EUROPEAN COMMISSION Brussels, 27.2.2017 SWD(2017) 90 final/2 CORRIGENDUM



This document corrects SWD(2017) 90 final linked to COM(2017) 90 final of 22.2.2017.

Concerns the EN and SK language versions.

Corrections on page 1.





The text shall read as follows:

COMMISSION STAFF WORKING DOCUMENT Country Report Slovakia 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews

under Regulation (EU) No 1176/2011



{COM(2017) 90 final}

{SWD(2017) 67 final to SWD(2017) 93 final}



Contents Executive summary1 1.Economic situation and outlook4 2.Progress with country-specific recommendations11 3.Reform priorities14 3.1.Public finances and taxation14 3.2.Labour market, education and social policies19 3.3.Investment27 3.4.Sectoral policies31 3.5.Public administration35 A.Overview Table39 B.MIP Scoreboard43 C.Standard Tables44 References49 LIST OF Tables 1.1.Key economic, financial and social indicators - Slovakia10 2.1.Summary table on 2016 CSR assessment12 B.1.The MIP scoreboard for Slovakia43

C.1.Financial market indicators44 C.2.Labour market and social indicators45 C.3.Labour market and social indicators (continued)46 C.4.Product market performance and policy indicators47 C.5.Green growth48 LIST OF Graphs 1.1.Real GDP and its components4 1.2.GNI per capita (in PPP, EU28 = 100)4 1.3.Investment5 1.4.Regional GDP per capita (EUR; 2014)5 1.5.Exports and real effective exchange rate (REER)6 1.6.Unemployment and activity rates6 1.7.Labour shortages (% of respondents)7 1.8.Inflation (y-o-y in %)8 1.9.Loans to sectors (y-o-y in %)8 1.10.House prices9 3.1.1.Effective tax rates in Slovakia14 3.1.2.Proportion of patients who visited an emergency department because the primary care physician was not available18 3.2.1.Job finding and separation rate19

3.2.2.Unemployment by duration, 201519 3.2.3.Personal characteristics of the long-term unemployed, 201420 3.2.4.Inactivity trap by percentage of the average wage, 2014 and 201521 3.2.5.Employment rate by gender and age, 201522 3.2.6.Poverty gap for selected groups23 3.2.7.Salary of teachers, relative to earnings for full-time, full-year workers with tertiary education (ISCED 5 to 8)26 3.3.1.Simulation of a public investment shock (deviation from baseline in pps. of GDP)28 3.3.2.Road network coverage and unemployment29 3.4.1.Summary restrictiveness indicator for regulated professions (2015)32 3.4.2.R&D intensity in Slovakia in 2000-201532 3.4.3.Primary energy intensity (toe/GDP)34 3.5.1.Time needed to resolve litigious civil and commercial cases (first instance, in days)37 3.5.2.Perceived incidence of irregular payments and bribes (Index, 2016)38 LIST OF Boxes 2.1.Contribution of the EU budget to structural change in Slovakia13 3.3.1.Investment Challenges30 Executive summary This report assesses Slovakia’s economy in the light of the European Commission’s Annual Growth Survey published on 16 November 2016. In the survey the Commission calls on EU Member States to redouble their efforts on the three elements of the virtuous triangle of economic policy — boosting investment, pursuing structural reforms and ensuring responsible fiscal policies. In so doing, Member States should put the focus on enhancing social fairness in order to deliver more inclusive growth.

Slovakia's economic expansion continues at one of the fastest rates in the EU. According to the Commission winter 2017 forecast, real GDP is projected to have increased by 3.3 % in 2016 due mainly to favourable developments in net exports, as well as solid household spending growth amidst a strong labour market recovery. Overall investment activity fell markedly in 2016 compared to 2015 as public investment returned to more normal levels after the end of the previous programming period for EU funds. Real GDP growth is expected to be around 3% in 2017 and to increase to 3.6% in 2018. Accelerating private consumption is set to remain the strongest driver of growth in both years, buttressed by steady gains in employment and robust wage growth. In the medium term, public investment expenditure is expected to rise well above 2016 levels — including in health and transport — while private investment in expanding production facilities in Slovakia's large automotive industry will also support overall investment growth. Subdued external demand, including for the output of the automotive sector, represents the main downside risk to the medium-term outlook. The labour market has witnessed a cyclical improvement. The unemployment rate fell to 9.7% in 2016, almost full two percentage points below the previous year, and is expected to decline further in 2017 and 2018 on the back of robust economic expansion. However, long-term unemployment still represents a key challenge, reflecting pronounced geographical differences in labour market conditions, accompanied by low labour mobility. Inadequate educational outcomes and inequalities linked to socioeconomic background represent major obstacles to the improvement of human capital, with potential knock-on effects for skill levels and growth potential. While Slovakia's economy is highly integrated into global value chains, production is concentrated in only a few sectors and regions. The country's specialisation in automotive and electronics manufacturing accounts for a significant proportion of domestic output and is concentrated mainly in the western region. Lack of appropriate infrastructure hampers investment in other regions, which prevents their integration into global value chains and perpetuates regional divergences. Although Slovakia continues to attract new investment from foreign companies, concerns about the quality of the business environment persist. In addition, shortages of qualified labour, particularly in the Bratislava region, are increasingly cited by businesses as a key factor limiting production in both industry and the services sector. Overall, Slovakia has made limited progress in addressing the 2016 country-specific recommendations. Some progress has been made in a number of policy areas, including on improving activation measures for the long-term unemployed, expanding the number of childcare places, raising the attractiveness of the teaching profession through pay rises and in improving human resource management in the public administration; limited progress has been achieved in raising tax compliance, improving the cost-effectiveness of healthcare, including Roma children in mainstream education, strengthening public procurement practices, and in making the justice system more effective. No progress was made on addressing the regulatory and administrative burden on businesses. Regarding progress in reaching the national targets under the Europe 2020 strategy, Slovakia is currently meeting — or is on track towards meeting — the prospective targets for the employment rate, R&D intensity, renewable energy use, energy efficiency and greenhouse gas emissions. While a sufficient reduction in early school leaving and the number of people at risk of poverty and social exclusion appears to be attainable by 2020, both indicators have deteriorated recently and more efforts are needed to reach the targets. The distance to the target for tertiary education remains but is progressively narrowing. The main findings of the analysis in this report, and the related policy challenges, are as follows: Tax evasion and avoidance have fallen, and efforts are being made to raise voluntary compliance. Improvements in tax collection have significantly reduced what was, in the past, a high VAT gap. Limiting VAT fraud appears to have also had a positive impact on the collection of corporate income tax. The financial administration retains a focus on improving VAT compliance, especially through auditing. At the same time, non-audit activities to strengthen voluntary tax compliance are being explored. Slovakia's public finances still face risks in the long term. The deficit of the public pension system is projected to double in the long term, and the retirement age in Slovakia is among the lowest in the EU. Recent adjustments in the pension system have largely been ad hoc and short-term. Meanwhile, increasing the cost-effectiveness of healthcare in Slovakia remains a challenge. Some steps have been taken to rationalise hospital care and lower costs. Concrete results are not yet visible but are likely to occur following a spending review in the sector and better cost benchmarking in procurement activities. The introduction of the diagnosis-related groups system for payments and the launching of e-health systems are making only slow progress. Rapid job creation and support measures for low-wage earners have helped reduce the unemployment rate, although labour market challenges persist. Slovakia has recently adopted several active and passive measures to tackle the unemployment of specific vulnerable groups, including an action plan aiming to provide personalised services and training for the long-term unemployed. These measures, if implemented in a timely manner, are likely to help reduce long-term unemployment, which remains very high. Roma and low-skilled remain one of the most disadvantaged groups in the labour market. The adult participation in lifelong learning is low. The employment of women is still hindered by care responsibilities. Continuous efforts are being made to improve access to childcare, but there is still a lack of good-quality, affordable facilities, in particular for children under the age of three. The risk of poverty or social exclusion remains relatively modest, but the intensity of poverty is pronounced, also because of weak social safety nets. Although steps have been taken to address weaknesses in the education and training system, some challenges remain. Students’ performance in basic skills has further deteriorated and educational inequalities — both from a socio-economic and ethnic point of view — remain strong. A reform to support socially and ethnically inclusive education entered into force in 2016 but effective implementation will require additional effort and political commitment. Initial steps have been taken to improve the attractiveness of the teaching profession and Slovakia is preparing a reform at all education levels in order to enhance their quality and labour market relevance. The dual vocational education and training scheme, designed to meet the needs of industry, is now in its second year of implementation. The overall outlook for public and private investment is favourable but barriers to investment persist. Public infrastructure investment, including in the transport sector, remains a high-profile policy area. Existing investment strategies and cost-saving initiatives can help to close gaps in Slovakia's infrastructure and foster growth and convergence in the central and eastern regions of the country. However, complex bureaucratic procedures, fast-changing regulations and policies as well as insolvency arrangements weigh on the business environment. An ineffective justice system and a lack of skilled workers are probably also holding back investment needed to support growth and convergence. Small and medium-sized enterprises can play a vital role in Slovakia's economic diversification, while innovation policy and resource efficiency continue to present challenges. Slovakia's relatively dynamic small and medium-sized enterprises sector is being granted greater policy attention, including through a new Act on the promotion of small and medium-sized enterprises and an action plan to support entrepreneurship. Regulated professions face comparatively high restrictions. Meanwhile, and in spite of rising R&D intensity, Slovakia's science base is still ranked below that of most other Member States. Business R&D spending and cooperation between the public sector, research institutions and business are stagnating. Policy measures supporting research and innovation are not effective and reforms are proceeding slowly. Finally, Slovakia’s energy efficiency is relatively low and energy dependence is high. The electricity market is blighted by distortions and hurdles for new providers. Municipal waste management continues to to give cause for concern. Slovakia's public administration is being modernised and the justice system has received policy attention, but corruption remains a challenge. Sub-optimal human resource management in the civil service is expected to improve with the new Civil Service Act. To date, public procurement practices fall short of best practices in many areas. Training measures are being developed to equip staff to run a more efficient procurement system. Improving the effectiveness and the independence of the justice system is still a challenge for Slovakia, but efforts are being made to address the shortcomings. However, concerns about the independence of the judiciary remain. Corruption perceptions remain high and act as a major business impediment. Control mechanisms and the enforcement of anti-corruption rules still appear inadequate, and policy initiatives on whistleblowing and letterbox companies may not be enough to resolve the problem. 1. Economic situation and outlook GDP growth In recent years, Slovakia’s economic performance has remained one of the strongest in the EU. Real GDP growth accelerated gradually from 2013 onwards, reaching 3.8 % in 2015, while investment expenditure rose beyond pre-crisis levels (Graph 1.1). Rising household consumption has also been a major contributor to growth since 2014, benefiting from continuous improvements in labour market conditions. According to the Commission winter 2017 forecast, real GDP growth slowed slightly to a still-solid 3.3 % in 2016 and is set to remain around 3 % in 2017 and to increase to 3.6 % in 2018. Graph 1.1:Real GDP and its components Source: European Commission Buoyant household spending and net exports became the main drivers of economic growth in 2016. Private consumption growth strengthened to a solid 2.7 % in 2016, supported by continued employment gains, robust real-wage growth, easy access to credit and high consumer confidence. In contrast, a pronounced downturn in public investment linked to the cycle of EU investment funding is expected to have restrained growth in 2016. Strong private investment, especially in the automotive industry, has not fully compensated for this temporary public investment slump. Imports are projected to have increased by less than exports, also reflecting the decline in total investment activity. As a result, net exports are forecast to have become the largest contributor to economic expansion in 2016. Despite the notable economic recovery, real economic convergence with more developed Member States continued at a rather modest pace. Real GDP per capita on a purchasing power basis rose to 77 % of the EU average in 2015 from 71 % in 2008. However, given the high proportion of foreign investment associated with significant dividend outflows, gross national income (GNI) is regarded as more representative of household purchasing power. The rate of convergence measured by real GNI per capita has been somewhat subdued in recent years, especially compared with gains recorded before the start of the financial crisis. It stood at 75 % of the EU average in 2015 (Graph 1.2).

Graph 1.2:GNI per capita (in PPP, EU28 = 100) Source: European Commission Household consumption Private consumption is projected to become the main driver of growth in the coming years, mirroring a continued increase in employment and real wages. With energy prices set to remain low and only a gradual increase in overall consumer prices in 2017, household budgets are expected to benefit. The household saving rate is likely to have peaked in 2016 and to decline gradually thereafter, allowing gains in real disposable income to feed through to household spending. Low interest rates are likely to help accelerate household credit flows and fuel consumption expenditure. Growth in household expenditure is forecast to peak at around 3 % in 2017 and to slow slightly in 2018, as accelerating consumer price inflation acts as a brake on real disposable income growth. Private consumption is set to keep GDP growth solid, given that it accounts for more than half of economic output. Investment Both private and public investment is set to intensify from 2017 onwards, with foreign direct investment playing an important role. After a sharp decline in public investment activity in 2016, which was unlikely to be offset fully by continued private investment growth, overall investment is set to return to growth in 2017, accelerating further in 2018. Buoyant investment in the car industry and a rise in public investment spending, including large infrastructure projects such as the Bratislava ring road, bolster the outlook. Owing to the high import intensity of Slovak investment (particularly in machinery), the outlook for imports is strongly shaped by the investment profile (Graph 1.3). At the same time, high dependence on foreign investment and the strong specialisation in the automotive sector leave the Slovak economy exposed to global economic fluctuations. Graph 1.3:Investment Source: European Commission The uneven geographical spread of private investment spending exacerbates the pronounced regional divide in the country. Regions around Bratislava have benefited strongly from the economic recovery in recent years, experiencing a significant improvement in labour market conditions along with booming investment in the automotive industry. In contrast, the eastern part of the country has been left somewhat behind. Poor transport infrastructure is one of the main reasons why the central and eastern regions have failed to attract foreign investors during the recent recovery. Meanwhile, Slovakia’s overall capital stock remains well below the EU average. Investment expenditure accounted for more than 26 % of real GDP before the crisis, but averaged less than 22 % between 2012 and 2016 (see Investment Box in Section 3.3). Income disparities within the country remained pronounced, with GDP per capita in the Bratislava region more than three times higher than in the eastern region in 2014 (Graph 1.4). Graph 1.4:Regional GDP per capita (EUR; 2014) Source: European Commission Exports and imports The contribution of net exports to economic growth is expected to moderate in the coming years, reflecting a substantial surge in investment activity in 2017. Given the high import intensity of Slovak investment and the projected return of robust investment growth, net exports are expected to be little more than neutral in terms of their GDP growth contribution in 2017. Export growth is set to increase gradually in line with a recovery in external demand, following their joint slowdown in 2016. Moreover, the real effective exchange rate depreciation observed since 2015 is expected to boost export performance, as Slovak products become more affordable on foreign markets (Graph 1.5). A continued fall in domestic energy prices combined with a continued decline in producer prices is expected to make prices more competitive in the medium term. Expanding car production in new and upgraded facilities is projected to lend a further boost to (net) exports and real GDP growth in 2018. Graph 1.5:Exports and real effective exchange rate (REER) Source: European Commission Labour market and social developments Labour market conditions are set to improve further, with a continued decline in unemployment and gradual increases in the activity rate. The annual unemployment rate fell below 10 % in 2016, for the first time since 2008 and the second time since 1995. The activity rate increased to 77.2 % in Q3-2016 surpassing even the years of buoyant economic expansion before the financial crisis (Graph 1.6). Recent sharp declines in unemployment point to a tightening labour market, which is likely to drive up nominal wages. With regard to emerging labour shortages, especially in the Western region, nominal wage growth is projected to steadily strengthen to 4.2 % in 2018. Despite subdued inflation, real wage growth is expected to remain below real GDP dynamics. Graph 1.6:Unemployment and activity rates Source: European Commission The unemployment rate is expected to keep falling along with a gradual increase in the activity rate. Robust economic recovery and solid wage growth will help bring the long-term unemployed back into the labour market. The progressive labour market tightening is also mirrored in greater inflows of foreign workers from the EU and from nonEU countries, although foreign labour remains low as an overall proportion of total employment. Labour shortages reported by employers have increased across sectors (Graph 1.7) and are arguably becoming one of the main barriers to investment and economic growth. Long-term unemployment remains a major challenge, reflecting pronounced geographical differences in labour market conditions along with low internal labour mobility. Long-term unemployment, in particular, is unevenly distributed across the country, with significantly higher rates in the east, which did not benefit from the economic recovery as much as the regions around Bratislava. The labour market participation of underrepresented groups, including Roma, young people, women with young children and the low-skilled, remains limited. The situation of the Roma is particularly unfavourable, with high rates of unemployment and inactivity. Female employment is well below the EU average in Slovakia, where motherhood has one of the strongest impacts on career progression. Social safety nets continue to be rather weak, particularly for the unemployed and families with children. The risk of poverty or social exclusion is relatively modest, but the intensity of poverty is pronounced. Graph 1.7:Labour shortages (% of respondents) Source: European Commission Slovakia has one of the lowest levels of income inequality in the EU. The incomes of the richest 20 % of the population are less than four times higher than the incomes of the poorest 20 %. ( ) This ratio decreased from 3.9 in 2012 to 3.5 in 2015. Low income inequality in Slovakia can be explained by relatively equally distributed market incomes, in particular the absence of very high earners at the top of the income distribution. ( ) However, at the bottom end of the distribution, the proportion of lowincome households has eroded. ( ) The small difference between market and disposable income inequalities indicates that the tax and benefit system in Slovakia does not play a considerable role in redistributing incomes. This can be explained by the low degree of progressivity of labour taxation and relatively low social protection expenditure. Despite these low levels of income inequality, the Roma population remains marginalised, with poor education and employment outcomes demonstrating stark socioeconomic inequalities in the country. Slovakia also shows a very low level of net wealth inequality, with the distribution of net wealth being one of the most even in the euro area in 2014. ( ) Inflation Inflation is set to increase gradually, driven by rapid rises in the prices of food and services, while the decline in energy prices is expected to continue in 2017. Consumer prices dropped for the third year in a row in 2016, this time by 0.5 % (Graph 1.8). Falling energy and food prices prevailed over moderate increases in the price of services. Energy prices are expected to continue their year-on-year decline in 2017 owing to a reduction in regulated electricity and gas prices. This should, however, be outweighed by the increased cost of services and renewed growth in food and fuel prices. Headline annual inflation is set to turn positive in 2017, rising to almost 1 %. Consumer prices are set to increase gradually thereafter, reflecting continued solid consumer spending.

Graph 1.8:Inflation (y-o-y in %) Source: European Commission Financial sector Private sector credit growth continued to increase, contributing to an upward trend in the private sector debt ratio. The gross debt-to-income ratio of households increased steadily in recent years, reaching almost 60% in 2016, thus approaching Slovakia's economic peers. Having grown at a double-digit pace since 2010, lending for house purchases remained buoyant in 2016, fuelled by low interest rates (Graph 1.9). Household indebtedness remains far below euro area averages but broadly in line with Visegrád peers. The annual growth rate of credit to non-financial corporations remained close to 2% on average in 2016, despite solid economic growth and high capacity utilisation that suggest increased scope for investment. The total liabilities of the financial sector increased by 6.4% between November 2015 and 2016, with the largely foreign-owned banking sector remaining well-capitalised. ( ) Overall lending costs continued to ease, but the low interest rate environment exerts downward pressure on banks' profitability. The average cost of borrowing for household mortgage lending and for loans to non-financial corporations continued declining throughout 2016, reaching 1.9 % and 2.6 % respectively in November 2016. ( ) According to the National Bank of Slovakia, the downward trend in net interest incomes harmed banking profitability, which is expected to fall in 2017. Overall profits of banks rose by 6 % y-o-y in September 2016, but declined by 8 % after deduction of non-recurring revenues. Banks' interest income may be further squeezed due to the Slovak National Bank's imposition of a 1 % ceiling on fees for early repayments of housing loans. Graph 1.9:Loans to sectors (y-o-y in %) Source: ECB, European Commission Graph 1.10:House prices Source: National Bank of Slovakia After bottoming out in 2014, house prices surpassed their pre-crisis levels in 2016. Annual growth in property prices increased to 5.8 % in Q4-2016 (Graph 1.10), driven mainly by stronger demand in the Bratislava region. Significant regional differences in property prices and rents persist, with both growing rapidly in Bratislava but only marginally in the rest of the country. Rising real-estate prices increase incentives for both residential and infrastructure investment in the area, but may also exacerbate the already pronounced regional divide. Rising rents in regions with higher economic activity also reduce internal labour mobility, especially from the Central and Eastern part of the country, where long-term unemployment is the most pressing economic issue. Public finances The general government deficit is expected to decline gradually, mainly due to higher tax revenues. The deficit is expected to have receded to 2.2 % of GDP in 2016 thanks to robust corporate income tax receipts reflecting rising profitability, and steady growth in personal income taxes and social contributions on the back of favourable labour market developments. The narrowing of the deficit would have been even more pronounced had it not been for non-budgeted spending (e.g. on financial corrections related to EU funds) and higher-than-budgeted investment expenditure. The consolidation effort in 2017, which comes exclusively from the revenue side, is expected to reduce the deficit to 1.4 % of GDP. A shortfall in revenue as a result of the reduction of the corporate income tax rate to 21% and increasing lump-sum deductions for the self-employed are more than compensated for by other measures, including a higher levy on regulated businesses, higher tobacco duties and a new levy on non-life insurance policies. The bank levy, which had been expected to expire, has also been retained for 2017. Additional revenue is expected to become available from the removal of the ceiling rate on healthcare contributions and the marked increase of the ceiling rate on social contributions for high-income earners that were approved by the Parliament. Assuming that there are no policy changes other than the introduction of a 7 % tax on dividends, the government deficit is set to fall to 0.6 % of GDP in 2018, mainly due to buoyant tax revenues in conditions of robust economic expansion. The debt-to-GDP ratio is about to revert to a downward trend, and is expected to fall to 50 % in 2018. Table 1.1:Key economic, financial and social indicators - Slovakia Source: European Commission, ECB 2. Progress with country-specific recommendations Progress with implementing the recommendations addressed to Slovakia in 2016 has to be seen as part of a process which started with the introduction of the European Semester in 2011. Slovakia's track record since 2011 in formulating policies to address the CSRs and underlying structural problems shows a mix of policy progress and persistent challenges. The country has made headway in improving tax compliance, combatting tax fraud and reforming its pension system. Labour market challenges have persisted for many years, partly also due to the high initial rate of unemployment that started to decline gradually in 2014 and 2015. Targeting support for the long-term unemployed and vulnerable groups has been on the government's agenda for a number of years, but progress until the end of 2016 appears somewhat limited. Very little progress has been made in tackling low Roma participation in the labour market. Certain measures were taken to better include Roma children in mainstream education, but effective implementation of already enacted legislation is still required. The lack of adequate childcare facilities for children under three has hampered mothers’ return to the labour market, although there is evidence of some progress in the provision of childcare for older children. For a number of years an inefficient and ineffective public administration and justice system have been shaping — and harming — the business environment. Efforts to tackle corruption have been limited in recent years. Public procurement has been suffering from long-standing deficiencies, which can lead to a misallocation of public resources. Overall, Slovakia is considered to have made limited progress in addressing the 2016 CSRs. The 2016 country-specific recommendations (CSRs) that were addressed to the country by the Council in June 2016 were focused on three broad themes: public finances and long-term sustainability, labour market and education challenges, and public administration issues. Each of these is assessed in turn below. Slovakia has made limited progress in addressing the fiscal recommendation (CSR 1). Some steps have been taken towards making the healthcare system more cost-effective; notably, a comprehensive spending review has identified large potential cost savings. The targeted gains are ambitious in scope and require concrete follow-up with specific measures. Limited progress has also been made in improving tax compliance. While some measures have been launched and appear promising, the system is, on the whole, highly focused on control, with comparatively less attention paid to fostering voluntary compliance. Slovakia has made some progress in addressing the labour market and education-related recommendation (CSR 2). Some progress has been achieved in improving activation measures. An action plan for the integration of the long-term unemployed and other disadvantaged groups was adopted in late 2016 to address the current lack of individualized services and training. However, no targeted efforts have been made to help integrate Roma into the labour market. There is evidence of some progress in increasing the availability of and access to early childhood education and care. Some progress has also been made in raising the attractiveness of the teaching profession. Annual pay rises have been agreed or are planned for 2016 and 2017. A reform to support socially and ethnically inclusive education, including for Roma pupils, entered into force in 2016 but will require more sustained effort and political commitment.

Slovakia has made limited progress in addressing the recommendations on public administration issues (CSR 3). Limited progress has been made in improving competition and tackling illicit practices in public procurement. Some progress has been made on improving human resource management in public administration following the adoption of the Civil Service Act, which represents a potentially important step towards professionalising the civil service and removing strong political ties within the system. Limited progress has been made towards improving the effectiveness of the justice system. No progress has been made on adopting a comprehensive plan to address the administrative and regulatory barriers facing businesses, as a long-term strategy is yet to be formulated. Table 2.1:Summary table on 2016 CSR assessment Source: European Commission 3. Reform priorities 3.1. Public finances and taxation Tax administration and tax policies The tax-to-GDP ratio is on the rise but remains relatively low compared to other EU Member States’. Taxes as a proportion of GDP increased by 4 pps from 2010 to around 32 % in 2015. Social contributions are the biggest source of tax revenue (43 % of total tax revenues in 2015) followed by taxes on production and imports (34 %). The latter are — in terms of GDP — relatively low compared to other Member States’. Improving tax collection has significantly reduced Slovakia’s high VAT gap. ( ) In 2014, the VAT gap was some 7 pps lower than in 2012. Nevertheless, at 30 %, it remains one of the highest in the EU and more than double the EU average, indicating an ongoing VAT compliance challenge (CASE, 2016). The continued improvement in VAT collection since 2012 is the result of several measures, not least the VAT control statement. The Ministry of Finance estimates that the effective VAT rate increased to 14.9 % in the second quarter of 2016, up from 12 % in 2012 (Graph 3.1.1), yielding additional revenue equivalent to 0.9 % of GDP in 2015 compared to 2012. There are indications that limiting VAT fraud has also had a positive impact on the collection of corporate income tax (CIT). Estimates by the Ministry of Finance suggest that effective tax rates for VAT and CIT improved in parallel (Graph 3.1.1), and CIT revenues improved even when netting out the impact of other legislative changes in the area of corporate income taxation. The minimum CIT introduced in 2014, which aimed to tackle the relatively high level of CIT non-compliance, has brought rapid results. ( ) However, plans to scrap the minimum tax arrangements in 2018 mean that the tax administration’s capacity will need to be bolstered to stop CIT compliance from falling again (Remeta et al., 2015; IBFD News, 2016). Efforts have been made recently to improve the quality of services to taxpayers. Paying taxes has been further facilitated by the introduction of electronic filing and payments for VAT. The number of tax payments was reduced from 10 in 2014 to eight in 2015, but the time taken to comply with tax obligations increased by four hours during the same period ( ) to 192 hours, i.e. above the EU average of 164 hours (World Bank and PwC, 2017). From 2017, the late reimbursement of VAT refunds will be subject to an interest payment, and communication between the financial administration and VAT taxpayers is to become fully electronic. Graph 3.1.1:Effective tax rates in Slovakia Source: Slovak Ministry of Finance The financial administration retains its focus on improving VAT compliance, especially through auditing. Some 80 % of all audits are in the area of VAT and originate primarily from VAT control statements. From 2017, a ‘super-custody order’ will enable the tax authorities to seize taxpayers’ assets as a precautionary measure, where there is suspicion of tax fraud. From 2017, the period during which audited taxpayers can question the impartiality of tax auditors was reduced to 15 days. In 2017 the financial administration also plans to tackle a high number of fraudulent cash registers and expand the use of virtual cash registers. Non-audit activities to ensure tax compliance are being gradually explored. Currently, control activities and cross-checking are cornerstones of the compliance strategy, but a holistic approach to auditing taxpayers seems to be lacking. However, in 2017 the financial administration plans to develop a tax reliability index, a tool for identifying and distinguishing compliant and non-compliant taxpayers and which allows for both preventive and corrective measures to be taken. Broadly speaking, progress on e-administration via the e-communication plan and the development of a call centre for taxpayers are likely to help improve the service for taxpayers, as will the administration’s plan to reorganise its Large Taxpayers Unit. A United Analytical Centre bringing together analytical and law enforcement competences is set to provide for a better and faster exchange of information and improve efforts to tackle tax fraud. The taxation framework is subject to relatively frequent changes. For 2017, the government has extended and increased the levy on companies in regulated industries, which had been expected to expire in 2016. This measure could arguably also be seen as part of an effort to reduce undue rents stemming from ineffectively regulated network industries. The bank levy that had also been set to expire was extended until 2020. The CIT rate was reduced from 22 % to 21 %, reversing an increase that had come into force only two years before. Lump-sum deductions for the self-employed, which were reduced in 2012 to ensure a more equal taxation of self-employed and employees, have been increased again in favour of the self-employed. Ceiling rates on healthcare and social contributions for high-income earners have been increased significantly. Other measures include a new 8 % tax on non-life insurances and an increase in excise duties on tobacco and fees on gambling. As of 2018, healthcare contributions on dividends will be replaced with a tax of 7 %. Property taxation continues to receive limited attention. The current system of residential realestate taxation remains regressive as it does not reflect the value but the surface area of a dwelling. Recurrent realestate taxes — a growthfriendly form of taxation — accounted for 1.4 % of total revenues in 2014, among the lowest in the EU (EU average: 4.2 %). Gifts and inheritance are not taxed. Environmental taxation still features conflicting policy motivations. The electricity price includes a levy to support production from renewable resources, but also a feed-in tariff to support the environmentally harmful electricity production from domestic coal. ( ) The government introduced environmentfriendly elements in the car registration fee, taking into account the age of the car and the engine power. The fee is lower for cars powered by alternative fuels. Fiscal framework and spending review The medium-term budgeting framework still shows weaknesses. While the level of detail in the multi-annual budgetary plan is fairly high, information and targets beyond the first budget year are only indicative. Binding expenditure ceilings, which were envisaged by the constitutional law of 2011, have not yet been adopted. This prevents a swifter achievement of a balanced budget — a requirement that was introduced in national legislation in 2013. The government constituted in March 2016 has postponed the original deadline for meeting the mediumterm objective from 2017 to 2019, partly reflecting new spending priorities and investment needs.

The authorities are considering relaxing the national debt brake. The debt brake introduced by a constitutional law in 2012 requires corrective actions once the debt level reported by Eurostat exceeds specified thresholds, which are lower than the Maastricht debt ratio. A redefinition of the debt brake thresholds risks diminishing its restraining power. The Ministry of Finance published a first series of spending reviews. The ‘Value for Money’ project aims to improve government spending efficiency. In 2016, three reports were published in the areas of healthcare (see below), IT and transport (see Section 3.4) and were annexed to the multi-annual budgetary plan. ( ) The level of ambition appears to vary across reports, reflecting different degrees of ownership by the associated ministries. ( ) Nevertheless, the project makes a valuable contribution by providing data-based analytical underpinnings for identifying spending inefficiencies in the areas reviewed. For 2017, there are plans for new spending reviews covering environmental policies, labour market and social policies, and education. Initial reports are scheduled for 30 April 2017, to be followed by final reports by 30 June in order to inform discussions on the budget proposal in summer 2017. Long-term sustainability of public finances Slovakia's public finances still face risks in the long term. The long-term sustainability gap indicator (S2) ( ) shows that Slovakia is at medium risk with regard to the long-term sustainability of public finances. The main drivers of the projected rise in ageing-related costs are spending on healthcare and pensions. Each is projected to increase by 2 pps of GDP by 2060 compared to 2013. The level of healthcare spending, which is currently below the EU average, is projected to experience one of the highest increases in the EU by 2060. ( ) Pension system Slovakia faces very adverse demographic trends. Low fertility rates are expected to cause the working-age population to shrink, leading to a decline in the number of people in employment, despite a predicted rise in the participation rate and the automatic increase of the statutory retirement age linked to changes in life expectancy. According to the 2015 Ageing Report, Slovakia shows the fastest increase in the old-age dependency ratio in the EU. By 2060, there are projected to be fewer than two workers for each pensioner, compared to five at present. Consequently, the ratio of people aged 65 or above relative to the working-age population is expected to practically triple between 2013 and 2060. So, despite the effectiveness of the recent reform in limiting the increase in pension expenditure to around 2 % of GDP by 2060 (bringing it to 10.2 % of GDP compared with an EU average of 12.4 %), ageing still poses a threat to the long-term sustainability of the system and the full implementation of the reform will have to be closely monitored. Although the effective retirement age is one of the lowest in the EU the retirement period remains relatively short. In 2014, Slovak men left the labour market at an average age of 61.6 — one of the lowest values in the EU. The effective exit age for women was 59.7 years, driven mainly by a low statutory pension age, which is, nevertheless, gradually increasing. The time Slovaks spend in retirement is relatively short, at least for men, compared to other EU countries (16.8 and 22.7 years for men and women respectively, against the EU average of 18.1 and 22.6 years). The ratio between the time spent in retirement and the average length of working careers is lower than the average for men (42 % against 43.5 % in the EU as a whole) but higher for women (67 % against 58 % in the EU as a whole) because of the very low retirement age. Since retirement age is linked to life expectancy, this ratio is projected to be below the EU average for both men and women by 2060 (45.2 % against 50.4 % for men and 58.7 % against 61.8 % for women). Recent adjustments to the pension system were of an ad hoc nature. Since 2013, pensions have been indexed by a fixed amount determined by applying the weighted average growth of wages and consumer prices (with greater weight accorded to the latter) to the average pension. However, the government decided on an ad hoc pension increase of 2 % in 2017. The planned changes to the indexation rules may offset the effects of the recent pension reform. As of 2018, pensions are set to be indexed to the increase of prices in a ‘pension’ basket. This indexation method would ensure that the living standards of pensioners are preserved but their situation would deteriorate relative to the economically active section of the population. ( ) The authorities have expressed their intention to introduce possible changes to the indexation formula to ensure that pension growth is higher than the expected rate of inflation. If confirmed, such measures would put greater pressure on public finances and might further jeopardise the longterm sustainability of the pension system. Cost effectiveness of the healthcare sector The cost-effectiveness of healthcare in Slovakia remains low. The spending review published in autumn 2016 in connection with the ‘Value for Money’ project suggests that there is significant scope to increase the cost-effectiveness of various areas of healthcare, providing targeted savings of up to EUR 174 million in 2017 (Černěnko et al., 2016). The review’s recommendations (mainly price reductions) are already being implemented, notably through price referencing of healthcare materials, devices and equipment and reduction in payments for diagnostics and other specialised treatments; tangible results are expected from 2017. The health status of the population is improving slowly and private healthcare expenditure is relatively high. Between 2008 and 2014, there was a twoyear increase in healthy life years but the figures remain well below the EU average for both genders (54.6 vs 61.8 for men and 55.5 vs 61.4 for women). Preventable mortality in 2014 was also higher than in the EU (339.5 deaths per 100 000 inhabitants vs an EU average of 204.1). ( ) Out-of-pocket payments are high as a proportion of total health expenditure (23.3 % compared to the EU average of 16 %). ( ) Informal, under-the-table payments remain common, potentially inhibiting equitable access to care. ( ) The high level of hospital debt has not decreased. Obligatory external financial audits were carried out in the 14 state-owned hospitals in 2015. Overdue liabilities of hospitals amounted to EUR 592 million in June 2016. Debt accumulation is facilitated by non-binding budgetary constraints and adverse incentives, but could also be due to poor budget planning and inefficient procurement practices. Payment systems are linked to the quantity rather than quality and performance of services, potentially creating incentives for overprovision (Kovalčík and Tunega, 2015). Public hospitals show large average delays in paying private suppliers. A new agency was established within the Ministry of Health in mid-2016 to manage hospitals, among others, and has introduced benchmarks for a wide range of services. The authorities aim to balance hospital budgets by 2018. Some steps have been taken to rationalise hospital care. The number of acute care beds is high (424 per 100 000 inhabitants vs an EU average of 356 in 2013) while the bed occupancy rate is low (67 % vs an EU average of 74 %). A restructuring exercise based on patient care needs and minimum use is ongoing. In January 2017, a new network of hospitals eligible for EU structural funds and capital investments was established. To reduce unnecessary recourse to emergency care, an outofpocket fee has been introduced (EUR 2 for out-patient care; EUR 10 for in-patient care), except if the patient is taken to hospital. A new university hospital in Bratislava is planned to be run as a public hospital (Slovak government, 2016). A private investment group also plans to set up another new hospital in the capital from 2018 onwards. The introduction of e-health systems has suffered successive delays. Since 2008, EUR 80 million have been invested in ehealth, ( ) but with no tangible results as yet, according to findings of the National Supreme Audit Office. The implementation of extended ehealth (e.g. electronic health records, eprescriptions and e-referrals) was postponed until 2017 because of signs of reticence on the part of users. An IT system allowing performance data to be collected from healthcare providers is at the validation phase and is currently in use in eight hospitals. The introduction of the diagnosis-related groups (DRG) system for remunerating hospital activities, to allow more transparency of care supply and pricing, is being gradually implemented following preparatory activities in previous years. Since 1 January 2017, DRG is in place as a regular payment mechanism, first on a voluntary and later on a mandatory basis. Payments in 2017 will be "budgetary neutral", with several safety nets in place (global budgets, safety payment corridors and benchmarking with previous payment mechanism). However, there are implementation challenges (Commission services/Economic Policy Committee, 2016), delays and systemic shortcomings as providers are ill-prepared, reporting systems are not ready and initial input data are of poor quality. The implementation of an integrated care model has stalled. For the 2014-2020 programming period, European funds totalling EUR 130 million have been earmarked to set up 134 integrated healthcare centres. The planned pilot phase announced for 2015-2016 has not taken place. While stakeholder consultations were held in 2015, the related ‘master plan’ for service distribution has still to be updated and the announced cost-benefit analysis and definition of integrated healthcare centres are not yet ready. The number of general practitioners (GPs) is low and increasing only gradually. The number of GPs per 100 000 inhabitants (42 in 2007, latest available data) is well below the EU average (78.3 in 2013) and results in inefficient provision of primary care (Graph 3.1.2). The lack of GPs is contributing to high rates of potentially avoidable medical visits (twice the EU annual average, 11 vs 6.2 in 2013) through specialist referrals and emergency department visits. While the government intends to reduce the ratio of specialist-to-GP visits from the current 80-20 % to 60-40 %, a residency programme designed to boost the number of GPs has not yet produced significant results, with only 95 new GPs expected to start practising in 2017. According to professional associations, many more additional GPs and nurses are needed in the system. To reduce the case load for specialist care, the role of GPs has been expanded by law to cover pre-operative examinations and chronic care. New clinical guidelines, to be drawn up with support from the European Social Fund (ESF) in 2017-2020, are not expected to be ready before the end of 2017. Graph 3.1.2:Proportion of patients who visited an emergency department because the primary care physician was not available Source: OECD (2016), Health at a Glance: Europe 3.2. Labour market, education and social policies

Slovakia witnessed a marked improvement in its labour market in 2015 and 2016, not least due to strong job creation. Section 1 reviews Slovakia's labour market improvement, which has been driven more by changes in job creation than job destruction (Graph 3.2.1). While job destruction (i.e. the separation rate) has remained broadly stable over the past 10 years (except for a spike in 2009), the job-finding rate has increased rapidly and reached the pre-crisis level at the end of 2015. This also led to a sharp increase in outflows from unemployment, while inflows to unemployment did not change dramatically. As a result, Slovakia’s unemployment rate has been in rapid decline, while the employment rate jumped to 70.1 % in Q3-2016 (still below the EU average of 71.5 % and the national Europe 2020 target of 72 %). Moreover, as set out in Section 1, the labour market tightening is accompanied by early signs of potential labour supply shortages. Graph 3.2.1:Job finding and separation rate Source: European Commission Despite these positive developments, several labour market challenges remain apparent. For specific vulnerable groups, such as the low-skilled, young workers, Roma and mothers with young children, labour market outcomes are unfavourable, with low participation and high unemployment. This pattern is aggravated by strong regional disparities as discussed in last year’s country report (European Commission, 2016a). Long-term unemployment Long-term unemployment (LTU) declined in 2015 and 2016, but despite these improvements it remains one of the highest in the EU. The increase in job-finding rates affected both the short- and long-term unemployed. Consequently, LTU decreased in parallel with overall unemployment. Despite this positive development, the LTU rate in Slovakia is still among the highest in the EU (5.6 % in Q3-2016, EU: 3.8 %). In particular, the proportion of very long-term unemployment (>24 months) is very high at 47 % of overall unemployment in 2015 (Graph 3.2.2). In recent years, Slovakia introduced several new active and passive measures to tackle the unemployment of specific vulnerable groups, which is likely to have helped bring about a reduction in LTU (see below). Graph 3.2.2:Unemployment by duration, 2015 Source: European Commission LTU is a major risk for the low-skilled and young. In 2015, 30 % of the low-skilled were unemployed for more than a year, in comparison to 8 % and 3 % respectively for the medium- and high-skilled. A lower level of education increases the probability of LTU across all age groups, in particularly for the young (1529 years) (Graph 3.2.3). In general, the young are overrepresented among the long-term unemployed. However, this does not apply to highly skilled young people. Furthermore, Slovakia has a consistently high proportion of young people not in education, employment or training (13.7 % in 2015 vs 12 % in the EU as a whole, age group 15-24). These findings are particularly alarming in the light of an increasing early school leaving rate and low — albeit increasing — tertiary education attainment. Graph 3.2.3:Personal characteristics of the long-term unemployed, 2014 Source: Based on LFS Microdata, 2014 The Roma community is still one of the most disadvantaged groups in the labour market. The situation of Roma in Slovakia is particularly precarious. They are estimated to make up 9 % of the total population (Council of Europe, 2010) and the age distribution is skewed towards the younger cohorts. According to Fundamental Rights Agency (FRA) survey results for 2016, only around 25 % of Roma aged 20-64 were engaged in ‘paid work’ at the time of the survey or in the previous four weeks, while 48 % were unemployed. ( ) The ethnic segmentation of labour markets results in poverty, social exclusion and a lower labour market status for Roma and undermines the economic potential of Slovakia’s poorest regions, where Roma are concentrated. The key factors behind labour market divisions are low educational attainment and qualifications, and persistent barriers and discrimination in access to education, housing, healthcare and the labour market (Kahanec, 2014; IFP, 2014). A survey (FRA, 2016) showed that 30 % of the Roma surveyed felt they had been discriminated against because of their background at least once in the past 12 months in at least one area of daily life (22 % when looking for a job). Only 18 % of the respondents who felt discriminated against reported the last incident to the authorities or made a complaint. Almost 74 000 Roma live in isolated settlements, often in poor living conditions. Labour market policy Slovakia has implemented several measures to encourage low-wage earners to work. In recent years, the government has lowered social contributions for low-wage workers and the longterm unemployed and introduced in-work benefits for the long-term unemployed (European Commission, 2016a). These measures have helped counter the inactivity trap for those earning between the minimum wage and 80 % of the average wage (Graph 3.2.4). ( ) On average, lowwage workers in this income bracket will now retain 72 % of their gross income when working, compared to only 58 % in 2014. For higher incomes (80 % to 120 % of average income) the inactivity trap has worsened. However, that is likely to have a less severe impact on this higherpaid group. Various labour market policies have seen advances. Slovakia has widened the scope of active labour market policies, introducing support measures targeting the long-term unemployed and other vulnerable groups and reforming public employment services. A recent study on the effectiveness of Slovak public employment services and active labour market policies under the ‘Value for Money’ project (IFP, 2016) was a step forward in terms of improving the evaluation of policy measures. The findings confirmed that current active labour market policies are often either poorly designed (e.g. they are too focused on activation measures) or targeted (geographically or in terms of the group(s) covered). There is a lack of effective active labour market measures for the low-skilled. Insufficient financing for active labour market policies (0.16 % of GDP in 2015) combined with a high caseload (currently 2 280 clients per specialised counsellor) and an underdeveloped system for managing the performance of public employment services limit potential efficiency improvements (by 10-35 %). Graph 3.2.4:Inactivity trap by percentage of the average wage, 2014 and 2015 Source: OECD Tax and Benefits database The new action plan on LTU will be implemented in 2017-2020 with the aim of providing more individualised services. It will include a combination of projects financed by the ESF on provision of specialised counselling, including on indebtedness, psycho-social problems, substance abuse and other barriers to labour market entry. A newly introduced profiling system should improve case allocation. The planned hiring of new specialised staff, outsourcing of job search support and enhanced cooperation with private agencies and NGOs could help decrease the caseload (see above). The labour market prospects of the longterm unemployed and the low-skilled are set to be further enhanced by the introduction of individualised training programmes based on regional labour market needs. Second-chance education or apprenticeship schemes for the lowskilled, long-term unemployed and Roma are not available and adult participation in life-long learning remains low (3.1 % in 2015). The recently announced plans to promote practices to validate non-formal and informal learning are a step in the right direction. New legislative measures aim to increase the impact of activation measures and to tackle some of the barriers to primary labour market entry faced by the long-term unemployed and marginalised groups. Key measures were taken to address indebtedness, which is a serious social problem for many low-income households and acts as an impediment to entering official employment because of the threat of permanent seizure of official income. The Slovak Justice Ministry estimates that at least 100 000 individuals are caught in a debt trap. The recent amendment of the Act on bankruptcy and restructuring will make personal debt relief simpler and cheaper and therefore more accessible through bankruptcy or a repayment schedule. A legal aid centre will provide assistance to indebted people without income or assets to help lift them out of the debt trap. ( ) Stricter sanctions for non-cooperation before and during placement in active labour market programmes will be introduced under a new amendment to the Employment Services Act. While the component on tackling indebtedness may have very positive effects, the sanctions component may put vulnerable groups off public employment services if they are not combined with individualised support before, during and after the placement. The implementation of measures for Roma inclusion is stagnating. The desegregation legislation adopted in 2016 has not yet demonstrated measurable results (see education section). Increased ESF support was allocated to marginalised Roma communities, but there have been significant delays in implementation (European Commission, 2016a). The launch of outreach support such as social field work (which was successful in the past) and community centres has been postponed to 2017. ESF projects on rented social housing and access to drinking water face a similar delay. Action plans for the National Roma Integration Strategy expired in 2015 and the new ones for the period 2016-2018 have still not been adopted. Long-awaited legislation on social enterprises is now scheduled to be drawn up and adopted in 2017 and will not enter into force until 2018. Furthermore, no headway has been made on addressing the lack of data on the economic integration of Roma. The measures for young people under the implementation of the Youth Guarantee helped support sustainable youth employment. Shortterm programmes on voluntary work and traineeships proved particularly successful for young people under the age of 29 (IFP, 2016). However there are still no individualised services targeting the specific problems of the young lowskilled or the young long-term unemployed. This bottleneck will be addressed by new youth measures planned for 2017 in the form of a support package including a training or work placement. The government implemented several measures to address regional disparities in the labour market. The requirements for a removal allowance were loosened, leading to increased uptake of this measure, albeit from a low starting point (364 beneficiaries in Q2-2016 compared to 53 in 2015). Under the new legislation on regions lagging behind, regional action plans were drawn up to tackle unemployment. The objective is to create 17 615 new jobs by 2020 by promoting, for example, better infrastructure and social enterprises. Successful implementation rests on the creation of regional and local partnerships. Employment of women Women’s skills are underused and undervalued on the labour market. The female employment rate (60.3 %; EU: 64.2 %) remained well below that of men (75 %; EU: 75.8 %) in 2015. The employment gap is particularly wide for women under the age of 40, and diminishes sharply for women above that age (Graph 3.2.5). Slovakia is one of the countries in which motherhood has the highest impact on employment and professional life. This is the result of long parental leave, which is very rarely taken up by men (2-3 %), a shortage of childcare facilities and a low update of flexible work arrangements. The unadjusted gender pay gap is among the highest in the EU (19.7 % in 2014). About a third of the gap can be explained by differences in individual and job characteristics leading to gender segregation in the labour market, i.e. women are more often employed in occupations and industries that pay comparatively lower salaries. Two thirds of the gap remain unexplained but can be attributed to various factors, such as the low transparency of wage negotiations in the private sector, female employees’ lack of awareness of male salary levels, and discrimination. Challenges concerning the participation of women in the labour market also have a detrimental knock-on effect on efforts to foster an integrated approach to investing in children.

Graph 3.2.5:Employment rate by gender and age, 2015 Source: European Commission Efforts have been made to strengthen the quality and affordability of childcare. The quality of care for children under three is not regulated by minimum standards in terms of the care facilities or the qualification requirements for care staff. An amendment to the Social Services Act will enter into effect in March 2017 in order to address this shortcoming. Childcare benefit for working parents has also been increased (there were very few recipients in 2015). The extension of childcare facilities is still insufficient. Only 7 % of children under three were enrolled in formal childcare in 2014. For children between the age of three and the compulsory school age of six, the coverage rate is better (74 %), but it is still below the EU average (83 %) and the Barcelona targets (90 %). The number of unsuccessful applications for kindergarten places is still high, especially in the region of Bratislava. EUR 138 million in EU funding was made available in 2016 to increase the provision of preschool care in the coming years. Social inclusion and poverty reduction Poverty rates remain low but the intensity of poverty is of concern. In 2015, the number of people at risk of poverty or social exclusion remained at 18.4 % (significantly below the EU average of 23.7 %) and the number of people subject to severe material deprivation dropped further to 9 %, although this is still above the EU average of 8.1 %. The poverty rate among Roma remains exceptionally high, at several times that of the overall population (FRA, 2016). After several years of steady increases, the poverty gap, which measures the intensity of poverty (i.e. how poor the poor are), stagnated at 28.9 % in 2015, above the EU average of 24.9 % (Graph 3.2.6). The rate of poverty among Roma is more than six times higher than for the general population. It is high in comparison with other Member States with a sizeable Roma minority (Bulgaria, Czech Republic, Hungary and Romania), where the rate of poverty for Roma is estimated to be between three and six times that of the general population (FRA, 2016). Shortcomings in the social safety net persist. Around 230 000 people relied on minimum income support (benefits to cover material need) in 2016. The number of recipients and jointly assessed household members declined further as a result of falling unemployment and a measure to make eligibility for the support conditional upon participation in workfare (‘activation work’). There is still no clear mechanism for establishing and reviewing the level of minimum income support. The scheme’s conditions in relation to the number of members in the household disadvantage larger families with more children. The housing allowance is not available to those who are most in need, particularly marginalised Roma who live in undocumented dwellings, and homeless people, because eligibility is conditional upon home ownership, a rental contract or residence in a social care facility. The proportion of short-term unemployed covered by unemployment benefits is considered low, estimated at 18 % in 2015, 11 pps lower than the EU average. Eligibility conditions are strict and the duration of benefits is short, at a maximum of six months. Despite attempts to develop basic outreach programmes (work in the social field, preventive healthcare and community work), the link to quality social services such as individualised support for inactive people and registered jobseekers, access to social housing, debt management counselling, participation in early childhood education and support for weaker pupils is underdeveloped. Graph 3.2.6:Poverty gap for selected groups Source: European Commission The availability of social housing is very scarce (around 3 % of the total housing stock) and support for rental accommodation remains limited. Serious overcrowding is a problem for many of the poor (57.6 % vs EU average of 29.7 % in 2015) and large numbers of social housing tenants face severe housing deprivation (21.6 % vs EU average of 9.6 % in 2015). There are 4 061 dwellings without a legal permit and 4 131 makeshift shanties that do not meet the criteria to be classed as proper buildings ‘house’ approximately 65 000 residents (Atlas of Roma Communities, 2013). Despite the urgent need, the number of state-supported housing units has stagnated at relatively low levels in recent years (between 1 300 and 2 000 in 2012-2015). Some towns and municipalities struggle with cofinancing requirements when applying to the State Housing Development Fund for loans to build social housing. Deprived households then face difficulties in accessing the housing because of stringent eligibility requirements for prospective tenants. Accompanying support services and monitoring of the use of the social housing are not always sufficient to tackle rent arrears and other problems. Assisted construction of family homes combined with interest-free microloans was piloted successfully among marginalised communities such as the Roma but further systemic support would allow for making greater headway. The long-term care system remains underdeveloped. Family carers still provide a substantial proportion of long-term care in Slovakia. As a result, female inactivity due to care responsibilities ranks among the highest in the EU. The status of informal carers has been boosted since January 2017. The allowance for caring for a person with a severe disability has been increased by EUR 27.10 to EUR 247.65, benefiting 33 450 eligible recipients, and state pension insurance for carers will no longer be subject to a time limit. This should provide caregivers with better protection against poverty in old age. Likewise, the safeguard limit on the income of people with severe disabilities has been increased, by EUR 59.44 to EUR 336.75, benefiting 17 598 eligible recipients. Overall, however, progress in the transition from institutional to community-based care is too slow and does not go far enough, and support for independent living is still insufficient (Concluding Observations of the UN Committee on the Rights of Persons with Disabilities, 2016). Education and skills Students’ performance in basic skills has deteriorated further and educational inequalities remain very pronounced. According to the 2015 OECD Programme for International Student Assessment (PISA), the proportion of low achievers is high in all areas tested (31 % in science, 32 % in reading and 28 % in mathematics) and lies significantly above the EU average. Average performance is also significantly below the EU average. The impact of socioeconomic status on educational outcomes is strong: the gap in performance between the upper and lower social quarters of the PISA socioeconomic index is among the largest in the EU (above 35 pps compared to an EU average gap of 26 pps). Every second pupil in the lowest social quartile is a low achiever. At the same time, the proportion of low achievers in the higher social quartile is also higher than in most other EU countries (OECD, 2016a). Against a backdrop of declining educational outcomes, rising inequalities in education and heavy societal pressures (including teachers’ strikes), the authorities have initiated ambitious reforms at all education levels and have begun preparing a 10year education strategy. The ongoing comprehensive consultation process is to be followed by the adoption of a government strategy in early 2017. General government expenditure on education remains very low, leading to low educational outcomes. At 4.2 % of GDP in 2014, Slovakia’s expenditure is much lower than the EU average of 4.9 %. The latest OECD data also point to an increase in annual expenditure per student at all levels, which nevertheless remains low at 70 % of the OECD average for primary education, 59 % for secondary education and 65 % for tertiary education (OECD, 2016a). Education is among the topics to be analysed in 2017 under the ‘Value for Money’ project. The low participation in early childhood education and care has an adverse impact on future educational outcomes (PISA 2015). Against this background, the low participation of Roma children in early childhood education and care (estimated at 34 %) is particularly problematic (FRA, 2016). The national participation rate also remains low, standing at 77.4 % in 2014, compared with an EU average of 94.3 % (from the age of four to the start of compulsory education). Capacity is being bolstered with the focus on places with the highest unmet demand, high levels of unemployment and with a large proportion of marginalised Roma communities. Consideration is being given to making education compulsory from the age of five. The early school leaving rate remains low in international comparison (6.9 % in 2015), but regional disparities are high and the rate has been increasing constantly since 2010. It has exceeded the 6 % Europe 2020 national target in recent years (for more information see European Commission, 2016b). The high estimated proportion of Roma children who are expected to leave school early is of particular concern, given the significant impacts on their future labour market prospects (FRA, 2016). ( ) Since Slovakia has one of the lowest employment rates in the EU for people without upper secondary education (33.2 % compared to the EU average of 52.6 % in 2015), the socioeconomic cost of early school leaving is particularly pronounced. Educational inequalities are of serious concern. The latest data point to a significant proportion of Roma children attending segregated schools or classes (FRA, 2016). ( ) This can be partially explained by the uneven distribution of the Roma population in the country. It is also estimated that the proportion of Roma pupils attending special education establishments is among the highest in the region (FRA, 2016). According to Education Ministry data, the proportion of pupils with special needs taught in special schools/classes rose from 4.7 % in 2006 to 6.2 % in 2015 and is considerably higher in poorer regions. The impact of attending so-called ‘grade zero’ classes on educational attainment and equality was analysed by the State School Inspectorate in 2015 for the majority of schools. Results showed that 81% of pupils continued their education in mainstream inclusive education. Moreover, the practice of setting up offshoots of vocational schools in the vicinity of Roma settlements is worrying because of their substandard equipment, limited choice of study programmes and their role in hindering inclusive education (Balážová, 2015). A reform to support socially and ethnically inclusive education entered into force in 2016, but effective implementation depends on political commitment. ( ) The reform targets the misplacement of children in special schools or classes on the basis solely of their disadvantaged socioeconomic background. The State School Inspection and the Public Advocate of Rights have highlighted practical difficulties in putting the reform into effect, such as the use of appropriate screening tests, timely re-diagnosis, placement of pupils from special needs education with lighter curricula back into mainstream education or securing parental consent. While the competences of the state school inspectorate to steer the shift towards inclusive education have been strengthened, its capacities have not been adequately strengthened and there are implementation loopholes which need to be addressed. The reform will be supported by two ESF projects aimed at providing extra pedagogical staff to support inclusive education, offering support programmes for weaker pupils and informal education for children who do not attend early childhood education, and supporting the transfer of pupils from special to mainstream education. However, the impact of the project may be limited as it covers only 130 schools and 50 kindergartens (European Commission, 2016a). Initial steps have been taken to improve the attractiveness of the teaching profession. Teachers’ salaries have been low for some time, both in international comparison and compared to the salaries of workers with similar qualification levels (Graph 3.3.7). Salaries increased by 6 % in September 2016 and a further 6 % increase in September 2017 was agreed in collective bargaining. A further average annual increase of 6 % is envisaged for 2018-2020 (Ministry of Finance, 2016). Faster salary increases are being considered for younger teachers. ( ) Teachers, however, consider the increases insufficient and some continued their strike actions in 2016. As well as increasing salaries, the government aims to restore the attractiveness of the teaching profession by raising the standards for entering and graduating from teachertraining programmes. Plans are also afoot, with support from the ESF, to improve initial teacher training, in particular by improving practical training and continuing professional development. Everything considered, it is still too early to assess the planned reforms for teacher training and continuing professional development. Graph 3.2.7:Salary of teachers, relative to earnings for full-time, full-year workers with tertiary education (ISCED 5 to 8) Source: OECD Slovakia is preparing to reform higher education in order to improve its quality and labour market relevance. The tertiary educational attainment of 30-34 year-olds rose to 28.4 % in 2015 and has doubled over the past decade. However, it remains well below EU average of 38.7 % and the national EU 2020 target of 40 %. The proportion of young adults with short-cycle tertiary education or a bachelor's degree is lower than the OECD average, while the opposite is true for those who hold a master’s degree (OECD, 2016a). Slovak adults with tertiary qualifications earn 70 % more than those who attained upper secondary education as their highest level. Graduate tracking and performance agreements with higher education institutions are lacking at present. Finally, more than 10% of recent university graduates have left Slovakia. This proportion is especially pronounced amongst graduates of i.e. medicine and technical fields. (IFP, 2017). The sector is subject to a wide reform covering accreditation, alignment with EU standards, as well as funding and cooperation with employers. Support from the ESF is being offered to higher education institutions for the development of short-cycle, professionally oriented programmes. An amendment to existing higher education legislation is planned to be adopted in 2017 and to enter into force in 2018. Currently there are also two related strategies under discussion, including one for higher education. In the end, both could be merged into one strategic and long-term document, to be adopted by the government in April 2017. All of these announcements seem to be going in the right direction but have yet to be turned into concrete proposals. The dual vocational education and training (VET) scheme, designed in response to the needs of industry, entered its second year of implementation. An increasing proportion of manufacturing companies report difficulties in hiring people with the right skills, for instance in the automotive sector (European Business Statistics, 2016). While the interest of employers in dual VET is growing, the scheme does not seem to be sufficiently attractive to young people ( ) or to certain schools. Targeted efforts to raise awareness of the benefits of dual VET among young people in compulsory education and their families are insufficient. For instance, there is a need for more direct involvement of companies and social partners in guidance and communication activities. Innovative schemes to make professions more attractive, in particular where there are skills shortages, are insufficiently developed. The practice already in place in some companies, where a ‘job guarantee’ is offered to young people who enter their dual VET programme, can serve as a positive example.

3.3. Investment Quality of business environment Weaknesses in Slovakia’s business environment are reflected in cross-country comparisons. Slovakia scores significantly worse than the EU average in a number of areas relating to the responsiveness of the administration to the needs of small and medium-sized enterprises (SMEs). In particular, these are the time needed to start a business, the complexity of administrative procedures, and the burden of government regulations (European Commission, 2016f). These factors can inhibit investment and growth by discouraging entrepreneurs from starting or expanding a business. The World Bank's 2017 Doing Business report ranks Slovakia 68th out of 190 for starting a business — a slight deterioration compared to the 2016 report (World Bank, 2017). Construction permits are comparatively cheap but take a long time to obtain in Slovakia. Slovakia performs significantly worse than the OECD high-income average with respect to the time it takes to obtain a construction permit for a warehouse (286 vs 152 days), although the cost is very low (0.1 % of warehouse value, OECD average 1.6 %). Overall, according to Doing Business 2017, Slovakia ranks 103rd in terms of dealing with construction permits, having improved by 7 places in the space of two years. Although, since October 2015, the Construction Act has allowed for shorter procedures to receive building permits, the fast-tracking applies only to large-scale investments and infrastructure projects (European Commission, 2016a). Insolvency arrangements still represent a major business hurdle. According to Doing Business 2017, Slovakia is ranked 35th of 190 economies on the ease of resolving insolvency. Slovakia performs worse than the EU average in respect of the procedure for resolving insolvency, both in terms of the time needed (4 years for Slovakia and 1.97 for the EU) and the costs (18 % of debtors’ estate in Slovakia, 10.3 % in the EU). Despite a significant improvement since 2006, the average recovery rate on claims is low, at 55.6 % (McCormack et al., 2016). While some features of Slovakia’s insolvency framework are competitive, ( ) the country still lacks fast-track procedures allowing entrepreneurs to move more quickly through the bankruptcy processes. Moreover, restructuring proceedings require an evaluation of the debtor by an insolvency practitioner, which may deter debtors from resorting to this option. In September 2016 the Slovak government adopted a legislative proposal aimed at reducing the costs of — and improving access to — the debt discharge procedure and strengthening the regulation of executors, which may help insolvent debtors to be given a second chance. Overall investment needs The overall outlook for public and private investment is favourable, and public infrastructure investment ranks as a key policy priority. As set out in the ‘economic situation’ section and the ‘investment box’, investment activity is expected to gain pace again in 2017 after having moderated in 2016. Public investment will play a pivotal role in shaping the medium-term investment outlook. A national infrastructure plan for 2018-2030, which aims to quantify investment needs in economic and social infrastructure and facilitate private investment, should be completed by the end of 2017. A roadmap towards developing the plan was still pending adoption in January 2017. Working alongside the Ministry of Finance, an investment department, under the newly established office of the Deputy Prime Minister and responsible for coordinating investment and digitisation, will follow up on the implementation of spending review measures under the ‘Value for Money’ project (see Section 3.1). In particular, it will assess large investment projects on the basis of value for money. The cost-benefit analysis methodology for investment project appraisal is planned to be developed by March 2017. Raising public investment is likely to boost Slovakia’s long-term GDP. Simulations of a public investment shock using the European Commission’s QUEST model show a rising positive impact of higher public investment spending on GDP, productivity and real wages in a stylised scenario. ( ) The simulations assume that Slovakia’s level of public investment (around half of which is transport-related) increases by 1 % of GDP for 10 years, and that the extra investment is deficit-financed at currently low government yields. While the impact on GDP is limited by increased imports, given the openness of the Slovak economy, GDP after five years is 1.1 % above its baseline level and real wages are 0.7 % above their baseline, since a higher stock of public capital raises the productivity of other factors of production. Graph 3.3.1:Simulation of a public investment shock (deviation from baseline in pps. of GDP) Source: European Commission Efficiency savings could help to raise the public capital stock at minimum cost. The above scenario can be adapted so that the public investment shock is funded through efficiency savings rather than through a higher government deficit. In particular, if the unit costs for public investment projects were reduced — including through the rigorous application of the ‘Value for Money’ methodologies — the savings could be used to fund extra investment in public capital stock. The corresponding rise in the capital stock would still be productivity-enhancing, thereby raising GDP levels in line with the above scenario, while being delivered at a lower fiscal deficit cost. Transport infrastructure Slovakia’s transport infrastructure has significant gaps and is receiving much-needed policy attention. Regional economic disparities, including in unemployment rates, risk being perpetuated by sometimes poor and unevenly distributed transport infrastructure (Graph 3.3.2). Road density is low in comparison to EU peers (at 9 km/km2), and congestion levels and average delays are significant. While motorways and expressways are usually in good condition, the country still lacks a continuous motorway TEN-T link (D1) along the Bratislava-Kosice corridor and an upgraded rail link. Slovakia’s ageing rail network restricts train speed, while various lines appear to be virtually obsolete in view of the very low frequency of trains and small or inexistent passenger volumes. A strategic plan for transport development until 2030 aims to tackle the most urgent transport investment needs, but various factors are causing delays. Transport investments are prioritised according to the strategic development plan and a technical and economic analysis geared towards delivering costeffective solutions. New investment needs and the maintenance of existing infrastructure are required to ensure the long-term sustainability of transport networks. However, delays in project preparation and adoption — partly due to administrative capacity constraints — are causing projects to be prioritised according to the speed of approval, but not necessarily on intrinsic merits. The construction of the D4 Bratislava ring road will be financed through a public-private partnership. This is one of the first projects where a blending of funds, including from the European Fund for Strategic Investments (EFSI) and European Structural and Investment Funds (ESIF), has been used. The transport policy framework is being strengthened as part of the ‘Value for Money’ initiative, potentially yielding efficiency gains. As set out in the section on public finances and taxation, the ‘Value for Money’ initiative also includes a spending review for the transport sector. However, the review only deals with operational spending on transport. The efficiency savings identified in this (small) part of the overall transport budget are low (EUR 500 000), in part due to the Transport Ministry’s lack of analysts and the lack of necessary data. A fully fledged spending review for transport investment is to be completed in 2017. In view of pressing investment needs and limited competition in the Slovak construction sector, cost savings for transport investment could potentially be generated through better international benchmarking of unit prices. Graph 3.3.2:Road network coverage and unemployment Source: Slovak Ministry of Finance Given the environmental impact of transport networks, an effective system of environmental impact assessments remains vital. Slovakia took its first steps in applying a precautionary approach ( ) to mitigate and compensate the negative impact of transport on protected areas (including the EU-wide protected Natura 2000 network). Environmental assessments are not sufficiently integrated into the multi-modal analysis and the cost-benefit analyses of individual projects. Many transport projects that are to be cofinanced by the EU have obsolete/noncompliant assessments. ( ) Various critical projects need to undergo updated assessments in order to satisfy the development consent procedure in accordance with environmental impact assessment law. ( ) Restructuring the multi-stage development consent system would allow environmental assessments to be incorporated into a project’s life-cycle. EU funds There was a significant decrease in investments co-financed from EU funds in 2016 due to the closure of the 2007-13 programming period in 2015 and the slow launch of the 2014-20 programming period. Concerning the 2007-13 programming period, the overall share of payments paid to the project beneficiaries from the Cohesion and Structural Funds increased from 90.6 % in December 2015 to 97.6 % in December 2016. Nevertheless, the total amount of funds paid to the project beneficiaries remains below 100% of the overall allocation, due to irregularities identified by audit authorities linked notably to errors in public procurement and in project selection and evaluation. The implementation of the 2014-20 programming period is picking up pace, although more slowly than expected. Despite the early adoption of the operational programmes, the designation of authorities responsible for their implementation was still not completed by December 2016, and the publication of calls for projects has fallen behind schedule. Delays in the preparation of implementation documents and manuals, insufficient internal capacity and continuity in the programme management, as well as high staff turnover linked to the political cycle are the main factors accounting for the delay. By December 2016 total ESI Funds implementation on the ground amounts to 20 % of the overall allocation for the programmes. Further details on EU co-financed investment are provided in Box 2.1.

3.4. Sectoral policies Small and medium-sized enterprises (SMEs) and diversification SMEs are important for growing and diversifying Slovakia’s automotive-dominated economy. The Slovak economy is heavily geared towards manufacturing, particularly in the automotive sector. Against this background, a supportive SME environment can promote diversification through grass-roots entrepreneurship. Slovakia is in a good position to promote growth via SMEs; firm birth and death rates in Slovakia are higher than in most other EU countries. ( ) The start-up rate of employer enterprises stood at 36.1 % in 2012-13 — one of the highest in OECD countries (OECD, 2016b). At the same time, the business survival rate of five-year-old Slovak enterprises in 2014 was 37.5 %, somewhat below the EU average of 44.3 %. ( ) Support services for SMEs have not yet exhausted their full potential. For example, the efficiency and speed of the services delivered by the ‘Point of Single Contact’ for start-up procedures and other government services are sub-optimal; various databases still need to be linked up better to ensure the successful application of the so-called ‘once-only’ principle; and the one-stop-shops dealing with administrative procedures for start-ups do not cover the full spectrum of services to enterprises. However, targeted support for SMEs is being improved and regulatory impact assessments (RIAs) enhanced. The Act on the Promotion of SMEs entered into force on 1 January 2017. This opens the way for the application of the Small Business Act and the Entrepreneurship 2020 action plan, and should help to ensure progress on implementing SMEfriendly policies. The bill clarifies coaching and mentoring and provides for better-structured and simpler support schemes for SMEs. To measure the regulatory impact of the new rules on SMEs, it introduces the SME test, for which pilot testing started in 2016. The test forms part of the RIA procedure which was strengthened in 2015 and 2016. The new RIA introduces the Standing Working Commission of the Legislative Council of the Government for Assessing Selected Impacts and mandatory consultations with the business sector whenever a regulatory proposal has a potential impact on businesses. However, risk assessments are not included in RIAs, and implementation and enforcement of existing rules is not covered by the RIA methodology. Overall, given that it is still in its infancy, the effectiveness and efficiency of the RIA framework remains to be seen. A long-term-strategy to lower the regulatory burden on companies is yet to be formulated. In the 2016 national reform programme, the Slovak government pledged to adopt a long-term strategy to reduce the regulatory burden on businesses in Slovakia, and amended the methodology for conducting impact assessments of legislative and non-legislative documents. However, this strategy has not been formulated and is postponed to December 2017. An inter-ministerial working group for Doing Business, led by the State Secretary of the Economy Ministry, was recently set up and is expected to present by June 2017 proposals for measures to improve the business environment. A new national business centre is planned to support enterprises. The centre aims to provide comprehensive support to entrepreneurs and SMEs. Pilot testing of the centre got under way in mid-2016 but full operation and the replication of business centres in the regions have been postponed due to delays in launching the relevant national project financed from the Operational Programme for research and innovation (OP RI). For the very first time, Slovakia received a substantial financial allocation of EUR 400 million from the ESIF for dedicated support of SMEs. Although the first calls have been launched, a number of national projects from the Operational Programme for research and innovation (R&I) to promote the growing, scalingup, internalisation and competitiveness of SMEs have not yet materialised. Regulated Professions Restrictive barriers remain in regulated professions. The level of restrictiveness is higher in Slovakia than the EU weighted average for all the professions recently reviewed by the European Commission (European Commission, 2016c). ( ) Restrictiveness is highest for lawyers (see Graph 3.4.1), and simulations suggest that a lowering of the restrictiveness indicator for lawyers to the EU average would boost the number of firms (+0.7 %) while lowering profitability by 2 %. However, for all the professions reviewed, the business churn (or turnover) rate in Slovakia is higher than or similar to the EU average, arguably indicating relatively high levels of dynamism and competition within regulated professions in the country. The national action plan submitted by Slovakia in connection with the mutual evaluation of regulated professions announces very limited changes to the existing restrictions governing access to regulated professions. Graph 3.4.1:Summary restrictiveness indicator for regulated professions (2015) Source: European Commission Research and innovation strategy In spite of rising public R&D expenditure, business R&D investment remained unchanged at relatively low levels in recent years. Overall, R&D spending increased from an annual average of 0.83 % of GDP in 2012-2014 to 1.18 % in 2015 (EU average: 2.03 % of GDP). Public R&D spending accounted for the entire increase in recent years (Graph 3.4.2) and was driven by the greater use of EU funds; however, it remains to be seen if public R&D investment can be maintained at its 2015 high as calls to draw funds from the new operational R&I programme are only just being launched. Business R&D expenditure remained virtually unchanged at 0.33 % of GDP in 2015, one of the lowest levels in the EU and well below Slovakia’s indicative target of 0.8 % for 2020. Graph 3.4.2:R&D intensity in Slovakia in 2000-2015 Source: European Commission Slovakia’s science base still ranks at the low end compared with other EU Member States. ( ) The low volume of business R&D activities in the country is also reflected in the low proportion of researchers employed by business relative to total employment (1 % in 2014, vs an EU average of 3.6 %). While Slovakia saw an improvement in its overall innovation performance between 2012 and 2014 according to the innovation index of the European Innovation Scoreboard, it still underperforms by EU standards and is classed as a moderate innovator (European Commission, 2016d). Poor links between the public sector, research institutions and businesses are evident from the low number of public-private copublications per million inhabitants (8.1, EU: 33.9) and the belowEUaverage scores in indicators for commercial and non-commercial research outputs in Slovakia. Upgrading Slovakia’s Research and Innovation (R&I) performance requires improvements in the governing policy framework. The slow progress made towards a more efficient and attractive R&I system risks hampering Slovakia’s transition from a cost-based to a more innovation-driven growth model. The underperformance of the public research system also seems to be linked to inefficiencies in public funding. This constitutes a bottleneck to growth, and the lack of sufficient public-private cooperation is hampering business R&D investment. ( ) The main challenges are linked to the need to improve governance in R&I and to increase coordination among governing institutions for developing and implementing R&I policy. Support measures for business R&I exist, but some remain relatively small-scale. Several national initiatives such as the development of clusters and innovation vouchers to foster cooperation between the research and business sectors received only limited funding. A special 125 % tax super-deduction for private companies investing in R&I entered into force in January 2015. However, it is not used extensively by companies, which claim that the eligibility criteria are unclear and the scheme is not generous enough. ( ) Most of the measures in the pipeline are to be financed by the R&I Operational Programme, but many have been delayed and some calls for demand-driven projects were only published in late 2016. Progress on implementing R&I reforms is slow. The national smart specialisation strategy adopted in November 2013 aims to identify strategic specialisation areas and supporting measures, and to put in place a modernised R&I governance structure. However, the action plan to implement the strategy was again postponed. In 2016 the Slovak Academy of Sciences launched an evaluation of its institutions with a view to improving the quality of research. The conversion of the Academy into a public organisation, which was intended to improve cooperation with the business sector, has been postponed. These continual delays hamper the effective and timely implementation of the reforms envisaged and slow down investment from the Structural Funds. Further general plans in support of R&D are being developed. The Slovak government adopted a decision in 2016 on the launch of three new programmes to be implemented by the Slovak Research and Development Agency in 2016-2019 with a budget of EUR 92 million. The programmes are linked to the national smart specialisation strategy and the Horizon 2020 European funding programme. They aim in particular to provide support to business R&D, including through cooperation with public research organisations, and to support projects which received high scores in the Horizon 2020 evaluation but were not allocated funding. Scientists will receive assistance with preparing proposals for grants from the European Re