# EUR-Lex - 52011SC0824 - EN

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# 52011SC0824

**Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Polandand delivering a Council opinionon the updated Convergence Programme of Poland, 2011-2014 /* SEC/2011/0824 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the National Reform Programme 2011 of
Poland
and delivering a Council opinion
on the updated Convergence Programme of Poland, 2011-2014

THE COUNCIL OF THE EUROPEAN UNION,

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

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1],
and in particular Article 9(3) thereof,

Having regard to the recommendation of the European
Commission[2],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

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

(2) 
On 13 July 2010, the Council adopted a
recommendation on the broad guidelines for the economic policies of the Member
States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision
on guidelines for the employment policies of the Member States[3],
which together form the ‘integrated guidelines’. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.

(3) 
On 12 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first European semester of ex-ante and integrated
policy coordination, which is anchored in the Europe 2020 strategy.

(4) 
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the
Commission’s Annual Growth Survey). It underscored the need to give priority to
restoring sound budgets and fiscal sustainability, reducing unemployment
through labour market reforms and making new efforts to enhance growth. It
requested Member States to translate these priorities into concrete measures to
be included in their Stability or Convergence Programmes and National Reform
Programmes.

(5) 
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments in time to be included in their Stability or Convergence Programmes
and their National Reform Programmes.

(6) 
On 27 April 2011, Poland submitted its 2011
Convergence Programme update covering the period 2011-2014 and on 29 April 2011
its 2011 National Reform Programme. In order to take account of the interlinkages,
the two programmes have been assessed at the same time.

(7) 
The global financial crisis led to a slowdown in
economic activity in Poland, with the rate of real GDP growth dropping to 1.7%
in 2009, but stopping short of a recession. In 2010, real GDP growth bounced
back to 3.8% as strong external demand fuelled manufacturing and turned the
inventory cycle, while a resilient labour market supported private consumption.
The unemployment rate rose to 9.6% in 2010, up from 7.1% in 2008, despite
increasing employment. The crisis has taken a heavy toll on public finances.
The general government deficit rose from 3.7% of GDP in 2008 to 7.3% in 2009.
In 2010, despite a modest consolidation package and in the face of strong
growth, it reached 7.9% of GDP. The debt-to-GDP ratio has risen from 50.9% in
2009 to 55.1 % in 2010, still below the 60% Treaty threshold and the
Polish Constitutional debt break.

(8) 
Based on the assessment
of the updated Convergence Programme pursuant to Council Regulation (EC) No
1466/97, the Council is of the opinion that the macroeconomic scenario underpinning
the budgetary projections is plausible, while based on slightly too favourable
growth assumptions for 2012. The programme plans to bring the deficit below the
3% of GDP reference value by 2012, the deadline set by the Council. The average
annual fiscal effort over the period 2010-2012 is broadly in line with the
1.25% of GDP recommended by the Council under the excessive deficit procedure
(EDP) on 7 July 2009. Achievement of the medium-term objective (MTO) is not
envisaged during the programme period. The amendment to the pension reform —
reducing the structural budget deficit by 0.7% in 2011 and by a further 0.5% of
GDP in 2012 — does not improve the underlying budgetary situation as it
increases long-term liabilities by the same magnitude.
Risks to budgetary targets are tilted to the downside. In particular, direct tax revenues might turn out lower than projected because of
optimistic assumptions on elasticities with respect to the tax base; programme
projections on social contributions rely on favourable scenarios for employment
and wage growth; and potential implementation delays and changes to the
deficit-reducing measures, also beyond the direct control of the government,
could result in a slippage in budget execution.

(9) 
The Polish government committed itself to
bringing the general government deficit below 3% of GDP by 2012, as recommended
by the Council, and to ensuring the stability of public finances in the long
term. To this end, in 2011 it has embarked on a plan to substantially
consolidate public finances, with measures affecting both revenue and
expenditure, including major cuts in public investment expenditure. The draft
2012 budget was adopted by the government on 5 May 2011. It is expected to
contribute to a further significant reduction in the deficit. Measures may still need to be implemented in addition to the ones presented
in the draft 2012 budget to meet the 2012 deadline for correction of the
excessive deficit. However, further cuts in public
investment spending would risk limiting the capacity to co-fund the investment
projects financed by the EU.

(10) 
Poland has strengthened its fiscal framework
over the years. However, in order to assure sustainability of public finances
in the medium to long term the existing fiscal rules and medium-term
programming procedures do not appear to provide for sufficient transparency of
the budgetary process, incentives for coordination between various tiers of government
and flexibility to address macroeconomic shocks and imbalances. The fiscal
rules should also be based on sufficiently broad budgetary aggregates and
should be fully consistent with the European System of National and Regional
Accounts (ESA95). On the basis of current policies, the risks to the long-term
sustainability of public finances stemming from the ageing of the population
can be assessed as medium.

(11) 
Although the government has abolished special
early pensions for a majority of beneficiaries, special early retirement
arrangements for uniformed services
and miners remain in place, and the statutory retirement age for women is lower
than for men. The effective retirement age is therefore still low. Moreover,
the very heavily subsidised farmers’ social security fund (KRUS) provides
little incentive for farmers to leave the sector, slowing economic
restructuring and hampering productivity growth.

(12) 
The education and training system is not fully tailored
to labour market needs. Despite a sharp increase in tertiary education
attainment, employability is affected by a skills and jobs mismatch. The higher
education system is not adequately linked to the business and employment
environment. The proportion of adults (especially older and low-skilled
workers) participating in education and vocational training remains very low.

(13) 
Public spending on R&D is low in Poland, and
private spending, amongst the lowest in the EU, does little to compensate.
Furthermore, it has been declining over recent years, as the private sector
lacks sufficient incentive to invest. This is likely to become a major obstruction
to medium- and long-term economic growth. The R&D system is not integrated
as universities, research institutes and industry are only weakly interlinked.

(14) 
Low female labour market participation is partly
due to insufficient provision of care facilities for children and dependents. The
number of children under three years for whom formal care arrangements are made
in Poland is far below the EU average. The enrolment rate of older children,
although it has risen over the last few years, is similarly low. In many cases
young parents can only participate in the labour market if childcare is
provided by their relatives. In addition, insufficient provision of care
services reduces the labour force potential of older women in particular since
they leave their jobs or retire early in order to take care of their
grandchildren or other dependents.

(15) 
The underdeveloped network infrastructure is an
obstacle to business and foreign investment and the underdeveloped transport
infrastructure amplifies regional disparities. The energy infrastructure is
ageing rapidly and has reached its capacity limits. Moreover, it needs
significant adjustments to meet the requirements associated with climate change
mitigation policies. Although Poland’s rail system is the third largest in
Europe, it cannot properly support the expansion of economic activity because
of outdated infrastructure and rolling stock.

(16) 
The quality of the business environment and
efficiency of public administration is low in Poland. In cross-country
comparisons, Poland has particular problems in the areas of tax collection,
starting and closing businesses, enforcing contracts and registering property.
Companies are hindered by lengthy licensing and permit procedures. As regards
legal actions, such as contract enforcement and obtaining construction permits,
the number of procedures involved is rather high and the overall process is too
long.

(17) 
Poland has made a number of commitments under
the Euro Plus Pact[4]. On the fiscal side,
Poland commits itself to the existing debt and the temporary expenditure rule,
the introduction of new regulations limiting deficit ratios of local
governments and the introduction of a permanent expenditure rule. To reinforce
financial stability, measures aim at more efficient regulation and supervision
of the banking sector. Employment measures focus on labour market participation
of women as well as of older workers and reforms to strengthen
business-education links. The competitiveness measures focus on education and
the science sector, transport and broadband infrastructure development and
measures to improve the business environment. These commitments refer to the
four areas of the Pact and largely reflect the agenda presented in the
Convergence and National Reform Programmes. Several important policy challenges
remain unaddressed (e.g. the low participation rate of older workers) or are
only touched upon (e.g. the improvement of the business administration). The
Euro Plus Pact commitments have been assessed and taken into account in the
recommendations.

(18) 
The Commission has assessed the Convergence
Programme and National Reform Programme, including the Euro Plus Pact
commitments[5]. It has taken into
account not only their relevance for sustainable fiscal and socio-economic
policy in Poland but also their conformity with EU rules and guidance, given the
need to reinforce the overall economic governance of the European Union by
providing EU-level input into future national decisions. It considers that the
programmes set out an ambitious public finance consolidation plan and
encourages the government to proceed with implementation, and to take
additional measures, if necessary, to reduce the general government deficit to
below 3% of GDP by 2012. Building on the achievements of the past decade, steps
should be taken to further increase employment, mainly by implementing reforms
in the pension and education systems, and by improving child- and
dependent-care services. Moreover, non-price competitiveness should be further
increased by improving the R&D framework and the business environment and
by promoting infrastructure investment.

(19) 
In the light of this assessment, also taking
into account the Council Recommendation of 7 July 2009 under Article 126(7) of
the Treaty on the Functioning of the European Union, the Council has examined
the 2011 update of the Convergence Programme of Poland and its opinion[6]
is reflected in particular in its recommendation under (1) and (2) below.
Taking into account the European Council conclusions of 25 March 2011, the
Council has examined the National Reform Programme of Poland,

HEREBY RECOMMENDS that Poland should
take action within the period 2011-2012 to:

(1) 
Implement the measures announced in the draft 2012
Budget Law and include additional measures of a permanent nature to reduce the
general government deficit to below 3% of GDP in 2012. Minimise cuts in
growth-enhancing expenditure in the future, particularly the co-financing of EU
funds, while ensuring adequate progress towards the medium term objective.

(2) 
Enact legislation with a view to introducing a
permanent expenditure rule by 2013. This rule should be based on sufficiently
broad budgetary aggregates and should be fully consistent with the European
system of accounts. Moreover, take measures to strengthen the mechanisms of
coordination among the different levels of government in the medium term and
annual budgetary processes.

(3) 
Raise as planned the
statutory retirement age for uniformed services,
continue steps to increase the effective retirement age and link it to life
expectancy. Establish a timetable to amend the rules
for farmers’ contributions to the social security fund (KRUS) to better reflect
individual incomes.

(4) 
Implement the proposed lifelong
learning strategy, enhance apprenticeships
and dedicated vocational training
and education programmes for older and low-skilled workers. Strengthen
links between science and industry by implementing the ‘We build on Knowledge’
programme (‘Budujemy na Wiedzy’); Implement the higher education reform programme
'Partnership for Knowledge' (‘Partnerstwo dla Wiedzy’) so as to better align
educational provision with labour market needs.

(5) 
Increase female labour
market participation by taking measures to ensure stable funding for pre-school
child-care arrangements, to increase enrolment rates of children under three
years.

(6) 
Take measures to rebalance
incentives for investment in energy generation capacity with a view to encouraging
low-carbon emitting technologies, and to further develop cross-border
electricity grid interconnections; develop a multiannual plan for investment in
railway infrastructure and implement the rail transport master plan.

(7) 
Establish a timetable to simplify legal
procedures involved in enforcing contracts; revise construction and zoning
legislation, with a view to streamlining appeal procedures and speeding up
administrative procedures.

Done at Brussels,

For
the Council

The
President

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

[2]               OJ C , , p. .

[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.

[4]               More details on the commitments made under the Euro
Plus Pact can be found in SEC(2011) 729.

[5]               SEC(2011) 729.

[6]               Foreseen in Article 9(3) of Council Regulation (EC)
No 1466/97.