Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2012 national reform programme and delivering a Council Opinion on Estonia’s stability programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Estonia, budgetary equilibrium, continuing vocational training, energy saving, job access, job creation, local government, motor vehicle pollution, social-security benefit, underground economy

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 311 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Estonia’s 2012 national reform programme  

and delivering a Council Opinion on Estonia’s stability programme  
for 2012-2015 

{SWD(2012) 311 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Estonia’s 2012 national reform programme  

and delivering a Council Opinion on Estonia’s stability programme  
for 2012-2015 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having regard to the recommendation of the European Commission2, 

Having regard to the conclusions of the European Council, 
Having regard to the resolutions of the European Parliament,3  

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

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

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and, on 21 
October  2010,  adopted  a  decision  on  guidelines  for  the  employment  policies  of  the 
Member States4, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

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4 

OJ L 209, 02.08.1997, p. 1 
COM(2012)311 final 
P7_TA(2012)0048 and P7_TA(2012)0047 
Council Decision 2012/238/EU of 26 April 2012 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On 12 July 2011, the Council adopted a recommendation on Estonia’s national reform 
programme  for  2011  and  delivered  its  opinion  on  Estonia’s  updated  stability 
programme for 2011-2014. 

On 23 November 2011, the Commission adopted the second Annual Growth Survey, 
marking  the  start  of  the  second  European  semester  of  ex-ante  and  integrated  policy 
coordination,  which  is  anchored  in  the  Europe  2020  strategy.  On  14  February  2012, 
the  Commission,  on  the  basis  of  Regulation  (EU)  1176/2011,  adopted  the  Alert 
Mechanism Report5, in which it did not identify Estonia as one of the Member States 
for which an in-depth review would be carried out. 

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

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

On  26  April  2012,  Estonia  submitted  its  stability  programme  covering  the  period 
2012-2015 and its 2012 national reform programme. In order to take account of their 
interlinkages, the two programmes have been assessed at the same time. 

Based  on  the  assessment  of  the  stability  programme  pursuant  to  Article  5(1)  of 
Council  Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that the 
macroeconomic scenario underpinning the budgetary projections in the programme is 
plausible  in  2012-13,  when  GDP  growth  is  expected  to  average  around  2.4%.  The 
Commission's  2012  spring  forecast  foresees  GDP  growth  of  3.8%  in  2013.  The 
objective of the budgetary strategy outlined in the programme is to ensure sustainable 
fiscal  policy  that  supports  balanced  growth,  by  achieving  a  structural  surplus  while 
ensuring sufficient fiscal buffers and reducing the tax burden on labour. The strategy 
also  aims  at  fulfilling  the  requirements  of  the  Stability  and  Growth  Pact.  The 
programme aims at overachieving the medium-term budgetary objective (MTO) of a 
structural  surplus  as  of  2012.  The  MTO  adequately  reflects  the  requirements  of  the 
Stability and Growth Pact. Based on the (recalculated) structural budget balance,6, the 
rate  of  growth  of  government  expenditure,  taking  into  account  discretionary  revenue 
measures, complies with the expenditure benchmark of the Stability and Growth Pact 
in  all  years  except  2013  (when  the  MTO  is  planned  to  be  reached)  and  2014.  In 
parallel, the programme aims at reaching headline surpluses as of 2014. The debt ratio 

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COM(2012) 68 final 
Cyclically  adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
services  on  the  basis  of  the  information  provided  in  the  programme,  using  the  commonly  agreed 
methodology. 

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is well below 60% of GDP and, according to the programme, is likely to decrease after 
2013 to about 10% in 2015.  

(9) 

Estonia  achieved  a  sizeable  budget  surplus  in  2011.  The  projected  rate  of  economic 
growth for 2012 in the Commission's 2012 spring forecast looks much weaker than for 
2011,  dropping  from  7.6%  to  1.6  %,  and  therefore  further  control  over  efficiency  of 
spending  is  necessary.  Estonia  plans  to  introduce  a  structural  budget  rule  in  2012  to 
help  keep  control  over  expenditure.  The  rule  should  be  complemented  by 
strengthening the binding nature of the multi-annual expenditure targets as soon as the 
budget  rule  is  in  place.  Thus,  Estonia  has  partially  implemented  the  2011 
recommendation in this area. 

(10)  As regards the labour market, a number of steps have been made in the area of labour 
taxation.  However,  the  incentives  to  work  can  be  improved  by  addressing  the  rising 
trend  in  take  up  of  disability  and  incapacity-for-work  benefits  and  by  making  work 
pay  for  low  and  high-income  earners  receiving  unemployment  and  parental  benefits. 
While  promising  efforts  are  made  to  reduce  the  high  unemployment,  long-term  and 
youth unemployment is still high. As a result, the poverty risk of children in jobless 
households  is  increasing  and  needs  to  be  addressed  by  effective  social  services, 
including family services. The family support itself could be made more efficient in a 
budget-neutral  way  by  better  targeting  the  allocation  of  parental  and  family  benefits 
and by removing inefficient income tax exemptions related to children. 

(11)  The measures in the National Energy Efficiency Action Plan are still insufficient given 
the current trend of modal shift away from public transport. The fleet of new cars in 
Estonia  is  the  most  energy  intensive  in  EU.  Fuel  excise  duties  are  insufficient  in 
shifting consumer patterns. The transposition of several energy-related EU Directives 
has not yet been fully completed. Estonia still needs to diversify its energy supply. The 
electricity  infrastructure  could  be  upgraded  to  integrate  increasing  amounts  of  wind 
energy. 

(12)  The  quality  and  availability  of  vocational  education  has  considerably  improved  and 
more modernisation measures are planned for 2012-13. However, the transition from 
general  education  to  vocational  education  (VET)  needs  to  be  improved,  and  a 
generalisation  of  more  work-based  schemes  could  be  considered.  Lifelong  learning 
participation  is  improving,  but  there  is  an  insufficient  focus  on  low-skilled  workers. 
There are continuing problems with matching education outcomes with labour market 
needs.  There  is  also  a  need  to  urgently  reform  upper-secondary  education  and  for 
further improvement in the provision of education services by local authorities. Also, 
cooperation between the business sector and higher education institutions continues to 
be  weak,  while  the  knowledge-intensive  part  of  the  private  sector  should  be  further 
developed. 

(13)  To  reflect  the  declining  demographic  trend  and  ensure  a  balanced  and  competitive 
regional development there is a longer-term need to ensure financial sustainability of 
local  governments  as  well  as  to  ensure  a  better  provision  of  public  services  at  local 
level and optimise the use of relatively dispersed resources. Being limited in size, the 
majority  of  local  governments  have  difficulties  to  universally  deliver  the  necessary 
social, health, labour market, transport and educational services.  

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(14)  Estonia  has  made  a  number  of  commitments  under  the  Euro  Plus  Pact.  These 
commitments, and the implementation of the commitments presented in 2011, relate to 
fostering  employment,  improving  competitiveness  and  enhancing  sustainability  of 
public  finances.  The  Commission  has  assessed  the  implementation  of  the  Euro  Plus 
Pact commitments. The results of this assessment have been taken into account in the 
recommendations. 

(15) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Estonia’s  economic  policy.  It  has  assessed  the  stability 
programme  and  national  reform  programme.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socio-economic  policy  in  Estonia  but  also  their 
compliance  with  EU  rules  and  guidance,  given  the  need  to  reinforce  the  overall 
economic governance of the European Union by providing EU-level input into future 
national decisions. Its recommendations under the European Semester are reflected in 
recommendations (1) to (5) below. 

(16) 

In  the  light  of  this  assessment,  the  Council  has  examined  Estonia’s  stability 
programme, and its opinion7 is reflected in particular in recommendation (1) below, 

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

1. 

2. 

3. 

4. 

5. 

Preserve  a  sound  fiscal  position  by  implementing  budgetary  plans  as  envisaged, 
ensuring achievement of the medium-term budgetary objective (MTO) by 2013 at the 
latest,  and  compliance  with  the  expenditure  benchmark.  Complement  the  planned 
budget  rule  with  more  binding  multi-annual  expenditure  rules  within  the  medium-
term budgetary framework, continue enhancing the efficiency of public spending and 
step up the fight against the shadow economy. 

Improve incentives to work by streamlining the social benefits system and increasing 
flexibility in the allocation of disability, unemployment and parental benefits, while 
ensuring adequate social protection. Improve delivery of social services, while better 
targeting  family  and  parental  benefits  and  removing  distortionary  income  tax 
exemptions related to children. Increase the participation of the young and the long-
term unemployed in the labour market.  

Link training and education more effectively to the needs of the labour market, and 
enhance  cooperation  between  businesses  and  academia.  Increase  opportunities  for 
low skilled workers to improve their access to life-long learning. Foster prioritisation 
and internationalisation of the research and innovation systems. 

Improve  energy  efficiency,  in  particular  in  buildings  and  transport,  and  strengthen 
environmental  incentives  concerning  vehicles  and  waste,  including  by  considering 
incentives  such  as  the  taxation  of  vehicles.  Foster  renewable  energy  use,  including 
through upgraded infrastructure and legislation. Continue the development of cross-
border connections to end relative market isolation.  

Enhance  fiscal  sustainability  of  municipalities  while  improving  efficiency  of  local 
governments  and  ensure  effective  service  provision,  notably  through  stronger 

7 

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

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incentives  for  merger  or  increased  cooperation  of  municipalities.  Relevant  reform 
proposals should be put in place within a reasonable timeframe. 

Done at Brussels, 

For the Council 
The President 

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