# EUR-Lex - 52012DC0319 - EN

*|*

# 52012DC0319

**Recommendation for a COUNCIL RECOMMENDATION on Lithuania’s 2012 national reform programme and delivering a Council opinion on Lithuania’s convergence programme for 2012-2015 /* COM/2012/0319 final */**

			*

			*

Recommendation for a

COUNCIL RECOMMENDATION

on Lithuania’s 2012 national reform
programme
and delivering a Council opinion on Lithuania’s convergence programme for
2012-2015

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 5(2)
thereof,

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

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

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

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[4],
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 July 2011, the
Council adopted a recommendation on Lithuania’s national reform programme for
2011 and delivered its opinion on Lithuania’s updated convergence programme for
2011-2014.

(4)       On 23 November 2011, the
Commission adopted the second Annual Growth Survey, marking the start of the
second European Semester of ex-ante and integrated policy coordination, which
is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission,
on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism
Report[5],
in which it did not identify Lithuania as one of the Member States for which an
in-depth review would be carried out.

(5)       On 2 March 2012, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth. It underscored the need to
pursue differentiated, growth-friendly fiscal consolidation, to restore normal
lending conditions to the economy, to promote growth and competitiveness, to
tackle unemployment and the social consequences of the crisis, and to modernise
public administration. It invited Member States to implement the Council’s
country-specific recommendations for 2011 and to translate these priorities
into concrete measures to be included in their stability or convergence
programmes and national reform programmes.

(6)       On
2 March 2012, the European Council also invited the Member States participating
in the Euro Plus Pact to present their commitments in time for inclusion in
their stability or convergence programmes and their national reform programmes.

(7)       On 27 April 2012,
Lithuania submitted its convergence programme covering the period 2012-2015 and,
on 30 April 2012, its 2012 national reform programme. In order to take account
of their interlinkages, the two programmes have been assessed at the same time.

(8)       Based on the assessment of
the 2012 convergence programme pursuant to Council Regulation (EC) No 1466/97,
the Council is of the opinion that the macroeconomic scenario underpinning
the budgetary projections in the programme is plausible. It is broadly in line
with the Commission's 2012 spring forecast for 2012 and 2013. The objective of
the budgetary strategy outlined in the programme is to correct the excessive
deficit by 2012 as recommended by the Council and progressing towards the
medium-term budgetary objective (MTO) thereafter. The programme confirms the
previous MTO, i.e. a structural general government surplus of 0.5 % of GDP, which
adequately reflects the requirements of the Stability and Growth Pact, and
outlines a consolidation of at least 1 percentage point per year, planning a
balanced budget by 2015. While the budgetary plans are in line with a timely
correction of the excessive deficit, the average annual fiscal effort in
2010-2012, based on the (recalculated) structural budget balance[6], is expected to be lower than 2.25%
of GDP required by the Council in its recommendation of 16 February 2010. The planned
annual progress towards the MTO in the years following the correction of the excessive
deficit is slightly higher than 0.5% of GDP in structural terms, that is, the
benchmark of the Stability and Growth Pact. The planned rate of growth of
government expenditure, taking into account discretionary revenue measures,
complies with the expenditure benchmark of the Stability and Growth Pact in
2013 and 2014, but not in 2015. General government debt is projected to remain
below 60% of GDP over the programme period, increasing to nearly 41% of GDP in
2013, according to the Commission's 2012 spring forecast, while the convergence
programme targets the debt to decrease to around 35% by 2015. The reform of
budget planning and execution is progressing but the government has still to
approve the proposed laws. These laws would improve accountability within the
fiscal framework, by establishing an independent body, and to tighten rules on
treasury reserves.

(9)       Based on a comprehensive
tax compliance strategy, measures were implemented in 2011, which reinforced
tax compliance and yielded additional revenue. However, continuing
implementation will be required to advance significantly against tax evasion.

(10)     Demographic
developments cast serious doubts on the sustainability of the pension system. Although Lithuania adopted a gradual increase in the
pension age to 65 years by 2026, this alone will not
ensure a sustainable and adequate retirement income in the future and needs to
be complemented with additional measures. These could include linking the statutory
retirement age and future benefits to demographic factors; establishing clear
rules for indexation; introducing a closer link
between contributions and benefits, eliminating incentives to
take early retirement. Lithuania could in addition make better use of
supplementary voluntary pension provision. The establishment of occupational
pension schemes could ease the burden of the social security system and at the
same time improve the adequacy of future pension incomes. Disincentives to
continuing to work longer have been removed.

(11)     The Law on Temporary
Employment Agencies, designed to facilitate short-term employment, entered into
force on 1 December 2011. However, its impact may not be significant, since
temporary work agencies were already operating in Lithuania before. A
comprehensive review of labour law could identify unnecessary restrictions and
administrative hurdles that prevent flexible contractual agreements, dismissal
provisions and flexible working time arrangements. Additional measures to
enhance participation in the labour market, especially for young people,
unskilled persons and older workers, and to improve labour market flexibility
are necessary.

(12)     The challenge of youth
unemployment (above 30 %) and low-skilled unemployment became especially
evident during the crisis. The government is implementing a number of measures
to promote youth employment, such as first job subsidies and reduced social
security contributions. Nevertheless, activation rates remain too low and the
financial allocations for active labour market policies could be used more
effectively by targeting public works to the most vulnerable. To ensure a
better transfer from education to the labour market, apprenticeships and
internships could be made more attractive and a qualification demand
forecasting system put in place. Measures
should be in line with the outcome of the Lithuania - Commission joint action
team on youth unemployment.

(13)     Around one third of the Lithuanian
population is facing the risk of poverty and long-term exclusion. This is the
fourth highest figure in the EU. In 2011, Lithuania amended the Law on Cash
Social Assistance to reform the social support system as of January 2012. It
has launched a pilot model of social support distribution, changed the method
for calculating the amount, introduced certain work incentives and increased
coverage. The social assistance reform is a step towards reducing disincentives
to work. It is necessary to set in place a monitoring system to assess its
efficiency and its impact on poverty alleviation. The reform should also link
with activation measures that enhance participation, in particular for
long-term social beneficiaries.

(14)     The government has been
undertaking an ambitious reform of state-owned enterprises since 2010, aiming
to restructure corporate governance, increase transparency and separate
ownership and regulatory functions, and increase competition and efficiency.
The reform is relevant, involving legislative as well as organisational
changes. Major progress has been made in transparency and accountability as
reports are now published on a quarterly and annual basis. Clear enterprise
objectives have been established. However, the government has postponed some
parts of the reform, in particular the separation of commercial and
non-commercial activities of state-owned enterprises, and intends to implement
them in 2012.

(15)     Lithuania has made some
progress in improving the energy efficiency of buildings. A Multi-Apartment
Building Modernisation Programme was adopted by the government in December 2011,
but it is weakened by counteracting subsidies available in other policy areas
that reduce incentives for inhabitants of residential buildings to improve energy
efficiency. Further substantial and accelerated efforts are needed to improve
energy efficiency of buildings.

(16)     There is scope for shifting
taxation towards energy use as revenue from environmental taxes is the third
lowest in the EU, while transport taxes are the lowest in the EU. The implicit
tax rate on energy consumption was the seventh lowest in the EU in 2010 whereas
energy taxes in GDP terms are only slightly below the EU average.

(17)     The
country’s energy system infrastructure lacks competition and interconnections
and this is a factor that hinders growth. Insufficient
interconnections hinder the emergence of competition in energy markets.
Concentration remains high (above 90 %) in both the gas and electricity
markets.

(18)     Lithuania has made a number
of commitments under the Euro Plus Pact. The commitments, and the
implementation of the commitments presented in 2011, relate to fostering
competitiveness and employment, improving public finance sustainability and
reinforcing financial stability. The Commission has assessed the implementation
of the Euro Plus Pact commitments. The results of this assessment have been
taken into account in the recommendations.

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

(20)     In the light of this
assessment, the Council has examined Lithuania’s convergence programme, and its
opinion[7]
is reflected in particular in recommendation (1) below.

HEREBY RECOMMENDS that Lithuania
should take action within the period 2012-2013 to:

1.           Ensure planned progress towards the timely correction
of the excessive deficit. To this end, fully implement the budget for the year
2012 and achieve the structural adjustment effort specified in the Council
recommendation under the Excessive Deficit Procedure. Thereafter, specify the
measures necessary to ensure implementation of the budgetary strategy for the
year 2013 and beyond as envisaged, ensuring an adequate structural adjustment
effort to make sufficient progress towards the medium-term budgetary objective,
including meeting the expenditure benchmark, while minimising cuts in
growth-enhancing expenditure. In that respect, consider increasing taxes least
detrimental to growth, such as housing and environmental taxation, including car
taxation, while reinforcing tax compliance. Strengthen the fiscal
framework, in particular by introducing enforceable and binding expenditure
ceilings in the medium-term budgetary framework.

2.           Adopt legislation on a
comprehensive pension system reform. Align the statutory retirement age with
life expectancy, establish clear rules for the indexation of pensions, and
improve complementary savings schemes. Underpin pension reform with active
ageing measures.

3.           Tackle high unemployment,
in particular among youth, low-skilled and long-term unemployed, by focusing
resources on active labour market policies while improving their efficiency.
Enhance the effectiveness of apprenticeship schemes. Amend the labour
legislation with regard to flexible contract agreements, dismissal provisions
and flexible working time arrangements.

4.           Increase work incentives
and strengthen the links between the social assistance reform and activation
measures, in particular for the most vulnerable, to reduce poverty and social
exclusion.

5.           Implement all aspects of
the State-Owned Enterprise reform package and in particular ensure a separation
of ownership and regulatory functions and a separation of commercial and
non-commercial activities. Install appropriate monitoring tools to assess the
effectiveness of the reforms and ensure compliance of
all State-Owned Enterprises with the requirements of the reform.

6.           Step
up measures to improve the energy efficiency of buildings, including through removing
disincentives and a rapid implementation of the Holding Fund. Promote
competition in energy networks by improving interconnectivity with EU countries
for both electricity and gas.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 02.08.1997, p. 1

[2]               COM(2012)319 final

[3]               P7_TA(2012)0048 and P7_TA(2012)0047

[4]               Council Decision 2012/238/EU of 26 April 2012

[5]               COM(2012) 68 final.

[6]               Cyclically adjusted balance net of one-off and
temporary measures, recalculated by the Commission services on the basis of the information provided in the programme, using
the commonly agreed methodology.

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