# C_2017261EN.01001201.xml

| 9.8.2017 | EN | Official Journal of the European Union | C 261/12 |
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9.8.2017

EN

Official Journal of the European Union

C 261/12

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COUNCIL RECOMMENDATION

of 11 July 2017

on the 2017 National Reform Programme of the Czech Republic and delivering a Council opinion on the 2017 Convergence Programme of the Czech Republic

(2017/C 261/03)

THE COUNCIL OF THE EUROPEAN UNION,

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

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

1

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

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

Having regard to the opinion of the Social Protection Committee,

Having regard to the opinion of the Economic Policy Committee,

Whereas:

| (1) | On 16 November 2016, the Commission adopted the Annual Growth Survey, marking the start of the 2017 European Semester for economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission adopted the Alert Mechanism Report, in which it did not identify the Czech Republic as one of the Member States for which an in-depth review would be carried out. |
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(1)

On 16 November 2016, the Commission adopted the Annual Growth Survey, marking the start of the 2017 European Semester for economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission adopted the Alert Mechanism Report, in which it did not identify the Czech Republic as one of the Member States for which an in-depth review would be carried out.

2

| (2) | The 2017 country report for the Czech Republic was published on 22 February 2017. It assessed the Czech Republic’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the country-specific recommendations adopted in previous years and the Czech Republic’s progress towards its national Europe 2020 targets. The Commission’s analysis leads it to conclude that the Czech Republic is not experiencing macroeconomic imbalances. |
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(2)

The 2017 country report for the Czech Republic was published on 22 February 2017. It assessed the Czech Republic’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the country-specific recommendations adopted in previous years and the Czech Republic’s progress towards its national Europe 2020 targets. The Commission’s analysis leads it to conclude that the Czech Republic is not experiencing macroeconomic imbalances.

| (3) | The Czech Republic submitted its 2017 National Reform Programme on 25 April 2017 and its 2017 Convergence Programme on 28 April 2017. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(3)

The Czech Republic submitted its 2017 National Reform Programme on 25 April 2017 and its 2017 Convergence Programme on 28 April 2017. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (4) | Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (ESI Funds) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (3), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking effectiveness of the ESI Funds to sound economic governance. |
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(4)

Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (ESI Funds) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (3), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking effectiveness of the ESI Funds to sound economic governance.

3

| (5) | The Czech Republic is currently in the preventive arm of the Stability and Growth Pact. In its 2017 Convergence Programme, the Government plans for a budgetary surplus in headline terms over 2016-2020. The medium-term budgetary objective — a structural deficit of 1,0 % of GDP — continues to be met with a margin throughout the programme period. According to the 2017 Convergence Programme, the general government debt-to-GDP ratio is expected to gradually decline to 32,7 % in 2020. The macroeconomic scenario underpinning those budgetary projections is plausible. While risks to the achievement of budgetary targets seem broadly balanced, the pronounced contraction in public investment in 2016 — linked to the start of a new Union funds cycle — could entail a stronger-than-expected rebound of public investment in 2017. Based on the Commission 2017 spring forecast, the structural balance is forecast to decline to around 0 % of GDP in 2017 and -0,2 % of GDP in 2018, remaining above the medium-term budgetary objective. Overall, the Council is of the opinion that Czech Republic is projected to comply with the provisions of the Stability and Growth Pact in 2017 and 2018. |
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(5)

The Czech Republic is currently in the preventive arm of the Stability and Growth Pact. In its 2017 Convergence Programme, the Government plans for a budgetary surplus in headline terms over 2016-2020. The medium-term budgetary objective — a structural deficit of 1,0 % of GDP — continues to be met with a margin throughout the programme period. According to the 2017 Convergence Programme, the general government debt-to-GDP ratio is expected to gradually decline to 32,7 % in 2020. The macroeconomic scenario underpinning those budgetary projections is plausible. While risks to the achievement of budgetary targets seem broadly balanced, the pronounced contraction in public investment in 2016 — linked to the start of a new Union funds cycle — could entail a stronger-than-expected rebound of public investment in 2017. Based on the Commission 2017 spring forecast, the structural balance is forecast to decline to around 0 % of GDP in 2017 and -0,2 % of GDP in 2018, remaining above the medium-term budgetary objective. Overall, the Council is of the opinion that Czech Republic is projected to comply with the provisions of the Stability and Growth Pact in 2017 and 2018.

| (6) | The Czech Republic continues to show medium fiscal sustainability risks in the long term. These are derived primarily from the projected impact of age-related public spending, in particular in the areas of healthcare and pensions. The projected increase in long-term spending on healthcare is a matter of concern, both in terms of the governance and the cost-effectiveness of the healthcare system, which relies heavily on more expensive inpatient care. Some measures are currently at various stages of implementation, but results are not yet tangible. Recently adopted or planned measures to amend the pension system may, if implemented, worsen public finances in the long term. Firstly, the Parliament adopted legislation giving the Government the power to adjust the pension indexation mechanism more flexibly. The Parliament is also discussing proposals to cap the statutory retirement age at 65 and establish a mechanism for regularly reviewing the pensionable age. Further changes, such as a more generous pension indexation formula and differentiated social insurance rates depending on the number of children, are currently also being discussed. |
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(6)

The Czech Republic continues to show medium fiscal sustainability risks in the long term. These are derived primarily from the projected impact of age-related public spending, in particular in the areas of healthcare and pensions. The projected increase in long-term spending on healthcare is a matter of concern, both in terms of the governance and the cost-effectiveness of the healthcare system, which relies heavily on more expensive inpatient care. Some measures are currently at various stages of implementation, but results are not yet tangible. Recently adopted or planned measures to amend the pension system may, if implemented, worsen public finances in the long term. Firstly, the Parliament adopted legislation giving the Government the power to adjust the pension indexation mechanism more flexibly. The Parliament is also discussing proposals to cap the statutory retirement age at 65 and establish a mechanism for regularly reviewing the pensionable age. Further changes, such as a more generous pension indexation formula and differentiated social insurance rates depending on the number of children, are currently also being discussed.

| (7) | The fiscal responsibility law that was adopted by the Parliament in January 2017 aims to address the main shortcomings of the Czech Republic’s fiscal framework, since it was recently evaluated as one of the weakest in the Union. However, an independent fiscal council to oversee the implementation of the rules has yet to be appointed. Furthermore, implementing the newly introduced measures will be crucial in making the fiscal framework more effective and stable. |
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(7)

The fiscal responsibility law that was adopted by the Parliament in January 2017 aims to address the main shortcomings of the Czech Republic’s fiscal framework, since it was recently evaluated as one of the weakest in the Union. However, an independent fiscal council to oversee the implementation of the rules has yet to be appointed. Furthermore, implementing the newly introduced measures will be crucial in making the fiscal framework more effective and stable.

| (8) | The Czech Republic faces challenges in preventing corruption as well as inefficiencies in public procurement. While a number of measures in the Government’s anti-corruption programme have been implemented and other reforms are pending, in practice corruption is not prosecuted systematically. In general, the Czech public procurement practice still lacks sufficient competition, which is reflected by the high number of single-bid procedures and direct awards, in particular in the IT sector. Inefficiencies in training support and the absence of aggregated purchasing structures and competence centres hamper professionalisation and make it harder to achieve good value for money in public procurement. Very limited use of quality as an award criterion is also symptomatic in this respect. The transition to e-procurement is still facing major challenges. These include the need to improve the state-owned e-procurement platform ‘National Electronic Tool’ and to clarify the conditions for continued use of private platforms that are already active on the Czech e-procurement market. |
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(8)

The Czech Republic faces challenges in preventing corruption as well as inefficiencies in public procurement. While a number of measures in the Government’s anti-corruption programme have been implemented and other reforms are pending, in practice corruption is not prosecuted systematically. In general, the Czech public procurement practice still lacks sufficient competition, which is reflected by the high number of single-bid procedures and direct awards, in particular in the IT sector. Inefficiencies in training support and the absence of aggregated purchasing structures and competence centres hamper professionalisation and make it harder to achieve good value for money in public procurement. Very limited use of quality as an award criterion is also symptomatic in this respect. The transition to e-procurement is still facing major challenges. These include the need to improve the state-owned e-procurement platform ‘National Electronic Tool’ and to clarify the conditions for continued use of private platforms that are already active on the Czech e-procurement market.

| (9) | The business environment in the Czech Republic is weighed down by a heavy regulatory burden and numerous administrative barriers, in particular permitting procedures and tax regulation. In September 2016, the Government presented an amendment to the Construction Act and related legislation, with the aim of accelerating and streamlining the procedure for granting building permits by integrating the environmental impact assessment into it. The amendment is currently under parliamentary scrutiny. Tax compliance costs for businesses continue to be above the Union average. Shortcomings also include frequent amendments to the Tax Code. Addressing tax non-compliance remains a priority for the Czech authorities; however there is no strong focus on simplification. A yet-to-be-presented income tax law aims at simplifying the Tax Code, but a draft is not yet available. |
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(9)

The business environment in the Czech Republic is weighed down by a heavy regulatory burden and numerous administrative barriers, in particular permitting procedures and tax regulation. In September 2016, the Government presented an amendment to the Construction Act and related legislation, with the aim of accelerating and streamlining the procedure for granting building permits by integrating the environmental impact assessment into it. The amendment is currently under parliamentary scrutiny. Tax compliance costs for businesses continue to be above the Union average. Shortcomings also include frequent amendments to the Tax Code. Addressing tax non-compliance remains a priority for the Czech authorities; however there is no strong focus on simplification. A yet-to-be-presented income tax law aims at simplifying the Tax Code, but a draft is not yet available.

| (10) | The use of e-government services in the Czech Republic is one of the lowest in the Union, but has increased from 2015. The Czech authorities have taken steps to improve the availability of e-government services, but many are still in progress and some individual measures have not yet been initiated. Responsibility for the roll-out of services is spread over several ministries and stakeholders perceive limited cross-sector cooperation. |
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(10)

The use of e-government services in the Czech Republic is one of the lowest in the Union, but has increased from 2015. The Czech authorities have taken steps to improve the availability of e-government services, but many are still in progress and some individual measures have not yet been initiated. Responsibility for the roll-out of services is spread over several ministries and stakeholders perceive limited cross-sector cooperation.

| (11) | R & D intensity has increased significantly in recent years, but this is not being matched by corresponding improvements in the quality of R & D outcomes. Reforms to the governance of the R & D system are being pursued, but have not been yet fully implemented. The Government approved a new evaluation methodology (Metodika 17+) in February 2017, which intends to strengthen the mechanisms related to the allocation of funding for basic and applied research. A series of measures is being taken to facilitate stronger links between academia and businesses, building on the structuring effect of the national innovation platforms. |
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(11)

R & D intensity has increased significantly in recent years, but this is not being matched by corresponding improvements in the quality of R & D outcomes. Reforms to the governance of the R & D system are being pursued, but have not been yet fully implemented. The Government approved a new evaluation methodology (Metodika 17+) in February 2017, which intends to strengthen the mechanisms related to the allocation of funding for basic and applied research. A series of measures is being taken to facilitate stronger links between academia and businesses, building on the structuring effect of the national innovation platforms.

| (12) | Educational outcomes are generally good, but basic skills have deteriorated. Performance is strongly influenced by students’ socioeconomic backgrounds. The low educational outcomes of disadvantaged groups, in particular the Roma community, are a clear concern. It is estimated that a very large proportion of Roma children leave school early. A significant number of legislative and administrative measures have been taken to promote inclusive education and are now beginning to be implemented. These are expected to help reduce the gap in educational attainment and achievement between Roma and non-Roma children. The Parliament adopted amendments to the Education Act in March 2016, extending compulsory education to the last year of pre-school education and ensuring that younger children are entitled to a place in a kindergarten. Nevertheless, inequalities in the education system represent a barrier to improving the quality of human capital and also hamper labour market outcomes later in life. Increased requirements of teachers and an ageing teacher population mean that the attractiveness of the teaching profession remains a challenge. This is due in part to comparatively low pay, although salaries have increased in recent years. A new career system for teachers and pedagogical staff, developed to increase the attractiveness of the profession, was finally approved by the Government after several postponements. Continuous professional development opportunities for teachers are being developed with significant support from Union funds, in particular professional development activities related to teaching mixed groups and inclusive education. The higher education reform was adopted by the Parliament in January 2016 and its results need to be monitored. A reform of the funding system of higher education institutions is also planned. |
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(12)

Educational outcomes are generally good, but basic skills have deteriorated. Performance is strongly influenced by students’ socioeconomic backgrounds. The low educational outcomes of disadvantaged groups, in particular the Roma community, are a clear concern. It is estimated that a very large proportion of Roma children leave school early. A significant number of legislative and administrative measures have been taken to promote inclusive education and are now beginning to be implemented. These are expected to help reduce the gap in educational attainment and achievement between Roma and non-Roma children. The Parliament adopted amendments to the Education Act in March 2016, extending compulsory education to the last year of pre-school education and ensuring that younger children are entitled to a place in a kindergarten. Nevertheless, inequalities in the education system represent a barrier to improving the quality of human capital and also hamper labour market outcomes later in life. Increased requirements of teachers and an ageing teacher population mean that the attractiveness of the teaching profession remains a challenge. This is due in part to comparatively low pay, although salaries have increased in recent years. A new career system for teachers and pedagogical staff, developed to increase the attractiveness of the profession, was finally approved by the Government after several postponements. Continuous professional development opportunities for teachers are being developed with significant support from Union funds, in particular professional development activities related to teaching mixed groups and inclusive education. The higher education reform was adopted by the Parliament in January 2016 and its results need to be monitored. A reform of the funding system of higher education institutions is also planned.

| (13) | The unemployment rate in the Czech Republic continues to fall. The tightening labour market conditions are making it more difficult for employers to recruit workers. There is still some potential to offset the shortages by mobilising under-represented groups, such as women with young children, low-skilled workers and members of the Roma community. Increasing the outreach and activation capacities of public employment services, together with appropriate and well-targeted active labour market policies and individualised services, would help boost the participation of untapped groups. The labour market participation of women with young children is hampered by a persistent lack of affordable and quality childcare services, in particular for children up to 3 years old, by long parental leave entitlements, by the limited use of flexible working-time arrangements by both parents and by a low take-up of parental leave by fathers. Some measures have been taken in recent years to address these issues. However, labour market outcomes for low-skilled workers are notably weaker than for all other groups. The Parliament is currently discussing the legislative framework for social housing, which is expected to set national standards and target groups. |
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(13)

The unemployment rate in the Czech Republic continues to fall. The tightening labour market conditions are making it more difficult for employers to recruit workers. There is still some potential to offset the shortages by mobilising under-represented groups, such as women with young children, low-skilled workers and members of the Roma community. Increasing the outreach and activation capacities of public employment services, together with appropriate and well-targeted active labour market policies and individualised services, would help boost the participation of untapped groups. The labour market participation of women with young children is hampered by a persistent lack of affordable and quality childcare services, in particular for children up to 3 years old, by long parental leave entitlements, by the limited use of flexible working-time arrangements by both parents and by a low take-up of parental leave by fathers. Some measures have been taken in recent years to address these issues. However, labour market outcomes for low-skilled workers are notably weaker than for all other groups. The Parliament is currently discussing the legislative framework for social housing, which is expected to set national standards and target groups.

| (14) | In the context of the 2017 European Semester, the Commission has carried out a comprehensive analysis of the Czech Republic’s economic policy and published it in the 2017 country report. It has also assessed the 2017 Convergence Programme, the 2017 National Reform Programme and the follow-up given to the recommendations addressed to the Czech Republic in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(14)

In the context of the 2017 European Semester, the Commission has carried out a comprehensive analysis of the Czech Republic’s economic policy and published it in the 2017 country report. It has also assessed the 2017 Convergence Programme, the 2017 National Reform Programme and the follow-up given to the recommendations addressed to the Czech Republic in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (15) | In the light of this assessment, the Council has examined the 2017 Convergence Programme and is of the opinion (4) that the Czech Republic is expected to comply with the Stability and Growth Pact, |
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(15)

In the light of this assessment, the Council has examined the 2017 Convergence Programme and is of the opinion (4) that the Czech Republic is expected to comply with the Stability and Growth Pact,

4

HEREBY RECOMMENDS that the Czech Republic take action in 2017 and 2018 to:

| 1. | Ensure the long-term sustainability of public finances, in view of the ageing population. Increase the effectiveness of public spending, in particular by fighting corruption and inefficient practices in public procurement. |
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1.

Ensure the long-term sustainability of public finances, in view of the ageing population. Increase the effectiveness of public spending, in particular by fighting corruption and inefficient practices in public procurement.

| 2. | Remove obstacles to growth, in particular by streamlining procedures for granting building permits and further reducing the administrative burden on businesses, by rolling out key e-government services, by improving the quality of R & D and by fostering employment of underrepresented groups. |
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2.

Remove obstacles to growth, in particular by streamlining procedures for granting building permits and further reducing the administrative burden on businesses, by rolling out key e-government services, by improving the quality of R & D and by fostering employment of underrepresented groups.

Done at Brussels, 11 July 2017.

For the Council

The President

T. TÕNISTE

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

1

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

2

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

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

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