Recommendation for a COUNCIL RECOMMENDATION on Slovakia’s 2012 national reform programme and delivering a Council opinion on Slovakia’s stability programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Roma, Slovakia, budget deficit, budgetary equilibrium, civil service, educational reform, employment service, fight against unemployment, pension scheme, public expenditure, recruitment, reintegration into working life, social integration, tax reform

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 326 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Slovakia’s 2012 national reform programme  

and delivering a Council opinion on Slovakia’s stability programme for 2012-2015 

{SWD(2012) 326 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Slovakia’s 2012 national reform programme  

and delivering a Council opinion on Slovakia’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 resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(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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OJ L 209, 02.08.1997, p. 1 
COM(2012)325 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  Slovakia’s  national 
reform programme for 2011 and delivered its opinion on Slovakia’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)  No  1176/2011,  adopted  the  Alert 
Mechanism Report5, in which it did not identify Slovakia 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. 

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  30  April  2012,  Slovakia  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  2012  stability  programme  pursuant  to  Council 
Regulation  (EC)  No1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario  underpinning  the  budgetary  projections  in  the  programme  is  plausible.  It  is 
broadly  in  line  with  the  Commission's  2012  spring  forecast,  although  the  latter 
assumes  somewhat  higher  real  GDP  growth  in  2012.  The  stated  objective  of  the 
budgetary strategy outlined in the programme is to ensure the long-term sustainability 
of  public  finances.  The  intermediary  steps  defined  to  reach  this  are  a  rigorous 
implementation of the 2012 budget and a reduction of the headline deficit below 3% of 
GDP in 2013, the deadline for correction of the excessive deficit set by the Council. 
The  achievement  of  the  headline  deficit  target  in  2013,  however,  may  fall  short  of 
plans. The programme has changed the medium-term budgetary objective (MTO) from 
a  close-to-balanced  budget  to  a  structural  deficit  of  0.5%  of  GDP,  which  is  not 
foreseen  to  be  achieved  within  the  programme  period.  The  new  MTO  adequately 
reflects the requirements of the Stability and Growth Pact. Based on the (recalculated) 
structural  budget  balance6,  the  average  annual  fiscal  effort  in  2010-2013  amounts  to 
1.3% of GDP, well above the required value recommended by the Council, whereby 
the  residual  fiscal  effort  is  somewhat  back  loaded  to  2013.  The  target  for  2013  is 
subject  to  risks,  as  suggested  revenue  measures  may  fall  short  of  the  objective; 
simultaneous  implementation  of  all  small-scale  measures  can  be  difficult  to 

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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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implement, and Slovakia has a history of significant ex-post upward revisions of the 
deficit  targets.  In  addition,  further  across-board  expenditure  cuts  may  prove 
unsustainable in the medium term. In 2014 and 2015, the average fiscal effort stands at 
0.3% of GDP annually, which is below the required adjustment of 0.5% of GDP for 
countries  which  have  not  yet  reached  the  MTO.  Nevertheless,  according  to  the 
programme  the  growth  rate  of  government  expenditure,  taking  into  account 
discretionary  revenue  measures,  is  in  line  with  the  expenditure  benchmark  of  the 
Stability  and  Growth  Pact  in  the  outer  years  of  the  programme.  Government  debt 
would remain well below 60% of GDP. While Slovakia passed legislation establishing 
the  Fiscal  Council,  so  far  it  has  not  been  set  up  and  the  legislation  on  expenditure 
ceilings has not yet been adopted. 

(9) 

Given the diminishing scope for further expenditure-based consolidation and the need 
to support continuing convergence through expenditure in key areas such as education, 
innovation  and  transport  infrastructure,  there  is  scope  for  measures  aimed  at 
broadening  the  tax  base,  limiting  tax  avoidance  and  improving  tax  compliance, 
without hurting near-term growth prospects. Tackling one of the largest VAT gaps in 
the  EU  could  bring  significant  additional  revenue.  There  is  also  room  for  increasing 
receipts from taxes that are least harmful to growth, including real estate taxation, and 
environmental  taxation.  Effective  taxation  of  labour  income  varies  according  to 
different  types  of  employment.  This  encourages  a  shift  towards  more  flexible  job 
arrangements with negative short- and long-term impacts on public accounts.  

(10)  Slovakia  has  only  partially  addressed  the  long-term  sustainability  of  its  public 
finances, as it has not implemented the envisaged changes to the pay-as-you-go pillar 
of its pension system. Measures were taken to enhance the viability of the fully funded 
pension  pillar.  However,  an  unstable  legal  environment  with  frequent  significant 
changes  in  the  past  entailed  non-negligible  adjustment  costs  and  introduced 
uncertainty in the fully funded pillar. 

(11)  No  significant  measures  have  been  taken  to  address  Slovakia’s  unemployment 
problem.  There  is  still  a  need  to  improve  the  effectiveness  of  active  labour  market 
policies  and  the  capacity  of  the  public  employment  service.  There  is  also  a  need  for 
measures to increase the labour market participation of older workers and women, in 
particular  through  childcare  provision.  The  tax  wedge,  including  all  compulsory 
payments,  remains  relatively  high  for  low-income  workers  and  a  proportion  of 
jobseekers have little incentive to move from social assistance to a low-paid job. 

(12)  Only limited measures were adopted to improve the low quality of the education and 
training  system.  To  tackle  Slovakia’s  high  youth  unemployment,  the  Youth  Action 
Plan  should  be  adopted  and  implemented  without  delay,  in  line  with  the  outcome  of 
the  Slovakia  -  Commission  joint  action  team  on  youth  unemployment,  including  the 
reform of vocational education and training as well as higher education. An updated 
strategy  on  lifelong  learning  was  adopted.  However,  no  particular  incentives  were 
introduced to ensure higher participation rates. 

(13)  Marginalised communities, including the Roma, are largely excluded from the labour 
market and the mainstream education system, representing a significant underutilised 
labour  potential  in  the  Slovak  economy.  In  order  to  tackle  this  problem,  Slovakia 
should  step  up  efforts  to  improve  educational  outcomes  of  marginalised  groups  and 
reinforce its reintegration policies for adults. 

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(14)  Slovakia has substantially enhanced the transparency of public procurement rules and 
judiciary, although judicial proceeding remains long and costly. However, the overall 
quality  and  capacity  of  public  institutions  remains  weak.  The  public  administration 
lacks strategic approach, suffers from high turnover of staff and insufficient capacity 
building,  which  hampers  policy  development  and  implementation  and  delivery  of 
public services. 

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

(16) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Slovakia’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  Slovakia  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 (7) below.  

(17) 

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

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

1. 

2. 

3. 

Take  additional  measures  in  2012  and  specify  the  necessary  measures  in  2013,  to 
correct  the  excessive  deficit  in  a  sustainable  manner  and  ensure  the  structural 
adjustment  effort  specified  in  the  Council  recommendations  under  the  Excessive 
Deficit  Procedure.  Implement  targeted  spending  cuts,  while  safeguarding  growth-
enhancing  expenditure,  and  step  up  efforts  to  improve  the  efficiency  of  public 
spending.  Thereafter,  ensure  an  adequate  structural  adjustment  effort  to  make 
sufficient  progress  towards  the  medium-term  objective,  including  meeting  the 
expenditure  benchmark.  Accelerate  the  setting  up  of  the  Fiscal  Council  and  adopt 
rules on expenditure ceilings. 

Increase  tax  compliance,  in  particular  by  improving  the  efficiency  of  VAT 
collection;  reduce  distortions  in  taxation  of  labour  across  different  employment 
types, also by limiting tax deductions; link real estate taxation to the market value of 
property; make greater use of environmental taxation. 

Further  adjust  the  pay-as-you-go  pension  pillar,  mainly  by  changing  the  indexation 
mechanism,  introducing  a  direct  link  between  the  statutory  retirement  age  and  life 
expectancy and introducing a sustainability factor in the pension calculation formula 
reflecting demographic change. Ensure the stability and viability of the fully funded 
pillar.  

7 

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

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4. 

5. 

6. 

7. 

Enhance  the  administrative  capacity  of  public  employment  services  with  a  view  to 
improve  the  targeting,  design  and  evaluation  of  active  labour  market  policies  to 
ensure  more 
long-term 
unemployed, older workers and women. Ensure the provision of childcare facilities. 
Reduce the tax wedge for low-paid workers and adapt the benefit system.  

individualised  employment  services  for 

the  young, 

Adopt and implement the Youth Action Plan, in particular as regards the quality and 
labour market relevance of education and vocational training, including through the 
introduction of an apprenticeship scheme. Improve the quality of higher education by 
strengthening quality assurance and result orientation. 

Take active measures to improve access to and quality of schooling and pre-school 
education of vulnerable groups, including Roma. Ensure labour market reintegration 
of  adults  through  activation  measures  and  targeted  employment  services,  second-
chance education and short-cycle vocational training. 

Strengthen the quality of the public service, including by improving management of 
human  resources.  Further  shorten  the  length  of  judicial  proceedings  and  strengthen 
the role of the Public Procurement office as an independent body..  

Done at Brussels,  

For the Council 
The President 

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