of solar and wind energy was around 7 % of total installed capacity in 2022, the second lowest level in the Union.

| (33) | Slovakia enacted reforms in the area of market design and support for renewables in 2022 as part of its recovery and resilience plan, but further measures would allow a faster roll-out of renewables, particularly for wind, solar, geothermal, biomethane and hydrogen. Those measures include simplifying permitting and administrative procedures, including by establishing administrative ‘one-stop-shops’ and ‘go-to’ areas for renewables. Slovakia would benefit from making the procedures for grid access for renewables more efficient, in particular by reforming the capacity reservation system, making the grid connection less administratively burdensome and revising the grid connection fees, in line with Union benchmarks and best practice. To accommodate the increasing volume of intermittent renewables, Slovakia has large potential for modernising its electricity networks (as regards both transmission and distribution), building new electricity storage facilities and advancing with the creation of the regulatory framework for renewable hydrogen. Further progress in developing the geothermal energy and biomethane sectors would provide substitutes for natural gas, widely used as an energy source in district heating systems where the deployment of renewable heat sources remains underdeveloped. |
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(33)

Slovakia enacted reforms in the area of market design and support for renewables in 2022 as part of its recovery and resilience plan, but further measures would allow a faster roll-out of renewables, particularly for wind, solar, geothermal, biomethane and hydrogen. Those measures include simplifying permitting and administrative procedures, including by establishing administrative ‘one-stop-shops’ and ‘go-to’ areas for renewables. Slovakia would benefit from making the procedures for grid access for renewables more efficient, in particular by reforming the capacity reservation system, making the grid connection less administratively burdensome and revising the grid connection fees, in line with Union benchmarks and best practice. To accommodate the increasing volume of intermittent renewables, Slovakia has large potential for modernising its electricity networks (as regards both transmission and distribution), building new electricity storage facilities and advancing with the creation of the regulatory framework for renewable hydrogen. Further progress in developing the geothermal energy and biomethane sectors would provide substitutes for natural gas, widely used as an energy source in district heating systems where the deployment of renewable heat sources remains underdeveloped.

| (34) | While Slovakia is progressing in the energy efficiency of residential buildings as a result of ambitious investment under the Facility and the Cohesion Fund, more effort is needed, especially on deep renovations of public and private non-residential buildings, together with renovation measures targeting energy poverty and vulnerable households. Slovakia would benefit from addressing several bottlenecks to accelerate building renovations and attract more private investment, namely by: (i) adapting renovation schemes; (ii) providing technical assistance; (iii) developing the ‘one-stop shop’ approach; (iv) collecting relevant energy data on public buildings to help prioritise investment; and (v) improving coordination between different public authorities and funding programmes. Additional effort is needed to structurally address energy poverty, in particular through dedicated housing renovation schemes and technical and administrative assistance that reflects the needs of vulnerable households, together with reforms and investment in social housing. Greater ambition in reducing greenhouse gas emissions and increasing targets for renewables and energy efficiency will be needed for Slovakia to be in line with the ‘Fit for 55’ objectives. |
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(34)

While Slovakia is progressing in the energy efficiency of residential buildings as a result of ambitious investment under the Facility and the Cohesion Fund, more effort is needed, especially on deep renovations of public and private non-residential buildings, together with renovation measures targeting energy poverty and vulnerable households. Slovakia would benefit from addressing several bottlenecks to accelerate building renovations and attract more private investment, namely by: (i) adapting renovation schemes; (ii) providing technical assistance; (iii) developing the ‘one-stop shop’ approach; (iv) collecting relevant energy data on public buildings to help prioritise investment; and (v) improving coordination between different public authorities and funding programmes. Additional effort is needed to structurally address energy poverty, in particular through dedicated housing renovation schemes and technical and administrative assistance that reflects the needs of vulnerable households, together with reforms and investment in social housing. Greater ambition in reducing greenhouse gas emissions and increasing targets for renewables and energy efficiency will be needed for Slovakia to be in line with the ‘Fit for 55’ objectives.

| (35) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Slovakia has one of the highest shares of employment in the automotive manufacturing and the steel industry in the Union, sectors highly affected by the green transition. At the same time, in 2022, labour shortages were reported for 24 occupations that require green skills, including insulation workers, plumbers and pipe fitters, as well as building and related electricians. This calls for effective policy levers to accelerate the green transition across a broad range of sectors, while ensuring fairness. |
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(35)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Slovakia has one of the highest shares of employment in the automotive manufacturing and the steel industry in the Union, sectors highly affected by the green transition. At the same time, in 2022, labour shortages were reported for 24 occupations that require green skills, including insulation workers, plumbers and pipe fitters, as well as building and related electricians. This calls for effective policy levers to accelerate the green transition across a broad range of sectors, while ensuring fairness.

| (36) | In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (21) is reflected in recommendation (1). |
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(36)

In the light of the Commission’s assessment, the Council has examined the 2023 Stability Programme and its opinion (21) is reflected in recommendation (1).

| (37) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Slovakia, recommendations (1), (2) and (3) contribute to the implementation of the first, second, third and fifth recommendations set out in the 2023 Recommendation on the euro area, |
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(37)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transitions; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Slovakia, recommendations (1), (2) and (3) contribute to the implementation of the first, second, third and fifth recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Slovakia take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 5,7 % (22).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Make the tax mix more efficient and more supportive of inclusive and sustainable growth, including by leveraging the potential of environmental and property taxation. Continue to strengthen tax compliance, including by further digitalising the tax administration.

Reduce the risks related to household debt by supporting housing supply and the expansion of the rental market.

2.

Maintain the momentum in the steady implementation of its recovery and resilience plan and, following the recent submission of the addendum, including the REPowerEU chapter, rapidly start the implementation of the related measures. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Reduce the economy’s reliance on fossil fuels, in particular natural gas in industry and heating, and diversify imports of fossil fuels. Accelerate the deployment of renewables, particularly for wind, solar, geothermal and renewable gases, in line with relevant sustainability criteria. Simplify permitting and administrative procedures for deploying renewables, including by establishing ‘one-stop shops’ and ‘go-to’ areas. Modernise the electricity network and make the procedures for connecting renewables to the grid more efficient and less burdensome. Accelerate and incentivise deep renovations of public and private buildings, address energy poverty through housing renovations for low-income households, and step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 10156/2021 INIT; ST 10156/2021 ADD 1; ST 10156/2021 COR 1.

6

(7)  Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices (OJ L 261 I, 7.10.2022, p. 1).

7

(8)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Slovakia (OJ C 304, 29.7.2021, p. 121).

8

(9)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

9

(10)  Other nationally financed capital expenditure provided a contractionary contribution of 0,1 percentage point of GDP.

10

(11)  The figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as capital expenditure measures.

11

(12)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Slovakia and delivering a Council opinion on the 2022 Stability Programme of Slovakia (OJ C 334, 1.9.2022, p. 205).

12

(13)  On the basis of the Commission’s 2023 spring forecast, the medium-term (10-year average) potential output growth of Slovakia, which is used to measure the fiscal stance, is estimated at 12,0 % in nominal terms.

13

(14)  Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,1 percentage point of GDP.

14

(15)  Expenditure financed by grants under the Facility and other Union funds amounted to 0,0 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 1,3 percentage points. Other nationally financed capital expenditure is projected to provide an expansionary contribution of 0,1 percentage point of GDP.

15

(16)  Article 5 of Regulation (EC) No 1466/97 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.

16

(17)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure and cyclical unemployment expenditure.

17

(18)  Data for Slovakia is currently under validation by Eurostat.

18

(19)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

19

(20)  Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation (OJ L 93, 31.3.2023, p. 1).

20

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

21

(22)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,7 % of GDP for 2024, as described in recital 24.

22

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/243 |
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1.9.2023

EN

Official Journal of the European Union

C 312/243

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Finland and delivering a Council opinion on the 2023 Stability Programme of Finland

(2023/C 312/26)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(2) and Article 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) | Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022 in accordance with Article 11(2) of Regulation (EU) 2021/241. |
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(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility ('the Facility'), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022 in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Finland as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Finland's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
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(2)

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Finland as one of the Member States that may be affected or may be at risk of being affected by imbalances. As such, an in-depth review would not be needed. On the same date, the Commission also adopted an opinion on Finland's 2023 draft budgetary plan. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) ('2023 Recommendation on the euro area') on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age'('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age'('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023 aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the 'REPowerEU Regulation'), which was adopted on 27 February 2023 aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 ('the communication of 8 March 2023'). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 27 May 2021, Finland 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 set out in Annex V to that Regulation. On 29 October 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Finland (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Finland 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. |
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(9)

On 27 May 2021, Finland 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 set out in Annex V to that Regulation. On 29 October 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Finland (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Finland 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 23 March 2023, Finland submitted its 2023 National Reform Programme and Stability Programme, in line with Article 4(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 Finland's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 23 March 2023, Finland submitted its 2023 National Reform Programme and Stability Programme, in line with Article 4(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 Finland's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Finland. It assessed Finland's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Finland's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Finland's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Finland. It assessed Finland's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022, and took stock of Finland's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Finland's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | According to data validated by Eurostat, Finland's general government deficit decreased from 2,8 % of GDP in 2021 to 0,9 % in 2022, while general government debt rose from 72,6 % of GDP at the end of 2021 to 73,0 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Finland, as its general government debt in 2022 exceeded the 60 %-of-GDP Treaty reference value and did not respect the debt reduction benchmark. The report concluded that the debt criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Finland should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024. |
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(12)

According to data validated by Eurostat, Finland's general government deficit decreased from 2,8 % of GDP in 2021 to 0,9 % in 2022, while general government debt rose from 72,6 % of GDP at the end of 2021 to 73,0 % at the end of 2022. On 24 May 2023, the Commission issued a report under Article 126(3) of the Treaty. That report discussed the budgetary situation of Finland, as its general government debt in 2022 exceeded the 60 %-of-GDP Treaty reference value and did not respect the debt reduction benchmark. The report concluded that the debt criterion was not fulfilled. In line with the communication of 8 March 2023, the Commission did not propose to open new excessive deficit procedures in spring 2023. The Commission subsequently 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. Finland should take account of this in the execution of its 2023 budget and in preparing its draft budgetary plan for 2024.

| (13) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a temporary increase of deductible commuting expenses and an increase in household tax deductions on heating system renovations, while such fiscal policy expenditure-increasing measures included an index increase in social benefits and the payment of additional child benefits, aiming to improve the purchasing power of low-income households and address the inflation-induced costs. The Commission estimates the net budgetary cost of those measures at 0,1 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,2 % of GDP in 2022, from 2,0 % in 2021. |
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(13)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included a temporary increase of deductible commuting expenses and an increase in household tax deductions on heating system renovations, while such fiscal policy expenditure-increasing measures included an index increase in social benefits and the payment of additional child benefits, aiming to improve the purchasing power of low-income households and address the inflation-induced costs. The Commission estimates the net budgetary cost of those measures at 0,1 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,1 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 0,2 % of GDP in 2022, from 2,0 % in 2021.

| (14) | On 18 June 2021, the Council recommended that in 2022 Finland (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(14)

On 18 June 2021, the Council recommended that in 2022 Finland (7) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (15) | According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,1 % of GDP, as recommended by the Council. As recommended by the Council, Finland continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,3 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a neutral contribution of 0,0 percentage points to the fiscal stance (9). Finland 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 a broadly neutral contribution of 0,1 percentage points to the fiscal stance. Finland therefore kept the growth in nationally financed current expenditure sufficiently under control. |
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(15)

According to the Commission estimates, the fiscal stance (8) in 2022 was broadly neutral, at – 0,1 % of GDP, as recommended by the Council. As recommended by the Council, Finland continued to support the recovery with investments to be financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,3 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided a neutral contribution of 0,0 percentage points to the fiscal stance (9). Finland 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 a broadly neutral contribution of 0,1 percentage points to the fiscal stance. Finland therefore kept the growth in nationally financed current expenditure sufficiently under control.

| (16) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for both 2023 and 2024. The government projects real GDP to slightly contract by 0,2 % in 2023 and then to grow by 1,3 % in 2024. By comparison, the Commission's 2023 spring forecast projects a positive real GDP growth of 0,2 % in 2023 and 1,4 % in 2024. Both sets of forecasts project net exports to be the main growth driver in 2023, while in 2024 a more broad-based improvement in economic performance is anticipated as domestic demand is set to recover as well. |
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(16)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Stability Programme is in line with the Commission's 2023 spring forecast for both 2023 and 2024. The government projects real GDP to slightly contract by 0,2 % in 2023 and then to grow by 1,3 % in 2024. By comparison, the Commission's 2023 spring forecast projects a positive real GDP growth of 0,2 % in 2023 and 1,4 % in 2024. Both sets of forecasts project net exports to be the main growth driver in 2023, while in 2024 a more broad-based improvement in economic performance is anticipated as domestic demand is set to recover as well.

| (17) | In its 2023 Stability Programme, the government expects that the general government deficit will increase to 2,6 % of GDP in 2023. The increase in 2023 mainly reflects the indexation of social benefits, central government funding to local authorities, higher interest expenses, as well as additional defence spending and investments related to research and development (R&D). According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 73,0 % at the end of 2022 to 74,4 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 2,6 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio of 73,9 % at the end of 2023. The difference is due to a slightly higher deflator assumed by the Commission's 2023 spring forecast. |
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(17)

In its 2023 Stability Programme, the government expects that the general government deficit will increase to 2,6 % of GDP in 2023. The increase in 2023 mainly reflects the indexation of social benefits, central government funding to local authorities, higher interest expenses, as well as additional defence spending and investments related to research and development (R&D). According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 73,0 % at the end of 2022 to 74,4 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 2,6 % of GDP for 2023. This is in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio of 73,9 % at the end of 2023. The difference is due to a slightly higher deflator assumed by the Commission's 2023 spring forecast.

| (18) | The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: additional temporary increases of deductible commuting expenses and household tax deductions on heating system renovations) and new measures such as temporary reimbursements on electricity bills and tax credits on electricity, as well as a temporary reduction of the value added tax (VAT) rate on electricity and passenger transport. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely a temporary profit tax for electricity companies. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,0 % of GDP in 2022). The budgetary cost of temporary protection offered to displaced persons from Ukraine is projected to increase by 0,2 percentage points of GDP compared to 2022. |
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(18)

The general government balance in 2023 is expected to continue to be impacted by the fiscal measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular: additional temporary increases of deductible commuting expenses and household tax deductions on heating system renovations) and new measures such as temporary reimbursements on electricity bills and tax credits on electricity, as well as a temporary reduction of the value added tax (VAT) rate on electricity and passenger transport. The cost of those measures is partly offset by taxes on windfall profits of energy suppliers, namely a temporary profit tax for electricity companies. The net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,3 % of GDP in 2023 (10). Most measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (11), is estimated in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (compared to 0,0 % of GDP in 2022). The budgetary cost of temporary protection offered to displaced persons from Ukraine is projected to increase by 0,2 percentage points of GDP compared to 2022.

| (19) | In its Recommendation of 12 July 2022, the Council recommended that Finland take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Finland should stand ready to adjust current spending to the evolving situation. Finland 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 Facility and other Union funds. |
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(19)

In its Recommendation of 12 July 2022, the Council recommended that Finland take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (12), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Finland should stand ready to adjust current spending to the evolving situation. Finland 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 Facility and other Union funds.

| (20) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,0 % of GDP), in a context of high inflation. This follows a broadly neutral in 2022 (– 0,1 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,6 % of GDP to the fiscal stance. This includes the broadly stable costs of the targeted support measures to households and firms most vulnerable to energy price hikes. This also includes the higher cost of offering temporary protection to displaced persons from Ukraine (increased by 0,2 % of GDP). The expansionary contribution of nationally financed net primary current expenditure is therefore only partly 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 (net of discretionary revenue measures) is also driven by the indexation of social benefits, central government funding to local authorities, as well as additional defence spending and R&D-related investments. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,4 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,4 percentage points (13). Therefore, Finland plans to finance additional investment through the Facility and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as subsidies for the replacement of fossil oil boilers and electric vehicle charging points, and electricity networks, and the Digirail project aiming to renew the train control system, the Virtual Finland portal to facilitate labour-based immigration and the real-time economy (RTE) project aiming to digitise business transactions, which are partly funded by the Facility and other Union funds. |
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(20)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be expansionary (– 1,0 % of GDP), in a context of high inflation. This follows a broadly neutral in 2022 (– 0,1 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 0,6 % of GDP to the fiscal stance. This includes the broadly stable costs of the targeted support measures to households and firms most vulnerable to energy price hikes. This also includes the higher cost of offering temporary protection to displaced persons from Ukraine (increased by 0,2 % of GDP). The expansionary contribution of nationally financed net primary current expenditure is therefore only partly 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 (net of discretionary revenue measures) is also driven by the indexation of social benefits, central government funding to local authorities, as well as additional defence spending and R&D-related investments. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 0,4 % of GDP in 2023, while nationally financed investment provided an expansionary contribution to the fiscal stance of 0,4 percentage points (13). Therefore, Finland plans to finance additional investment through the Facility and it is projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security, such as subsidies for the replacement of fossil oil boilers and electric vehicle charging points, and electricity networks, and the Digirail project aiming to renew the train control system, the Virtual Finland portal to facilitate labour-based immigration and the real-time economy (RTE) project aiming to digitise business transactions, which are partly funded by the Facility and other Union funds.

| (21) | According to the 2023 Stability Programme the general government deficit is expected to remain at 2,6 % of GDP in 2024. Tax revenue growth is expected to slow down while interest expenses are expected to be higher. According to the 2023 Stability Programme the general government debt-to-GDP ratio is expected to increase to 76,9 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 2,6 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio of 76,2 % at the end of 2024. |
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(21)

According to the 2023 Stability Programme the general government deficit is expected to remain at 2,6 % of GDP in 2024. Tax revenue growth is expected to slow down while interest expenses are expected to be higher. According to the 2023 Stability Programme the general government debt-to-GDP ratio is expected to increase to 76,9 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 2,6 % of GDP in 2024. This is in line with the deficit projected in the 2023 Stability Programme. The Commission's 2023 spring forecast projects a lower general government debt-to-GDP ratio of 76,2 % at the end of 2024.

| (22) | The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission currently assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases. |
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(22)

The 2023 Stability Programme envisages the phasing-out of all of the energy support measures in 2024. The Commission currently assumes full phasing-out of energy support measures in 2024. This is based on the assumption of no renewed energy price increases.

| (23) | Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,2 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,3 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to the Commission's 2023 spring forecast, the growth in net nationally-financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. |
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(23)

Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term budgetary objective, with 0,5 % of GDP as a benchmark (14). Taking into account fiscal sustainability considerations, an improvement in the structural balance of at least 0,3 % of GDP for 2024 would be appropriate, according to the Commission. To ensure such an improvement, and in accordance with the Commission's methodology, the growth in net nationally financed primary expenditure (15) in 2024 should not exceed 2,2 %, as reflected in this Recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 0,3 % of GDP in 2023) should be phased out, if energy-market developments so permit and starting with the least targeted measures, and the related savings should be used to reduce the government deficit. According to the Commission's 2023 spring forecast, the growth in net nationally-financed primary current expenditure in 2023 is not in line with the Council Recommendation of 12 July 2022. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate.

| (24) | Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow at 2,8 % in 2024, which is above the recommended growth rate. |
| --- | --- |

(24)

Assuming unchanged policies, the Commission's 2023 spring forecast projects net nationally financed primary expenditure to grow at 2,8 % in 2024, which is above the recommended growth rate.

| (25) | According to the 2023 Stability Programme, government investment is expected to remain at 4,5 % of GDP in 2023 and 2024. This reflects nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include the health and social services reform, which is also part of the recovery and resilience plan, although estimates on future savings to be derived from the reform are still uncertain. |
| --- | --- |

(25)

According to the 2023 Stability Programme, government investment is expected to remain at 4,5 % of GDP in 2023 and 2024. This reflects nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Stability Programme refers to reforms and investments that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. Those reforms and investments include the health and social services reform, which is also part of the recovery and resilience plan, although estimates on future savings to be derived from the reform are still uncertain.

| (26) | The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to increase to 3,1 % of GDP in 2025 and to subsequently slightly decline to 2,9 % by 2026. Therefore, the general government deficit is planned to be below 3 % of GDP in 2026. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 76,9 % at the end of 2024 to 80,7 % by the end of 2026. |
| --- | --- |

(26)

The 2023 Stability Programme outlines a medium-term fiscal path until 2027. According to the 2023 Stability Programme, the general government deficit is expected to increase to 3,1 % of GDP in 2025 and to subsequently slightly decline to 2,9 % by 2026. Therefore, the general government deficit is planned to be below 3 % of GDP in 2026. According to the 2023 Stability Programme, the general government debt-to-GDP ratio is expected to increase from 76,9 % at the end of 2024 to 80,7 % by the end of 2026.

| (27) | Finland has an effective and inclusive social welfare system with a high level of social protection, but it is complex and includes some incentive traps. In 2020, a dedicated parliamentary committee was tasked with designing a reform of the social security system by 2027. In January 2022, the committee published the results of its problem mapping work and, in March 2023, it presented its interim report, which contained 31 proposals for studies, legislative drafting and development projects for future governments. The next steps would include initiating legislative work for streamlining the social welfare system and for increasing incentives to work, while preserving social protection and raising the employment rate. The continuation of the work to reform the social security system is important for supporting the long-term sustainability of public finances. |
| --- | --- |

(27)

Finland has an effective and inclusive social welfare system with a high level of social protection, but it is complex and includes some incentive traps. In 2020, a dedicated parliamentary committee was tasked with designing a reform of the social security system by 2027. In January 2022, the committee published the results of its problem mapping work and, in March 2023, it presented its interim report, which contained 31 proposals for studies, legislative drafting and development projects for future governments. The next steps would include initiating legislative work for streamlining the social welfare system and for increasing incentives to work, while preserving social protection and raising the employment rate. The continuation of the work to reform the social security system is important for supporting the long-term sustainability of public finances.

| (28) | In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Finland's recovery and resilience plan is underway. Still, the operational arrangements between the Commission and Finland have not yet been signed. This step is necessary for the submission of the first payment request under the recovery and resilience plan and to allow Finland to catch up with the agreed payment request schedule. Finland submitted an amendment of its recovery and resilience plan in January 2023, which was approved by the Council on 14 March 2023. This amendment was done in the context of the update of the maximum financial contribution available for Member States from the Facility and consisted in reducing funding proportionally across the four pillars of the plan. To cater for the funding under REPowerEU chapter, another amendment to the recovery and resilience plan is planned in 2023. 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 Finland'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(28)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. The implementation of Finland's recovery and resilience plan is underway. Still, the operational arrangements between the Commission and Finland have not yet been signed. This step is necessary for the submission of the first payment request under the recovery and resilience plan and to allow Finland to catch up with the agreed payment request schedule. Finland submitted an amendment of its recovery and resilience plan in January 2023, which was approved by the Council on 14 March 2023. This amendment was done in the context of the update of the maximum financial contribution available for Member States from the Facility and consisted in reducing funding proportionally across the four pillars of the plan. To cater for the funding under REPowerEU chapter, another amendment to the recovery and resilience plan is planned in 2023. 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 Finland'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (29) | The Commission approved all Finland's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Finland. |
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(29)

The Commission approved all Finland's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Finland.

| (30) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Finland faces a number of additional challenges related to skills shortages, education and training policies, energy policy and the green transition. |
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(30)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Finland faces a number of additional challenges related to skills shortages, education and training policies, energy policy and the green transition.

| (31) | While the Finnish labour market performed strongly in 2022, the number of open vacancies has increased rapidly, reflecting skills mismatches and labour shortages across different sectors, in particular services, construction, information and communication technologies, education, healthcare and social care. The supply of skilled labour is constrained by the relatively low number of higher education graduates in the study fields that are most in demand in the labour market, as well as a relatively low level of labour immigration. At the same time, tertiary educational attainment for people aged 25 to 34 is below the Union average. Labour and skills shortages pose challenges to Finland's competitiveness and long-term growth, and will be further aggravated by population ageing, relatively low regional labour mobility and the increased demand for new skills in the context of the green and digital transitions. |
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(31)

While the Finnish labour market performed strongly in 2022, the number of open vacancies has increased rapidly, reflecting skills mismatches and labour shortages across different sectors, in particular services, construction, information and communication technologies, education, healthcare and social care. The supply of skilled labour is constrained by the relatively low number of higher education graduates in the study fields that are most in demand in the labour market, as well as a relatively low level of labour immigration. At the same time, tertiary educational attainment for people aged 25 to 34 is below the Union average. Labour and skills shortages pose challenges to Finland's competitiveness and long-term growth, and will be further aggravated by population ageing, relatively low regional labour mobility and the increased demand for new skills in the context of the green and digital transitions.

| (32) | Finland's new Climate Act entered into force on 1 July 2022, anchoring in national law Finland's objective to become the first fossil-free welfare society by 2035, as well as setting climate targets for 2030, 2040 and 2050. However, the Finnish economy is still among the most energy-intensive in the Union. Energy, industry, transport and buildings are the main sectors that will need to contribute to major reductions in greenhouse gas emissions. In 2021, renewable energy sources made up a significant part of Finland's energy mix, reaching 43 %, followed by oil at 24 %, nuclear at 17 % and coal at 9 %. Russia remains an important source of nuclear fuel. Finland's consumption of natural gas dropped by 56 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Finland could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (16). |
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(32)

Finland's new Climate Act entered into force on 1 July 2022, anchoring in national law Finland's objective to become the first fossil-free welfare society by 2035, as well as setting climate targets for 2030, 2040 and 2050. However, the Finnish economy is still among the most energy-intensive in the Union. Energy, industry, transport and buildings are the main sectors that will need to contribute to major reductions in greenhouse gas emissions. In 2021, renewable energy sources made up a significant part of Finland's energy mix, reaching 43 %, followed by oil at 24 %, nuclear at 17 % and coal at 9 %. Russia remains an important source of nuclear fuel. Finland's consumption of natural gas dropped by 56 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, beyond the 15 % reduction target. Finland could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (16).

| (33) | Challenges to achieve long-term climate objectives include a significant private and public investment gap in the main emitting sectors as well as delays in the deployment of renewable energy investment, caused by a backlog of environmental permit applications in need of processing. Further streamlining of permitting procedures is needed to clear the backlog of pending energy projects and facilitate additional priority investment. |
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(33)

Challenges to achieve long-term climate objectives include a significant private and public investment gap in the main emitting sectors as well as delays in the deployment of renewable energy investment, caused by a backlog of environmental permit applications in need of processing. Further streamlining of permitting procedures is needed to clear the backlog of pending energy projects and facilitate additional priority investment.

| (34) | High energy prices and ambitious climate targets require faster and higher investment in decarbonisation. Despite faster-than-anticipated growth in electric vehicle sales, the necessary investment in the further roll-out, particularly the electrification of heavy-duty vehicles, is unlikely to happen on market terms due to the long distances and sparsely populated areas that characterise Finland. Approximately 40 % of the rail network is still not electrified. |
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(34)

High energy prices and ambitious climate targets require faster and higher investment in decarbonisation. Despite faster-than-anticipated growth in electric vehicle sales, the necessary investment in the further roll-out, particularly the electrification of heavy-duty vehicles, is unlikely to happen on market terms due to the long distances and sparsely populated areas that characterise Finland. Approximately 40 % of the rail network is still not electrified.

| (35) | To improve security of supply, Finland's national transmission of electricity could be strengthened. Renewable energy is increasingly produced far from the centres of consumption. While Finland has acted decisively to reduce its dependence on Russian imports of oil, coal and gas, one of the two nuclear power plants in Finland remains entirely dependent on Russian fuel. Strong interconnections between Finland and neighbouring countries are needed to ensure a well-functioning electricity market in the whole region and increase the projected contribution of renewable energy to the energy mix. |
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(35)

To improve security of supply, Finland's national transmission of electricity could be strengthened. Renewable energy is increasingly produced far from the centres of consumption. While Finland has acted decisively to reduce its dependence on Russian imports of oil, coal and gas, one of the two nuclear power plants in Finland remains entirely dependent on Russian fuel. Strong interconnections between Finland and neighbouring countries are needed to ensure a well-functioning electricity market in the whole region and increase the projected contribution of renewable energy to the energy mix.

| (36) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating bottlenecks in the transition to a net-zero economy. In 2022, labour shortages were reported in Finland for 37 occupations that require specific skills or knowledge for the green transition, including insulation workers, civil engineers, and plumbers and pipe fitters. High-quality education and training systems that respond to changing labour market needs and targeted upskilling and reskilling measures are key to reducing skills shortages and promoting 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. |
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(36)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating bottlenecks in the transition to a net-zero economy. In 2022, labour shortages were reported in Finland for 37 occupations that require specific skills or knowledge for the green transition, including insulation workers, civil engineers, and plumbers and pipe fitters. High-quality education and training systems that respond to changing labour market needs and targeted upskilling and reskilling measures are key to reducing skills shortages and promoting 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.

| (37) | In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (17) is reflected in recommendation (1). |
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(37)

In the light of the Commission's assessment, the Council has examined the 2023 Stability Programme and its opinion (17) is reflected in recommendation (1).

| (38) | In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Finland, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, and third recommendations set out in the 2023 Recommendation on the euro area, |
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(38)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to (i) preserve debt sustainability and refrain from broad-based support to aggregate demand in 2023, better target fiscal measures taken to mitigate the impact of high energy prices and reflect on appropriate ways to wind down support as energy price pressures diminish; (ii) sustain a high level of public investment and promote private investments to support the green and digital transition; (iii) support wage developments that mitigate the loss in purchasing power while limiting second-round effects on inflation, further improve active labour-market policies and address skills shortages; (iv) improve the business environment and ensure that energy support to companies is cost-effective, temporary and targeted to viable firms and that it maintains incentives for the green transition; and (v) preserve macro-financial stability and monitor risks while continuing to work on completing the banking union. For Finland, recommendations (1), (2), (3) and (4) contribute to the implementation of the first, second, and third recommendations set out in the 2023 Recommendation on the euro area,

HEREBY RECOMMENDS that Finland take action in 2023 and 2024 to:

1.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 2,2 % (18).

Preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union 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, in order to achieve a prudent medium-term fiscal position.

Pursue the reform of the social security system in order to increase the efficiency of the social benefits system, which would improve incentives to work and also support the long-term sustainability of public finances.

2.

Proceed with the steady implementation of its revised recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the swift implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Address labour and skills shortages by reskilling and upskilling the workforce and widening the higher education offer, in particular for the study fields most in demand in the labour market.

4.

Reduce overall reliance on fossil fuels by accelerating the deployment of renewables, including by further speeding up permitting procedures, and boost public and private investment in the decarbonisation of industry and transport, including through electrification. Develop energy infrastructure to increase security of supply by strengthening the transmission of electricity. Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

2

(3)  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

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 12524/2021; ST 12524/2021 ADD 1.

6

(7)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of Finland (OJ C 304, 29.7.2021, p. 126).

7

(8)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

8

(9)  Other nationally financed capital expenditure provided an expansionary contribution of 0,2 percentage points of GDP.

9

(10)  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.

10

(11)  Council Recommendation of 12 July 2022 on the National Reform Programme of Finland and delivering a Council opinion on the 2022 Stability Programme of Finland (OJ C 334, 1.9.2022, p. 213).

11

(12)  Based on the Commission's spring 2023 forecast, potential output growth of Finland, which is used to measure the fiscal stance, in the medium-term (10-year average), is estimated at 5,6 % in nominal terms.

12

(13)  Other nationally financed capital expenditure is projected to provide a neutral contribution of 0,0 percentage points of GDP.

13

(14)  Article 5 of Regulation (EC) No 1466/97 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.

14

(15)  Net primary expenditure is defined as nationally financed expenditure net of discretionary revenue measures and excluding interest expenditure and cyclical unemployment expenditure.

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

16

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

17

(18)  Which is estimated to correspond to an annual improvement in the structural budget balance of at least 0,3 % of GDP for 2024, as described in recital 23.

18

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| 1.9.2023 | EN | Official Journal of the European Union | C 312/252 |
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1.9.2023

EN

Official Journal of the European Union

C 312/252

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COUNCIL RECOMMENDATION

of 14 July 2023

on the 2023 National Reform Programme of Sweden and delivering a Council opinion on the 2023 Convergence Programme of Sweden

(2023/C 312/27)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

Having regard to the recommendation of the European Commission,

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 (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. |
| --- | --- |

(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (3), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester, the Facility contributes to economic and inclusive recovery and to the implementation of sustainable and growth-enhancing reforms and investments, in particular reforms and investments to promote the green and digital transitions and to 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 Union and support the continued implementation of the European Pillar of Social Rights. The maximum financial contribution per Member State under the Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241.

| (2) | On 22 November 2022, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Sweden 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 and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023. |
| --- | --- |

(2)

On 22 November 2022, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2023 European Semester for economic policy coordination. On 23 March 2023, the European Council endorsed the priorities of the 2023 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 22 November 2022, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it identified Sweden 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 and a proposal for the 2023 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) on 16 May 2023 and the Joint Employment Report on 13 March 2023.

| (3) | While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability, and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity. |
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(3)

While the Union's economies are showing remarkable resilience, the geopolitical context continues to have a negative impact. As the Union stands firmly with Ukraine, the Union's economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and firms in the short term, and on keeping up efforts to deliver on the green and digital transitions, support sustainable and inclusive growth, safeguard macroeconomic stability, and increase resilience in the medium term. It also focuses heavily on increasing the Union's competitiveness and productivity.

| (4) | On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities. |
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(4)

On 1 February 2023, the Commission issued a communication entitled 'A Green Deal Industrial Plan for the Net-Zero Age' ('the Green Deal Industrial Plan'). The aim of the Green Deal Industrial Plan is to boost the competitiveness of the Union's net-zero industry and support the fast transition to climate neutrality. It complements ongoing efforts under the European Green Deal and REPowerEU. It also aims to provide a more supportive environment for scaling up the Union's manufacturing capacity for the net-zero technologies and products required to meet the Union's ambitious climate targets, and to ensure access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw materials. The Green Deal Industrial Plan is based on four pillars: a predictable and simplified regulatory environment, faster access to finance, the enhancement of skills, and open trade for resilient supply chains. On 16 March 2023, the Commission issued a further communication entitled 'Long-term competitiveness of the EU: looking beyond 2030', structured along nine mutually reinforcing drivers with the objective of working towards a growth-enhancing regulatory framework. It sets policy priorities aimed at actively ensuring structural improvements, well-focused investment and regulatory measures for the long-term competitiveness of the Union and its Member States. The recommendations below help address those priorities.

| (5) | In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. |
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(5)

In 2023, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering 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 for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.

| (6) | Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans. |
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(6)

Regulation (EU) 2023/435 of the European Parliament and of the Council (5) (the ‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to rapidly phase out the Union's dependence on Russian fossil-fuel imports. This will contribute to energy security and the diversification of the Union's energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The REPowerEU 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. Those reforms and investments will also help boost the competitiveness of the Union's net-zero industry as outlined in the Green Deal Industrial Plan and address the energy-related country-specific recommendations issued to the Member States in 2022 and, where applicable, in 2023. The REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States in order to finance new energy-related reforms and investments under their recovery and resilience plans.

| (7) | On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 pressures, Member States should better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. |
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(7)

On 8 March 2023, the Commission adopted a communication providing fiscal policy guidance for 2024 (‘the communication of 8 March 2023’). It aims to support the preparation of Member States' stability and convergence programmes and thereby strengthen policy coordination. The Commission recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. It called for fiscal policies in 2023–2024 that ensure medium-term debt sustainability and raise potential growth in a sustainable manner and invited Member States to set out in their 2023 stability and convergence programmes how their fiscal plans will ensure that the Treaty reference value of 3 % of gross domestic product (GDP) is adhered to and ensure plausible and continuous debt reduction, or for debt to be kept at prudent levels, in the medium term. The Commission also 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 pressures, Member States should better target such measures at vulnerable households and firms. The Commission stated that the fiscal recommendations would be quantified and differentiated. Moreover, as proposed in its communication of 9 November 2022 on orientations for a reform of the EU economic governance framework, the fiscal recommendations would be formulated on the basis of net primary expenditure. It recommended that all Member States continue to protect nationally financed investment and ensure the effective use of the Facility and other Union funds, in particular in light of the green and digital transitions and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based excessive-deficit procedures 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 Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023. |
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(8)

On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the Union'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 investments. In its proposals, the Commission aims to improve national ownership, simplify the framework and move towards a greater medium-term focus, in combination with effective and more coherent enforcement. According to the Council conclusions of 14 March 2023 on orientations for a reform of the EU economic governance framework, the objective is to conclude the legislative work in 2023.

| (9) | On 28 May 2021, Sweden 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 set out in Annex V to that Regulation. On 4 May 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Sweden (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Sweden 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. |
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(9)

On 28 May 2021, Sweden 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 set out in Annex V to that Regulation. On 4 May 2022, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Sweden (6). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Sweden 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 28 April 2023, Sweden submitted its 2023 National Reform Programme and, on 28 April 2023, 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 Sweden's biannual reporting on the progress made in achieving its recovery and resilience plan. |
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(10)

On 28 April 2023, Sweden submitted its 2023 National Reform Programme and, on 28 April 2023, 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 Sweden's biannual reporting on the progress made in achieving its recovery and resilience plan.

| (11) | On 24 May 2023, the Commission published the 2023 country report for Sweden. It assessed Sweden's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Sweden's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Sweden's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals. |
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(11)

On 24 May 2023, the Commission published the 2023 country report for Sweden. It assessed Sweden's progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Sweden's implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard 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 Sweden's progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

| (12) | The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Sweden and published its results on 24 May 2023. The Commission concluded that Sweden is experiencing macroeconomic imbalances. In particular, vulnerabilities relating to its real estate market and high private debt persist. Real estate prices are high, and have been rising until recently. House price increases have gone hand in hand with rising private debt. In 2022, against a backdrop of marked tightening in monetary and financing conditions, real estate prices started to decline visibly in what seems to be the start of an unwinding of the accumulated vulnerabilities. Prices remain significantly overvalued and are expected to decline further. The turnover in the real-estate sector has recently declined markedly, and, as a result, demand for newly built dwellings has also fallen. The adverse developments have, so far, been limited to the construction and real-estate sectors, which are now declining sharply after years of high growth. As a whole, the Swedish economy is expected to contract in 2023, with the changes in monetary conditions affecting the balance sheets of households and commercial real estate companies and their ability to consume and invest. The impact of increased interest rates on mortgage payments is substantial, due to the prevalence of variable interest rates and very long duration mortgages. The impact of changing conditions on the financial sector has been limited; the sector is strong and records high profit margins and risk-weighted capital ratios, likely serving as a bulwark against a propagation of the real-estate-sector problems to the wider economy, although it is highly exposed to changes in the real-estate sector. Policy progress has been limited. In particular, the tax system continues favouring homeownership through low recurrent property taxation and promotes debt-financed housing acquisition through significant tax deductibility of mortgage interest payments. In addition, the inefficient rental market has seen limited reform. |
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(12)

The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Sweden and published its results on 24 May 2023. The Commission concluded that Sweden is experiencing macroeconomic imbalances. In particular, vulnerabilities relating to its real estate market and high private debt persist. Real estate prices are high, and have been rising until recently. House price increases have gone hand in hand with rising private debt. In 2022, against a backdrop of marked tightening in monetary and financing conditions, real estate prices started to decline visibly in what seems to be the start of an unwinding of the accumulated vulnerabilities. Prices remain significantly overvalued and are expected to decline further. The turnover in the real-estate sector has recently declined markedly, and, as a result, demand for newly built dwellings has also fallen. The adverse developments have, so far, been limited to the construction and real-estate sectors, which are now declining sharply after years of high growth. As a whole, the Swedish economy is expected to contract in 2023, with the changes in monetary conditions affecting the balance sheets of households and commercial real estate companies and their ability to consume and invest. The impact of increased interest rates on mortgage payments is substantial, due to the prevalence of variable interest rates and very long duration mortgages. The impact of changing conditions on the financial sector has been limited; the sector is strong and records high profit margins and risk-weighted capital ratios, likely serving as a bulwark against a propagation of the real-estate-sector problems to the wider economy, although it is highly exposed to changes in the real-estate sector. Policy progress has been limited. In particular, the tax system continues favouring homeownership through low recurrent property taxation and promotes debt-financed housing acquisition through significant tax deductibility of mortgage interest payments. In addition, the inefficient rental market has seen limited reform.

| (13) | According to data validated by Eurostat, Sweden's general government balance improved from a balanced budgetary position in 2021 to a surplus of 0,7 % in 2022, while general government debt fell from 36,5 % of GDP at the end of 2021 to 33,0 % at the end of 2022. |
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(13)

According to data validated by Eurostat, Sweden's general government balance improved from a balanced budgetary position in 2021 to a surplus of 0,7 % in 2022, while general government debt fell from 36,5 % of GDP at the end of 2021 to 33,0 % at the end of 2022.

| (14) | The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of the energy tax on diesel and petrol; while such fiscal policy expenditure-increasing measures included the offsetting of the cost of electricity to households. The Commission estimates the net budgetary cost of those measures at 0,2 % of GDP in 2022 (7). The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,2 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,1 % of GDP in 2022, from 2,0 % in 2021. |
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(14)

The general government balance has been impacted by the fiscal policy measures taken to mitigate the economic and social impact of the increase in energy prices. In 2022, such fiscal policy revenue-decreasing measures included the reduction of the energy tax on diesel and petrol; while such fiscal policy expenditure-increasing measures included the offsetting of the cost of electricity to households. The Commission estimates the net budgetary cost of those measures at 0,2 % of GDP in 2022 (7). The general government balance has also been impacted by the budgetary cost of offering temporary protection to displaced persons from Ukraine, which is estimated at 0,2 % of GDP in 2022. At the same time, the estimated cost of temporary emergency measures related to the COVID-19 crisis dropped to 1,1 % of GDP in 2022, from 2,0 % in 2021.

| (15) | On 18 June 2021, the Council recommended that in 2022 Sweden (8) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment. |
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(15)

On 18 June 2021, the Council recommended that in 2022 Sweden (8) maintain a supportive fiscal stance, including from the impulse provided by the Facility, and preserve nationally financed investment.

| (16) | According to the Commission estimates, the fiscal stance (9) in 2022 was contractionary, at + 0,4 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Sweden continued to support the recovery including with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,1 percentage points to the fiscal stance (10). Sweden 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 a contractionary contribution of 0,8 percentage points to the fiscal stance. Sweden therefore kept the growth in nationally financed current expenditure sufficiently under control. |
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(16)

According to the Commission estimates, the fiscal stance (9) in 2022 was contractionary, at + 0,4 % of GDP, which was appropriate in a context of high inflation. As recommended by the Council, Sweden continued to support the recovery including with investments financed by the Facility. Expenditure financed by grants under the Facility and other Union funds amounted to 0,2 % of GDP in 2022 (0,2 % of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0,1 percentage points to the fiscal stance (10). Sweden 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 a contractionary contribution of 0,8 percentage points to the fiscal stance. Sweden therefore kept the growth in nationally financed current expenditure sufficiently under control.

| (17) | The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is cautious in 2023 and in line with the Commission's 2023 spring forecast thereafter. The government projects real GDP to decrease by 1,0 % in 2023 and to grow again by 1,2 % in 2024. By comparison, the Commission's 2023 spring forecast projects real GDP to fall by 0,5 % in 2023 and grow by 1,1 % in 2024, mainly due to more recent data and investment outside construction being somewhat less dynamic in the Commission forecast. |
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(17)

The macroeconomic scenario underpinning the budgetary projections in the 2023 Convergence Programme is cautious in 2023 and in line with the Commission's 2023 spring forecast thereafter. The government projects real GDP to decrease by 1,0 % in 2023 and to grow again by 1,2 % in 2024. By comparison, the Commission's 2023 spring forecast projects real GDP to fall by 0,5 % in 2023 and grow by 1,1 % in 2024, mainly due to more recent data and investment outside construction being somewhat less dynamic in the Commission forecast.

| (18) | In its 2023 Convergence Programme, the government expects that the 2022 general government surplus will deteriorate to a deficit ratio of 0,4 % of GDP in 2023. The deterioration in 2023 mainly reflects the weaker economy and deteriorating finances in the local government sector. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 33,0 % at the end of 2022 to 31,0 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 0,9 % of GDP for 2023. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to the fact that the Commission expects higher public spending, resulting from, inter alia, higher intermediate consumption and social transfers in kind and higher interest expenditure. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 31,4 %, at the end of 2023. |
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(18)

In its 2023 Convergence Programme, the government expects that the 2022 general government surplus will deteriorate to a deficit ratio of 0,4 % of GDP in 2023. The deterioration in 2023 mainly reflects the weaker economy and deteriorating finances in the local government sector. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 33,0 % at the end of 2022 to 31,0 % at the end of 2023. The Commission's 2023 spring forecast projects a government deficit of 0,9 % of GDP for 2023. This is higher than the deficit projected in the 2023 Convergence Programme, mainly due to the fact that the Commission expects higher public spending, resulting from, inter alia, higher intermediate consumption and social transfers in kind and higher interest expenditure. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 31,4 %, at the end of 2023.

| (19) | The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular, the reduction of the energy tax on petrol and diesel) and new measures, such as the compensation of electricity costs for households, firms and organisations. The cost of those measures is mostly offset by revenues from transmission fees as well as, to a lesser extent, the taxes on windfall profits of energy suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (11). Most of the measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (12), is actually estimated in the Commission's 2023 spring forecast at 0,0 % of GDP in 2023 (in line with 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to remain broadly stable in 2023. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at of 1,1 % of GDP. |
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(19)

The general government balance in 2023 is expected to continue to be impacted by the measures taken to mitigate the economic and social impact of the increase in energy prices. They consist of measures extended from 2022 (in particular, the reduction of the energy tax on petrol and diesel) and new measures, such as the compensation of electricity costs for households, firms and organisations. The cost of those measures is mostly offset by revenues from transmission fees as well as, to a lesser extent, the taxes on windfall profits of energy suppliers. Taking those revenues into account, the net budgetary cost of the support measures is projected in the Commission's 2023 spring forecast at 0,1 % of GDP in 2023 (11). Most of the measures in 2023 do not appear to be targeted at the most vulnerable households or firms, and 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 Council Recommendation of 12 July 2022 (12), is actually estimated in the Commission's 2023 spring forecast at 0,0 % of GDP in 2023 (in line with 2022). The budgetary cost of offering temporary protection to displaced persons from Ukraine is projected to remain broadly stable in 2023. Finally, the general government balance in 2023 is expected to benefit from the phasing-out of temporary emergency measures related to the COVID-19 crisis, which have been estimated at of 1,1 % of GDP.

| (20) | In its Recommendation of 12 July 2022, the Council recommended that Sweden take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Sweden should stand ready to adjust current spending to the evolving situation. Sweden 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 Facility and other Union funds. |
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(20)

In its Recommendation of 12 July 2022, the Council recommended that Sweden take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Sweden should stand ready to adjust current spending to the evolving situation. Sweden 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 Facility and other Union funds.

| (21) | In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be broadly neutral (– 0,1 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (+ 0,4 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a broadly neutral contribution of – 0,2 % of GDP to the fiscal stance. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,3 % of GDP in 2023, while nationally financed investment is projected to provide a broadly neutral contribution to the fiscal stance of 0,1 percentage points (14). Therefore, Sweden plans to finance additional investment through the Facility and other Union 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, such as investments in the climate transition of the industry and expansion of broadband, which are funded by the Facility and other Union funds. |
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(21)

In 2023, the fiscal stance is projected in the Commission's 2023 spring forecast to be broadly neutral (– 0,1 % of GDP), in a context of high inflation. This follows a contractionary fiscal stance in 2022 (+ 0,4 % of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a broadly neutral contribution of – 0,2 % of GDP to the fiscal stance. In sum, the projected growth of nationally financed primary current expenditure is in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds is projected to amount to 0,3 % of GDP in 2023, while nationally financed investment is projected to provide a broadly neutral contribution to the fiscal stance of 0,1 percentage points (14). Therefore, Sweden plans to finance additional investment through the Facility and other Union 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, such as investments in the climate transition of the industry and expansion of broadband, which are funded by the Facility and other Union funds.

| (22) | According to the 2023 Convergence Programme the general government deficit is expected to increase to 0,6 % of GDP in 2024. The increase in 2024 mainly reflects the economic downturn. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to remain stable at 31,0 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 0,5 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Convergence Programme. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 30,7 % at the end of 2024. |
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(22)

According to the 2023 Convergence Programme the general government deficit is expected to increase to 0,6 % of GDP in 2024. The increase in 2024 mainly reflects the economic downturn. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to remain stable at 31,0 % at the end of 2024. On the basis of the policy measures known at the cut-off date of the forecast, the Commission's 2023 spring forecast projects a government deficit of 0,5 % of GDP in 2024. This is broadly in line with the deficit projected in the 2023 Convergence Programme. The Commission's 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 30,7 % at the end of 2024.

| (23) | The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures in 2024 (15). The Commission estimates the net cost of energy support measures at 0,1 % of GDP in 2024, in line with 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear to be targeted at vulnerable households or firms. They do not preserve the price signal to reduce energy demand and increase energy efficiency. |
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(23)

The 2023 Convergence Programme envisages the phasing-out of most of the energy support measures in 2024 (15). The Commission estimates the net cost of energy support measures at 0,1 % of GDP in 2024, in line with 2023. Those estimates are based on the assumption of no renewed energy price increases. The energy support measures that are currently planned to remain in place in 2024 do not appear to be targeted at vulnerable households or firms. They do not preserve the price signal to reduce energy demand and increase energy efficiency.

| (24) | In the 2023 Convergence Programme, Sweden plans to meet the medium-term budgetary objective – a structural budget balance of – 1,0 % of GDP – in 2023 and 2024, and to maintain it throughout the rest of the programme period. On the basis of the Commission's 2023 spring forecast, the structural balance is forecast to be in surplus of 0,1 % of GDP in 2023 and 0,7 % of GDP in 2024, above the medium-term budgetary objective. |
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(24)

In the 2023 Convergence Programme, Sweden plans to meet the medium-term budgetary objective – a structural budget balance of – 1,0 % of GDP – in 2023 and 2024, and to maintain it throughout the rest of the programme period. On the basis of the Commission's 2023 spring forecast, the structural balance is forecast to be in surplus of 0,1 % of GDP in 2023 and 0,7 % of GDP in 2024, above the medium-term budgetary objective.

| (25) | Assuming unchanged policies, the Commission's 2023 spring forecasts projects the net nationally financed primary expenditure to grow in 2024 at 1,1 % in 2024. |
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(25)

Assuming unchanged policies, the Commission's 2023 spring forecasts projects the net nationally financed primary expenditure to grow in 2024 at 1,1 % in 2024.

| (26) | According to the 2023 Convergence Programme, government investment is expected to increase from 4,7 % of GDP in 2023 to 5,2 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Convergence Programme refers to reforms and investments, such as the raised age limits in the pension system, that are expected to contribute to fiscal sustainability and to sustainable and inclusive growth. |
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(26)

According to the 2023 Convergence Programme, government investment is expected to increase from 4,7 % of GDP in 2023 to 5,2 % of GDP in 2024. The higher investment reflects higher nationally financed investment and investment financed by the Union, namely through the Facility. The 2023 Convergence Programme refers to reforms and investments, such as the raised age limits in the pension system, that are expected to contribute to fiscal sustainability and to sustainable and inclusive growth.

| (27) | The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to turn into a surplus of 0,2 % of GDP in 2025 and of 1,4 % by 2026. Therefore, the general government balance is planned to meet the relevant Treaty reference value over the Programme horizon. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 31,0 % at the end of 2024 to 27,7 % by the end of 2026. |
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(27)

The 2023 Convergence Programme outlines a medium-term fiscal path until 2026. According to the 2023 Convergence Programme, the general government deficit is expected to turn into a surplus of 0,2 % of GDP in 2025 and of 1,4 % by 2026. Therefore, the general government balance is planned to meet the relevant Treaty reference value over the Programme horizon. According to the 2023 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 31,0 % at the end of 2024 to 27,7 % by the end of 2026.

| (28) | High private debt and, despite some recent corrections, still overvalued property prices constitute macroeconomic imbalances that continue to be at risk of disorderly unwinding. Housing remains difficult to afford for newcomers to the housing market, while the rental market offers few alternatives and is still in need of reform, to reduce waiting lists and promote the construction of rental accommodation. Limited policy action has been taken by Sweden to counter the imbalances, focusing on macroprudential policies and supply measures aimed at easing building permit procedures and subsidising the construction of rental apartments. |
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(28)

High private debt and, despite some recent corrections, still overvalued property prices constitute macroeconomic imbalances that continue to be at risk of disorderly unwinding. Housing remains difficult to afford for newcomers to the housing market, while the rental market offers few alternatives and is still in need of reform, to reduce waiting lists and promote the construction of rental accommodation. Limited policy action has been taken by Sweden to counter the imbalances, focusing on macroprudential policies and supply measures aimed at easing building permit procedures and subsidising the construction of rental apartments.

| (29) | The overall tax burden on property remains relatively low because of generous tax deductions on mortgage interest payments and low recurrent property taxes. The impact of policy changes on after-tax mortgage payments is difficult to assess, due to a lack of individual household data on assets and liabilities. Availability of such data could lead to efficiency gains in the design of policy, possibly lowering the entry barrier to the housing market and spreading housing burdens more equally among the population. On the rental market, regulated below-market rents benefit a limited group of households. There is no link between the regulated below-market rent and the household's needs or income. As a consequence, there are long waiting lists, particularly for the more sought-after rental dwellings, and the vacancy rate for apartments is very low from an international perspective. Efficiency gains would be made if rents followed market prices more closely, complemented with rental support based on income and net wealth. |
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(29)

The overall tax burden on property remains relatively low because of generous tax deductions on mortgage interest payments and low recurrent property taxes. The impact of policy changes on after-tax mortgage payments is difficult to assess, due to a lack of individual household data on assets and liabilities. Availability of such data could lead to efficiency gains in the design of policy, possibly lowering the entry barrier to the housing market and spreading housing burdens more equally among the population. On the rental market, regulated below-market rents benefit a limited group of households. There is no link between the regulated below-market rent and the household's needs or income. As a consequence, there are long waiting lists, particularly for the more sought-after rental dwellings, and the vacancy rate for apartments is very low from an international perspective. Efficiency gains would be made if rents followed market prices more closely, complemented with rental support based on income and net wealth.

| (30) | In accordance with Article 19(3), point (b) of Regulation (EU) 2021/241and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. While Sweden's recovery and resilience plan was only adopted in 2022, its implementation is now underway. Despite a slow start, the implementation is generally on track, and, at this stage, risks of non-absorption appear limited given the relatively small financial allocation of the recovery and resilience plan. The operational arrangements between the Commission and Sweden have been concluded in May 2023. Sweden is expected to submit its first payment request combining two instalments in the second half of 2023. Preparations of a REPowerEU chapter and an addendum due to the slight decrease of non-repayable support are ongoing. 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 Sweden'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda. |
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(30)

In accordance with Article 19(3), point (b) of Regulation (EU) 2021/241and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. While Sweden's recovery and resilience plan was only adopted in 2022, its implementation is now underway. Despite a slow start, the implementation is generally on track, and, at this stage, risks of non-absorption appear limited given the relatively small financial allocation of the recovery and resilience plan. The operational arrangements between the Commission and Sweden have been concluded in May 2023. Sweden is expected to submit its first payment request combining two instalments in the second half of 2023. Preparations of a REPowerEU chapter and an addendum due to the slight decrease of non-repayable support are ongoing. 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 Sweden'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 remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond that plan, in order to ensure broad ownership of the overall policy agenda.

| (31) | The Commission approved all Sweden's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Sweden. |
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(31)

The Commission approved all Sweden's cohesion policy programming documents in 2022. Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the recovery and resilience plan, including the REPowerEU chapter, is key to achieving the green and digital transition, increasing economic and social resilience, and achieving balanced territorial development in Sweden.

| (32) | Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Sweden faces a number of additional challenges related to (i) unequal opportunities in education for pupils from disadvantaged socio-economic and migrant backgrounds; (ii) the need to better integrate disadvantaged groups into the labour market; and (iii) the need to reduce reliance on fossil fuels. |
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(32)

Beyond the economic and social challenges addressed by the recovery and resilience plan and cohesion policy programmes, Sweden faces a number of additional challenges related to (i) unequal opportunities in education for pupils from disadvantaged socio-economic and migrant backgrounds; (ii) the need to better integrate disadvantaged groups into the labour market; and (iii) the need to reduce reliance on fossil fuels.

| (33) | Even though Sweden generally performs well on educational outcomes, inequalities persist in the Swedish education system. Pupils with disadvantaged socio-economic and migrant backgrounds have limited educational opportunities, including opportunities to develop the skills needed to find employment. Inequalities in education are increasing and are often linked to the lack of opportunities for pupils with migrant backgrounds to choose the school they want, in particular for those who have recently arrived in Sweden. Differences in grading practices across schools risk further undermining educational outcomes. The shortage of qualified teachers remains problematic and is most pressing for special needs teachers, subject teachers in compulsory schools and vocational teachers in secondary schools. There is scope to improve the set-up and governance of the education system, including the enrolment process and grading system, as well as teachers' career progression. |
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(33)

Even though Sweden generally performs well on educational outcomes, inequalities persist in the Swedish education system. Pupils with disadvantaged socio-economic and migrant backgrounds have limited educational opportunities, including opportunities to develop the skills needed to find employment. Inequalities in education are increasing and are often linked to the lack of opportunities for pupils with migrant backgrounds to choose the school they want, in particular for those who have recently arrived in Sweden. Differences in grading practices across schools risk further undermining educational outcomes. The shortage of qualified teachers remains problematic and is most pressing for special needs teachers, subject teachers in compulsory schools and vocational teachers in secondary schools. There is scope to improve the set-up and governance of the education system, including the enrolment process and grading system, as well as teachers' career progression.

| (34) | Sweden continues to face challenges in integrating people with disadvantaged and migrant backgrounds into the labour market, as well as in reducing the remaining skills gaps. There is an increasing gap in education levels of non-Union-born people as compared to Union-born people, mainly due to increased tertiary education attainment by the latter. The share of early leavers from education and training has been increasing, especially among non-Union-born students. Strengthening participation in learning activities is needed in order to help people from disadvantaged groups develop skills relevant for the labour market and increase their chances of finding a job. |
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(34)

Sweden continues to face challenges in integrating people with disadvantaged and migrant backgrounds into the labour market, as well as in reducing the remaining skills gaps. There is an increasing gap in education levels of non-Union-born people as compared to Union-born people, mainly due to increased tertiary education attainment by the latter. The share of early leavers from education and training has been increasing, especially among non-Union-born students. Strengthening participation in learning activities is needed in order to help people from disadvantaged groups develop skills relevant for the labour market and increase their chances of finding a job.

| (35) | More effort is needed for Sweden to achieve its national target of net-zero carbon emissions by 2045. Although Sweden continues to be among the Member States with the highest share of renewables in its final energy consumption, power grid capacity and transmission constraints may impose restrictions on the further deployment of renewable energy sources in the future. In 2022, these constraints contributed to surging energy prices for industry and households and limited the expansion of economic activity in remote geographical locations. Increasing the capacity of the electricity grid is pivotal, given that Sweden's final electricity consumption is expected to double to 300 TWh by 2045, due to the increased electrification needs of industry and transport. However, the construction and reinforcement of the electricity grid is subject to delays caused by lengthy permitting processes. In addition, Sweden has some of the lengthiest administrative procedures in the Union for deploying renewable energy sources, in particular onshore wind projects. The government has launched an investigation into simplifying environmental permit assessments within the remit of the Swedish Environmental Code. At the same time, concrete policy action is needed in order to accelerate administrative procedures for electricity grid expansion and the deployment of renewable energy sources, for example by limiting the number of authorities involved in these procedures and by running procedures in parallel. Reducing energy consumption by increasing energy efficiency is also essential to reducing carbon emissions and energy costs for households and businesses. In terms of energy efficiency, Sweden is at risk of not achieving its national target of using energy 50 % more efficiently in 2030 (as compared to 2005) if the energy consumption trajectory between 2005 and 2020 continues. With a primary energy consumption of 43,8 Mtoe in 2021, Sweden remains among the Member States with the highest energy consumption per capita. Sweden's consumption of natural gas dropped by 37 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, that is beyond the 15 % reduction target. Sweden could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (16). |
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(35)

More effort is needed for Sweden to achieve its national target of net-zero carbon emissions by 2045. Although Sweden continues to be among the Member States with the highest share of renewables in its final energy consumption, power grid capacity and transmission constraints may impose restrictions on the further deployment of renewable energy sources in the future. In 2022, these constraints contributed to surging energy prices for industry and households and limited the expansion of economic activity in remote geographical locations. Increasing the capacity of the electricity grid is pivotal, given that Sweden's final electricity consumption is expected to double to 300 TWh by 2045, due to the increased electrification needs of industry and transport. However, the construction and reinforcement of the electricity grid is subject to delays caused by lengthy permitting processes. In addition, Sweden has some of the lengthiest administrative procedures in the Union for deploying renewable energy sources, in particular onshore wind projects. The government has launched an investigation into simplifying environmental permit assessments within the remit of the Swedish Environmental Code. At the same time, concrete policy action is needed in order to accelerate administrative procedures for electricity grid expansion and the deployment of renewable energy sources, for example by limiting the number of authorities involved in these procedures and by running procedures in parallel. Reducing energy consumption by increasing energy efficiency is also essential to reducing carbon emissions and energy costs for households and businesses. In terms of energy efficiency, Sweden is at risk of not achieving its national target of using energy 50 % more efficiently in 2030 (as compared to 2005) if the energy consumption trajectory between 2005 and 2020 continues. With a primary energy consumption of 43,8 Mtoe in 2021, Sweden remains among the Member States with the highest energy consumption per capita. Sweden's consumption of natural gas dropped by 37 % in the period between August 2022 and March 2023, compared to the average gas consumption over the same period in the preceding five years, that is beyond the 15 % reduction target. Sweden could keep pursuing efforts to temporarily reduce gas demand until 31 March 2024 in accordance with Council Regulation (EU) 2022/1369 (16).

| (36) | Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Labour shortages have increased in Sweden in recent years and in 2022 they were reported for 16 occupations that require specific skills or knowledge for the green transition. |
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(36)

Labour and skills shortages in sectors and occupations key for the green transition, including manufacturing, deployment and maintenance of net-zero technologies, are creating 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 reducing skills shortages and promoting labour inclusion and reallocation. To unlock untapped labour supply, those measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. Labour shortages have increased in Sweden in recent years and in 2022 they were reported for 16 occupations that require specific skills or knowledge for the green transition.

| (37) | In the light of the Commission's assessment, the Council has examined the 2023 Convergence Programme and its opinion (17) is reflected in recommendation (1). |
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(37)

In the light of the Commission's assessment, the Council has examined the 2023 Convergence Programme and its opinion (17) is reflected in recommendation (1).

| (38) | In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 is reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high private debt and high house prices, |
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(38)

In the light of the Commission's in-depth review and its assessment, the Council has examined the 2023 National Reform Programme and the 2023 Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 is reflected in recommendation (1). Policies referred to in recommendation (1) help address vulnerabilities linked to high private debt and high house prices,

HEREBY RECOMMENDS that Sweden take action in 2023 and 2024 to:

1.

While maintaining a sound fiscal position in 2024, preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union funds, in particular to foster the green and digital transitions.

For the period beyond 2024, continue to pursue investment and reforms conducive to higher sustainable growth and preserve a prudent medium-term fiscal position.

Reduce risks related to high household debt and housing market imbalances by reducing the tax deductibility of mortgage interest payments and/or increasing recurrent property taxes, while establishing adequate tools for better policy assessment and targeting. Stimulate investment in residential construction to ease the most urgent shortages, in particular by removing structural obstacles to construction and by ensuring the supply of buildable land. Improve the efficiency of the housing market, including by introducing reforms to the rental market.

2.

Proceed with the steady implementation of its recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.

3.

Improve educational outcomes for pupils with disadvantaged socio-economic and migrant backgrounds by ensuring equal access opportunities in the schooling system and addressing the shortages of qualified teachers. Develop the skills of disadvantaged groups, particularly people with migrant backgrounds, by adapting resources and methods to their needs, with a view to helping them integrate into the labour market.

4.

Reduce reliance on fossil fuels by accelerating the deployment of renewables, including by expanding and upgrading energy transmission networks, introducing reforms to simplify and speed up administrative and permitting procedures, improving energy efficiency and stepping up policy efforts aimed at the provision and acquisition of skills and competences needed for the green transition.

Done at Brussels, 14 July 2023.

For the Council

The President

N. CALVIÑO SANTAMARÍA

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

1

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

2

(3)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).

3

(4)  Council Recommendation of 16 May 2023 on the economic policy of the euro area (OJ C 180, 23.5.2023, p. 1).

4

(5)  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).

5

(6)  ST 7772/2022 INIT; ST 7772/2022 ADD 1.

6

(7)  The gross budgetary cost of energy support measures was close to 0,5 % of GDP in 2022, but significant offsetting revenue was received from the Transmission System Operator, Svenska Kraftnät.

7

Svenska Kraftnät

(8)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Convergence Programme of Sweden (OJ C 304, 29.7.2021, p. 131).

8

(9)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding temporary emergency measures related to the COVID-19 crisis but including expenditure financed by non-repayable support (grants) from the Facility and other Union funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.

9

(10)  Other nationally financed capital expenditure provided an expansionary contribution of 0,2 percentage points of GDP.

10

(11)  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.

11

(12)  Council Recommendation of 12 July 2022 on the National Reform Programme of Sweden and delivering a Council opinion on the 2022 Convergence Programme of Sweden (OJ C 334, 1.9.2022, p. 221).

12

(13)  Based on the Commission's spring 2023 forecast, potential output growth of Sweden, which is used to measure the fiscal stance, in the medium-term (10-year average), is estimated at 7,7 % in nominal terms.

13

(14)  Other nationally financed capital expenditure is projected to provide a neutral contribution.

14

(15)  The reduction of energy tax on diesel and petrol is planned to remain in place from 2023 to 2025.

15

(16)  Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas (OJ L 206, 8.8.2022, p. 1).

16

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

17

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