COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and convergence programme for THE CZECH REPUBLIC Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the Czech Republic’s 2013 national reform programme and delivering a Council Opinion on the Czech Republic’s convergence programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Czechia, administrative reform, budgetary equilibrium, economic growth, economic recession, innovation, job creation, labour market, public expenditure

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 353 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and convergence programme for 
THE CZECH REPUBLIC 

Accompanying the document 

Recommendation for a COUNCIL RECOMMENDATION  

on the Czech Republic’s 2013 national reform programme and delivering a Council 
Opinion on the Czech Republic’s convergence programme for 2012-2016 

{COM(2013) 353 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
 
 
CONTENTS 

Executive summary .................................................................................................................... 3 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

4. 

5. 

Introduction .................................................................................................................. 5 

Economic developments and challenges...................................................................... 6 

Recent economic developments and outlook............................................................... 6 

Challenges .................................................................................................................... 7 

Assessment of policy agenda ....................................................................................... 9 

Fiscal policy and taxation............................................................................................. 9 

Financial sector .......................................................................................................... 20 

Labour market, education and social policies ............................................................ 21 

Structural measures promoting growth and competitiveness..................................... 25 

Modernisation of public administration ..................................................................... 29 

Overview table ........................................................................................................... 32 

Annex ......................................................................................................................... 36 

2 

 
 
 
 
EXECUTIVE SUMMARY 

Economic Outlook 

The  Czech  economy  contracted  by  1.3%  in  2012,  and  is  expected  to  shrink  again,  by 
0.4%,  in  2013,  with  real  GDP  growth  turning  positive  (1.6%)  in  2014  on  the  back  of 
growing household income. The unemployment rate, which was 7% in 2012, is projected to 
rise  to  7.5%  in  2013  and  to  edge  lower  in  2014.  Industrial  production  is  showing  signs  of 
stabilisation  compared  to  the  weak  2012  outcome  and  consumer  confidence  has  already 
started to improve, although from a very low level. Inflation is expected to remain subdued, 
falling from 3.5% in 2012 to 1.9% in 2013 and 1.2% in 2014. 

The headline budget deficit increased to 4.4% of GDP in 2012, significantly worse than 
forecast in the 2012 convergence programme, and the Commission projects it will fall to 
2.9% of GDP in 2013. However, the Czech authorities do not envisage further consolidation 
measures  in  2014  and  beyond,  and  the  Commission  forecasts  that  the  deficit  will  increase 
marginally to 3% of GDP in 2014. The 2013 convergence programme confirms the medium-
term objective (MTO) of a structural deficit of 1% of GDP, but it does not specify a deadline 
for its achievement. The structural deficit is projected to increase in 2014-2016; therefore no 
adjustment  towards  the  medium-term  objective  is  foreseen.  Government  debt is  expected  to 
reach nearly 52% of GDP in 2016 (from around 46% of GDP in 2012), but to remain below 
the 60% of GDP reference value.  

Key Issues 

Progress  has  been  made  on  fiscal  and  structural  policies  during  the  last  year  and  the 
Czech  Republic  has  reduced  its  budget  deficit  in  2012,  excluding  the  one-off  deficit-
increasing  impact  of  the  adoption  of  the  law  on  financial  compensations,  despite  the 
deteriorating  economic  situation.  In  the  last  twelve  months,  the  Czech  authorities 
implemented a sizeable consolidation package, including increases in indirect taxes, reformed 
the public procurement system, and took steps to strengthen the EU funds management and 
control system. However, reform efforts in other areas, including the long-term sustainability 
of public finances, the quality of fiscal adjustment, childcare services and education have been 
limited.  

In  the  short  term,  the  main  challenge  is  to  kick-start  economic  recovery  by  pursuing 
growth  friendly  fiscal  consolidation,  ensuring  the  correct  use  of  EU  funds,  better 
exploiting  the  potential  in  the  labour  market  and  improving  public  administration, 
education  and  research.  While  the  case  for  moving  ahead  with  structural  reforms  remains 
strong, weak growth and rising unemployment make it crucial to target policies that can also 
deliver results in the short term.  

•  Public  finances:  Prioritising  spending  on  employment,  research  and  innovation, 
education,  childcare  and  transport  and  environment  projects  -  such  as  projects  co-

3 

 
 
financed by EU funds – could bolster growth, while broadening tax bases,  including 
by  further  evening  out  differences  between  employees  and  the  self-employed,  could 
help  to  raise  revenues  in  a  non-distortive  manner.  Despite  the  relatively  low  general 
government  debt-to-GDP  ratio  (45.8%  in  2012),  rising  expenditure  on  pensions  and 
healthcare could, in the medium and long term, limit the room for spending on other 
policies and generate substantial public deficits.  

•  Labour market: While the labour-market situation in the Czech Republic has proved 
to be relatively robust, the challenge remains to bring more women and disadvantaged 
groups  –  particularly  young  and  older  people,  low-skilled  workers,  long-term 
unemployed  and  Roma  –  into  the  workforce.  The  employment  rate  of  women  was 
only 62.5% in 2012 (compared to 80.2% of men) and is exacerbated by the continued 
shortage of childcare facilities, while the gender pay gap was 21% in 2011, one of the 
highest in the EU (16.2 %). There is also a need to ensure that education and training 
reflects  labour  market  needs,  as  the  number  of  third-level  graduates  almost  doubled 
between 2006 and 2012 (from 13.1% to 25.6%).  

•  Innovation:  A  major  concern  is  the  relatively  low  level  of  R&D  investment  by 
domestic  firms  (0.72  %  of  GDP  in  2011,  below  EU  average)  and  the  international 
relevance of research done by public research institutions.  

•  Public administration: Low accountability and stability in the public administration 
is a risk for tackling the challenges the Czech Republic is facing. Public administration 
is  hindered  by  unclear  career  progression  and  vulnerability  to  political  influence. 
Corruption and low operational efficiency in the public administration are perceived as 
major  issues,  and  the  Czech  Republic  remains  at  the  21st  place  among  the  EU 
countries 
ranking. 
Furthermore, there is scope to improve tax compliance. 

International  corruption  perception 

the  Transparency 

in 

4 

 
 
 
1.  INTRODUCTION 

In  May  2012,  the  Commission  proposed  a  set  of  country-specific  recommendations  (CSRs) 
for  economic  and  structural  reform  policies  for  the  Czech  Republic.  On  the  basis  of  these 
recommendations,  the  Council  of  the  European  Union  adopted  six  CSRs  in  the  form  of  a 
Council  Recommendation  in  July  2012.  These  CSRs  concerned  public  finances,  the  tax 
system, the pension system, the labour market, the performance of public administration and 
education. This Staff Working Document (SWD) assesses the state of implementation of these 
recommendations in the Czech Republic. 

The  SWD  assesses  policy  measures  in  light  of  the  findings  of  the  Commission’s  Annual 
Growth Survey 2013 (AGS)1 and the second annual Alert Mechanism Report (AMR),2 which 
were  published  in  November  2012.  The  AGS  sets  out  the  Commission’s  proposals  for 
building the necessary common understanding about the priorities for action at national and 
EU  level  in  2013.  It  identifies  five  priorities  to  guide  Member  States  to  renewed  growth: 
pursuing differentiated, growth-friendly fiscal consolidation; restoring normal lending to the 
economy;  promoting  growth  and  competitiveness  for  today  and  tomorrow;  tackling 
unemployment  and  the  social  consequences  of  the  crisis;  and  modernising  the  public 
administration.  The  AMR  serves  as  an  initial  screening  device  to  determine  whether 
macroeconomic  imbalances  exist  or  risk  emerging  in  Member  States.  The  AMR  found 
positive signs that macroeconomic imbalances in Europe are being corrected. To ensure that a 
complete and durable rebalancing is achieved, 14 Member States were selected for a review 
of developments in the accumulation and unwinding of imbalances.3 

Against  the  background  of  the  2012  Council  Recommendation,  the  AGS  and  the  AMR,  the 
Czech  Republic  presented  updates  of  its  national  reform  programme  (NRP)  and  of  its 
convergence  programme  in  April  2013.  These  programmes  provide  detailed  information  on 
progress  made  since  July  2012  and  on  the  future  plans  of  the  government.  The  information 
contained  in  these  programmes  provides  the  basis  for  the  assessment  made  in  this  Staff 
Working Document. 

The programmes submitted went through an open consultation process. The preparation of the 
national reform programme involved representatives of the Czech parliament, social partners, 
regional  authorities  and  other  stakeholders.  Before  adoption  by  the  government  the 
convergence programme was submitted to and discussed in the Czech parliament. 

Overall assessment 

1 COM(2012) 750 final. 
2 COM(2012) 751 final. 
3  13  in-depth  reviews  were  published  on  10  April  2013.  While  selected  for  an  in-depth  review  in  the  AMR, 
Cyprus  was  ultimately  not  reviewed  under  the  Macroeconomic  Imbalance  Procedure  in  view  of  the  advanced 
preparations for a financial assistance programme. 

5 

 
 
                                                 
The  analysis  in  this  SWD  leads  to  the  conclusion  that  the  Czech  Republic  has  made  some 
progress on measures taken to address the CSRs issued by the Council on fiscal consolidation, 
taxation, the public employment service and reforms of the public administration. In the last 
twelve  months,  a  sizeable  consolidation  package,  including  increases  in  indirect  taxes,  has 
been  adopted,  and  a  reform  of  public  procurement  and  an  action  plan  to  strengthen  the  EU 
funds control system have been implemented. 

Only limited  progress has been made so far in implementing the 2012 recommendations on 
increasing  the  availability  of  childcare  facilities,  improving  the  quality  of  fiscal  adjustment 
and  evaluating  education  and  research  outcomes.  No  progress  has  been  made  on  improving 
the long-term sustainability of public finances. 

Challenges identified in July 2012 and reiterated in the AGS remain valid. In the short term, 
the main challenge is to kick-start economic recovery by substantially improving the quality 
of fiscal adjustment, prioritising and ensuring correct use of EU funds, making better use of 
the potential in the labour market and enhancing and stabilising the public administration and 
public procurement. Higher quality and efficiency in the education and research system would 
help  buttress  innovation  and  human  capital,  improving  medium-  and  long-term  growth 
prospects. 

The  policy  plans  submitted  by  the  Czech  Republic  address  the  challenges  identified  in  last 
year’s Staff Working Document, and broad coherence between the two programmes has been 
ensured.  The  national  reform  programme  confirms  the  Czech  Republic’s  commitment  to 
address  shortcomings  in  the  areas  of  education  and  the  business  environment.  The 
convergence programme demonstrates the Czech Republic’s commitment to comply with the 
recommendations  of  the  Excessive  Deficit  Procedure  in  line  with  the  Stability  and  Growth 
Pact. 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. 

Recent economic developments and outlook 

Recent economic developments 

The Czech economy posted negative GDP growth of -1.3 % in 2012, as it shrank for four 
consecutive quarters. A strong deterioration in consumer confidence, with repercussions on 
household consumption, a drop in public investment and a weaker external environment were 
the main drags on growth in 2012. Household consumption was particularly hard hit in view 
of  the  hikes  in  energy  and  food  prices  and  the  ongoing  fiscal  consolidation,  including  tax 
increases (mainly value added tax). The unemployment rate has risen only moderately so far, 
but  the  comparatively  robust  labour  market  performance  masks  a  persistent  shift  of  labour 
from  regular  employment  to  bogus  self-employment  as  well  as  cuts  in  hours  worked. 
Households  are  therefore  under  pressure  not  only  due  to  weak  income  growth  but  also 
because of lower job security, all of which have a clear impact on confidence. 

6 

 
 
Economic outlook 

Economic  activity  should  bottom  out  in  the  middle  of  the  year  along  with  a  gradual 
recovery in consumer confidence. However, real GDP growth is still expected to edge down 
in  2013,  largely  due  to  a  weaker  outlook  for  investment.  While  industrial  production  is 
showing  signs  of  stabilisation  compared  to  the  last  quarter  of  2012,  falling  domestic  and 
foreign  orders  do  not  augur  well  for  a  swift  improvement.  On  the  other  hand,  consumer 
confidence  has  already  started  to  improve,  although  from  a  very  low  level.  Weak  wage 
growth  and  somewhat  higher  unemployment  should  still  weigh  on  private  consumption  in 
2013 but the recovery is expected to gain traction  in 2014. The economy  should  pick up in 
2014,  supported  by  growth  in  real  household  income  and  a  slower  pace  of  fiscal 
consolidation.  Given  the  absence  of  near-term  cost  and  demand  pressures,  inflation  should 
remain subdued over the forecast horizon. 

The macroeconomic outlook underlying the CP and NRP is broadly plausible. According 
to the convergence programme, real GDP growth is expected to reach 0.0 % and 1.2 % in 2013 
and  2014  respectively,  compared  to  -0.4 %  and  1.6 %  in  2013  and  2014  respectively  in  the 
Commission  2013  spring  forecast.  The  macroeconomic  scenario  of  the  CP/NRP  does  not 
include estimates of the macroeconomic impact of structural reforms. 

2.2. 

Challenges 

The  Czech  Republic  continues  to  face  significant  challenges  in  terms  of  strengthening 
the  domestic  drivers  of  growth  and  the  institutional  fundamentals  of  the  economy. 
Overall, the Czech economy is affected by the quality of consolidation measures, insufficient 
effectiveness  in  the  public  administration,  underutilised  potential  in  the  labour  market,  in 
particular for women with children, and a slow transition to knowledge-based growth. While 
the  case  for  moving  ahead  with  structural  reforms  remains  strong,  the  deteriorating  cyclical 
situation  and  the  rising  unemployment  rate  have  accentuated  the  importance  of  policy 
responses that can deliver results also in the short term. 

The  overarching  current  challenge  therefore  is  to  promote  a  sustainable  job-rich 
recovery.  Given  that  the  room  for  manoeuvre  for  fiscal  policy  is  limited  by  the  need  to 
commit  to  fiscal  stability,  it  is  essential  to  pursue  fiscal  consolidation  in  a  manner  that 
mitigates the negative short-term impact on growth. On the revenue side, this entails making 
the  tax  system  more  efficient  and  fairer  by  broadening  tax  bases,  as,  for  instance,  large 
differences  remain  in  taxes  imposed  on  employees  and  self-employed.  This  contributes  to 
eroding tax revenues and gives rise to ‘shadow employment’. Furthermore, there is scope to 
improve tax compliance and shift the structure of taxation from labour towards taxes that are 
less  harmful  to  job  creation  and  stimulate  sustainable  resource-efficient  growth,  such  as 
recurrent taxes on housing and vehicle circulation taxes.  

A  faster  and  sustainable  recovery  is  hindered  by  repeated  cuts  in  public  investment 
expenditure.  Prioritising  growth-enhancing  expenditures  with  a  high  multiplicative  effect, 

7 

 
 
such  as  projects  co-financed  by  EU  funds,  would  not  only  help  buttress  recovery  but  could 
also  contribute  to  tackling  the  long-term  challenges  identified  in  the  2012  staff  working 
document.  Substantial  growth  effects  could  follow  from  expenditure  on  employment-
activating  policies,  research  and  innovation,  education,  childcare  facilities  and  projects 
improving  the  quality  of  the  transport  network  and  the  environment.  In  view  of  the  high 
energy  intensity  of  the  economy,  investments  in  energy  efficiency  would  strengthen  the 
foundation for sustainable development. At the same time, ensuring correctness and efficiency 
of such spending is key. 

Modernising pensions and healthcare systems would help ensure their sustainability and 
adequacy.  Long-term  projections  show  that  the  Czech  pension  and  healthcare  systems  are 
facing  substantial  expenditure  increases  in  the  long  run.  Despite  the  relatively  low  general 
government  debt-to-GDP  ratio,  rising  expenditure  on  pensions  and  healthcare  could,  in  the 
medium  and  long  term,  limit  the  room  for  discretionary  spending  on  other  policies  and 
generate substantial public deficits. 

Human capital is an essential ingredient for strengthening knowledge-based growth. As 
the  number  of  graduates  from  Czech  higher  education  institutions  has  been  rising  in  recent 
years, the challenge is to ensure that the education and training students receive is of adequate 
quality  and  reflects  labour-market  needs  in  both  the  national  and  the  regional  context. 
Regarding  the  research  and  innovation  system,  a  major  concern  is  the  relatively  low 
international  relevance  of  research  produced  by  domestic  firms  and  public  research 
institutions.  The  potential  for  a  strong  high-tech  orientation  of  the  economy  offered  by  the 
sizeable manufacturing sector remains still underexploited. 

While  the  labour-market  situation  in  the  Czech  Republic  has  proved  to  be  relatively 
robust, challenges remain in specific segments. The principal one is the untapped potential 
in  participation  of  women  with  young  children,  who  are  disadvantaged  by  the  scarce 
provision of affordable and quality childcare. This prevents them from returning to jobs after 
parental  leave  fast  enough  to  retain  the  skills  and  human  capital  built  up  in  education  and 
previous  occupations.  The  employability  and  labour  market  participation  of  disadvantaged 
people  also  remains  to  be  improved,  in  particular  as  measures  implemented  by  the  public 
employment services do not effectively address the challenge. 

Low  accountability  and  stability  in  the  public  administration  is  a  risk  for  tackling  the 
challenges  the  Czech  Republic  is  facing.  Performance  of  the  public  administration  is 
hindered by unclear career progression and vulnerability to political influences. Due to these 
factors, corruption and low operational efficiency in the public administration are perceived as 
major issues. 

8 

 
 
3.  ASSESSMENT OF POLICY AGENDA 

3.1. 

Fiscal policy and taxation 

Budgetary developments and debt dynamics 

The  objective  of  the  budgetary  strategy  of  the  Czech  Republic  is  to  bring  the 
government deficit below the 3 % of GDP reference value by 2013 and keep the deficit 
below the 3 % of GDP reference value in 2014-16. The programme confirms the medium-
term budgetary objective (MTO), which was fixed at a structural deficit of 1 % of GDP in the 
previous 2012 programme. The MTO reflects the objectives of the Stability and Growth Pact. 
However,  the  date  for  the  achievement  of  the  MTO  is  postponed  until  after  2016  without 
further specification. In addition, the programme foresees an increase in the structural deficit 
in 2014-16. 

The headline general government deficit increased to 4.4 % of GDP in 2012, significantly 
worse than the objective envisaged in the 2012 programme. The worsening reflects mainly 
the impact of two one-off deficit-increasing operations: the adoption of the law on financial 
compensation  to  churches  (1.5  percentage  points,  or  pps,  of  GDP)  and  corrections  resulting 
from  irregularities  in  the  management  of  EU  funds  (0.3  pps  of  GDP).  Without  these 
operations,  the  headline  deficit  would  have  shown  a  stronger  improvement  than  targeted  in 
the previous programme (a deficit of 2.9 % of GDP). The final budgetary outcome was also 
influenced  by  revenue  and  expenditure  measures  (see  Box  1)  and  a  continued  reduction  in 
public  investment.  Overall,  the  2012  budget  was  implemented  in  line  with  the  2012 
recommendation even though public investment was reduced significantly. 

The  programme  envisages  a  reduction  in  the  headline  general  government  deficit  to 
2.8 %  of  GDP  in  2013.  Expenditure  growth  should  be  contained  somewhat  by  the 
expenditure  measures  adopted  (further  across-the-board  cuts  in  government  consumption,  a 
continued freeze on public sector wages at the central level, and lower indexation of pensions) 
but, excluding the effect of the two 2012 one-offs, the total expenditure ratio is projected to 
increase by 0.6 pps to 43.3 % of GDP in 2013. Revenues are forecast to increase by 0.4 pps to 
40.4 %  of  GDP  in  2013  on  account  of  temporary  and  permanent  revenue-side  measures 
adopted  in  2012,  which  include  an  increase  in  both  value  added  tax  (VAT)  rates,  in  excise 
duties  and  in  the  property  transaction  tax  along  with  changes  in  personal  income  tax  and 
social  contributions  (see  Box 1).  The  Commission  services  2013  spring  forecast  projects  a 
slightly  higher  government  deficit  at  2.9 %  of  GDP  in  2013,  based  on  a  more  conservative 
underlying macroeconomic scenario in 2013. Despite the net positive effect of discretionary 
measures, the recalculated structural balance4 will improve by only 0.1 pp to 1.6 % of GDP in 
2013.  The  risk  of  a  worse-than-expected  budgetary  outcome  in  2013  mainly  stems  from 
additional  corrections  in  EU  funds  reimbursements.  On  the  other  hand,  one-off  revenues 

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

9 

 
 
                                                 
linked to the planned auction  of  new telecom  frequency bands  could result in a better-than-
expected  budgetary  outcome  compared  to  both  the  convergence  programme  and  the 
Commission services 2013 spring forecast. 

10 

 
 
 
Box 1. Main measures 

Main budgetary measures 

  Revenue 

Expenditure 

2012 

•  Increase  in  the  lower  VAT  rate  from 

10 % to 14 % (+0.5 % of GDP) 

•  Introduction  of  a  lottery  tax  (+0.2 %  of 

GDP) 

•  Increase  in  excise  duties  on  tobacco 

(+0.1 % of GDP) 

•  Higher  tax  allowance  for  families  with 

children (-0.1 % of GDP) 

•  Adoption  of 

financial 
compensations  to  churches  (+1.5 %  of 
GDP) 

law  on 

the 

•  Cuts  in  operational  expenditure  of  and 
public  subsidy  to  construction  savings 
scheme (-0.6 % of GDP) 

•  Financial  corrections  to  non-recognised 
expenditures  co-financed  from  the  EU 
(+0.3 % of GDP) 

2013 

•  Increase  in  the  both  VAT  rates  and  in 

excise duties (+0.4 % of GDP) 

•  Changes  in  personal  income  tax  and 
health insurance contributions (+0.2 % of 
GDP) 

•  Cuts  in  operational  expenditure  of  the 
central government (-0.3 % of GDP) 
•  Lower indexation of pensions (-0.2 % of 

GDP) 

•  Reduction  in  subsidies  for  renewable 

•  Introduction of a private pension pillar (-

energy (-0.1 % of GDP) 

0.2 % of GDP) 

•  Increase  in  the  property  transfer  tax  and 

other revenue (+0.1 % of GDP) 

2014 

•  Further changes in excise duties adopted 
as part of 2012 revenue package (+0.1 % 
of GDP) 

•  Expiry  of  special  tax  on  photovoltaic 

power plants (-0.2 % of GDP) 

•  Frontloading  of  some  measures 
personal income tax (+0.1 % of GDP) 

in 

•  Changes  in  sickness  benefit  payment 

system (+0.1 % of GDP) 

•  Savings resulting from the simplification 
of public administration (-0.3 % of GDP) 

2015 

•  Changes 

related 

to  direct 

tax  and 

payments reform (-0.4 % of GDP) 

•  Tax 

deduction 

on 

dividends 

for 

corporations (-0.2 % of GDP) 

•  Lowering of mandatory VAT registration 

limit (+0.1 % of GDP) 

•  Tax  deduction  on  dividends  (-0.1 %  of 

GDP) 

•  Savings 
linked 
collection point (-0.3 % of GDP)  

in  government  consumption 
the  single 

introduction  of 

to 

2016 

•  Changes  in  social  contributions  (+0.3 % 

n.a. 

of GDP) 

•  Expiry of some changes adopted in 2012 
tax  and  social 
income 

in  personal 
contributions (-0.2 % of GDP) 

•  Unification  of  VAT  rates  (-0.4 %  of 

GDP) 

  Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national 
authorities. A positive sign implies that revenue / expenditure increases as a consequence of this 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
measure. The degree of detail reflects the information made available in the convergence programme 
and, where available, of a multiannual budget.  

• 

The programme does not envisage further consolidation measures in 2014 and beyond 
and the budgetary plans are moreover not sufficiently supported by concrete measures. 
The  programme  abandons  previous  consolidation  plans  for  2014-16,  in  favour  of  a  new 
course aimed at keeping the headline deficit just below 3 % of GDP in 2014-16, in order not 
to  ‘deepen  the  procyclical  effects  of  fiscal  policy’.  According  to  the  programme,  the 
government  deficit  will  edge  up  by  0.1  pp  to  2.9 %  in  2014,  which  seems  due  to  rounding 
effects, as the revenue and expenditure ratios change in broadly the same order of magnitude. 
The  planned  savings  in  the  public  administration  in  2014  are  not  sufficiently  specified  and 
seem to rely heavily on the sale of state property rather than durable cost savings. Also, as the 
government plans to increase public investment only moderately over the programme horizon 
from the historical low reached in 2012, it is possible that expenditure may be higher in order 
to cover the investment gap created in past years. A number of factors impinge on the deficit 
in the outer years of the programme: the expiry of temporary revenue measures in 2015, the 
impact  of  planned  changes  related  to  direct  tax  and  payments  reform  in  the  same  year  and 
VAT  unification  in  2016.  No  measures  are  planned  to  offset  these  factors.  The  projected 
significant  reduction  of  expenditure  by  0.7  pps  and  0.6  pps  of  GDP  in  2015  and  2016 
respectively is not supported by adequately specified measures. Savings from introduction of 
the single collection point are likely to be more spread over time. 

While  the  deficit  target  for  2013  complies  with  the  Council  recommendation,  the 
projected fiscal effort does not comply with the Pact. The general government deficit target 
of 2.9 % of  GDP in 2013 is in  line  with the Council  recommendation  of  2  December  2009. 
The  programme  confirms  the  previous  MTO  of  a  deficit  of  1 %  of  GDP,  which  adequately 
reflects  the  requirements  of  the  Stability  and  Growth  Pact.  The  (recalculated)  structural 
budget deficit is projected to increase by 0.3 %, 0.2 % and 0.5 % of GDP in 2014, 2015 and 
2016 respectively; therefore no adjustment towards the MTO is envisaged in the programme, 
which is not in line with the Stability and Growth Pact. According to the information provided 
in the programme, the rate of growth of government expenditure, net of discretionary revenue 
measures, complies with the expenditure benchmark of the Stability and Growth Pact in 2014, 
but  in  2015  and  2016  it  is  not  expected  to  contribute  to  an  annual  structural  adjustment 
towards  the  MTO  of  0.5 %  of  GDP.  This  is  because  the  growth  rate  of  government 
expenditure  exceeds,  by  0.3 %  and  0.5 %  of  GDP  respectively,  the  lower  rate  under  the 
expenditure benchmark of 0.45 % of GDP. 

The public debt ratio is projected to increase but remain below the reference rate. Since 
the  debt-to-GDP  ratio  is  below  the  reference  rate,  the  debt  reduction  benchmark  is  not 
applicable.  The  debt-to-GDP  ratio  is  forecast  to  continue  to  increase  over  the  programme 
period, albeit at a slowing pace, and to reach 51.9 % of GDP in 2016. The contributions of the 
primary balance and interest expenditure are projected to remain stable. The interest risk and 

12 

 
 
 
 
currency  risk  seem  broadly  contained,  given  the  relatively  low  share  of  short-term  and 
variable debt and of foreign-denominated debt. 

Box 2. Excessive deficit procedure for the Czech Republic 

On  2  December  2009,  the  Council  decided  that  an  excessive  deficit  existed  in  the  Czech 
Republic. The most recent Council Recommendation under Article 126(7) TFEU was adopted 
on the same date. The Council recommended that the Czech Republic’s authorities should put 
an  end  to  the  present  excessive  deficit  situation  by  2013.  In  particular,  the  Czech  Republic 
was recommended to implement the deficit-reducing measures in 2010 as planned in the draft 
budget law for 2010; to ensure an average annual fiscal effort of 1 % of GDP over the period 
2010-13;  and  to  specify  the  measures  necessary  to  achieve  the  correction  of  the  excessive 
deficit  by  2013,  cyclical  conditions  permitting,  and  accelerate  the  reduction  of  the  deficit  if 
economic  or  budgetary  conditions  turn  out  better  than  expected  at  the  time.  In  addition,  in 
order  to  limit  risks  to  the  adjustment,  the  Czech  Republic  was  recommended  to  rigorously 
enforce  its  medium-term  budgetary  framework  and  to  improve  monitoring  of  budget 
execution  throughout  the  year  to  avoid  expenditure  overruns  compared  to  budget  and 
multiannual  plans.  Furthermore,  the  Council  invited  the  Czech  authorities  to  implement 
reforms with a view to raising potential GDP growth and reforms conducive to enhancing the 
quality of public finances, in particular reforms improving the efficiency and effectiveness of 
public  spending.  In  addition,  the  Council  invited  the  Czech  authorities  to  continue  with  the 
necessary pension and healthcare reforms. 

An  overview  of  the  current  state  of  excessive  deficit  procedures  is  available  on: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm  (please 
refer to country sections at the bottom of the page). 

Fiscal framework 

The  fiscal  framework  has  remained  largely  unchanged  since  2004,  when  the  last 
comprehensive  reform  was  adopted.  The  main  features  include  an  expenditure  rule  for 
central  government  and  multiannual  fiscal  planning  within  the  medium-term  budgetary 
framework,  which  is  based  on  a  rolling  three-yearly  fiscal  outlook.  Apart  from  the  nominal 
expenditure ceilings, there are no additional numerical and binding fiscal rules targeting the 
central government. The enforcement of the expenditure ceilings is weak, as they have been 
revised upwards several times. Moreover, the local authorities are not bound by these ceilings, 
and  the  link  between  their  expenditure  and  the  state  budget  expenditure  is  not  easily 
identifiable. The fiscal framework further suffers from the limited transparency of budgetary 
procedures, the limited coordination between different levels of government in the budgetary 
cycle  and  the  lack  of  systematic  evaluation  of  public  spending  based  on  clear  performance 
criteria. 

A new constitutional act on fiscal responsibility, adopted by the government in 2012, is 
currently  under  discussion  in  the  parliament.  The  main  components  of  the  constitutional 

13 

 
 
act  include  (i)  a  debt  ceiling  of  60 %  of  GDP  for  the  general  government  with  corrective 
measures in case a threshold of 40 % of GDP (excluding cash reserves to finance government 
debt) is breached, (ii) setting up of a national fiscal council, (iii) a debt rule for regional and 
local  governments  and  (iv)  the  obligation  for  all  public  entities  to  prepare  a  three-yearly 
budgetary  outlook.  The  commitment  to  introduce  an  expenditure  rule  covering  the  whole 
general government sector is also included. 

A  draft  act  on  rules  of  fiscal  responsibility,  specifying  the  implementation  of  the 
constitutional act on fiscal responsibility and additional rules, has been presented, but is 
yet  to  be  adopted  by  the  government  and  the  parliament.  The  draft  act  envisages  a 
Committee  for  Budgetary  Forecasts,  which  would  assess  macroeconomic  and  general 
government revenue forecasts ex-ante twice a year. At this stage, it remains unclear how the 
independence of this Committee is to be guaranteed. The draft act further details the debt and 
expenditure  rules  as  well  as  the  content  of  the  medium-term  budgetary  framework.  A 
transition period for the debt rule may be considered, as the current debt level is already above 
the envisaged threshold of 40 %. In addition, the draft act specifies the composition, funding 
and responsibilities of the Fiscal Council, which would include the monitoring of fiscal rules 
and the assessment of fiscal policy. Accelerating the operational  establishment of the Fiscal 
Council,  together  with  ensuring  its  independence  and  providing  adequate  resources,  would 
contribute  to  greater  transparency  in  the  management  of  public  funds  and  would  be  in  line 
with good practice. 

Long-term sustainability 

The Czech Republic continues to face a large sustainability gap. While the country does 
not appear to face a risk of fiscal stress in the short term, the Czech Republic is, however, at 
medium risk in the medium and long run, mainly due to the cost of ageing.5 The government 
debt ratio (45.8 % of GDP in 2012 and expected to rise to 50.1 % in 2014) is below the 60 % 
of  GDP  threshold.  Medium-term  debt  projections  (Graph  below  Table  V  in  annex)  indicate 
that, with full implementation of the programme, debt would be higher by 2020, although still 
below  the  60%  of  GDP  reference  value.  Risks  would  be  higher  if  the  structural  primary 
balance  were  to  revert  to  the  lower  values  observed  in  the  past,  such  as  the  average  for  the 
period  1998-2012.  Containing  growth  in  age-related  expenditure,  in  particular  in  pension 
expenditure and healthcare spending, would contribute to the sustainability of public finances. 

The main source of the unsustainable increase in pension expenditure remains the slow 
rate  at  which  the  statutory  retirement  age  is  being  raised.  While  the  retirement  age  for 
men is set to reach 65 by 2020 in most Member States, in the Czech Republic it is expected to 
reach only 63 years and 8 months in 2020 (the pace of the increase is only two months per 
year). For women, the expected retirement age will also remain below 65 but this is mostly 

5  The  Czech  Republic  has  a  sustainability  gap  of  5.0 %  of  GDP,  which  is  above  the  EU  average  (3.0 %). 
Compared to the 2012 Fiscal Sustainability Report, the gap has narrowed by 0.5 pps. 

14 

 
 
                                                 
due to the very low starting point.6 Ensuring that the retirement age reaches 65 by 2020 and 
linking it to life expectancy thereafter would significantly strengthen the sustainability of the 
system.7 

Graph 1: Statutory retirement age in 2020 (men) 

Note: The retirement age in FI, FR and SE is not specified at a comparable basis. 
Source: Commission. 

Over the reporting period, the government has not taken systemic steps to improve the 
long-term sustainability of the first pension pillar. As part of the consolidation strategy, it 
has  limited  increases  in  pensions  between  2013  and  2015.  This  measure  is  set  to  expire  in 
2015;  thereafter  pensions  will  be  adjusted  based  on  the  current  pension  indexation  formula 
(prices and a third of the rise in real wages). A number of Member States have opted for an 
indexation  formula  based  on  prices,  which,  when  implemented  over  the  long  run,  generates 
substantial savings while, at the same time, preserving the purchasing power of pensioners. 

Two  reforms  of  the  second  and  third  pillar  entered  into  force  in  January  2013:  one 
improved the functioning of the voluntary private pension savings scheme (the ‘third pillar’) 
and the other introduced  a  new fully  funded statutory pillar with a partial voluntary opt-out 
from  the  ‘first’  pillar.  The  latter  has  so  far  attracted  a  low  number  of  participants,  partly 
because of the risk that the scheme could be rolled back in the near future given the lack of a 
wider social consensus on the reform. Participation in the fully funded statutory pillar is also 
conditional on topping up the present level of contributions with a further 2 % of salary, which 

6 The statutory retirement age for women with two children is set to reach 61 and 8 months in 2020. According 
to current legislation, the gap in statutory retirement ages between men and women, including the differentiation 
according to the number of children, is set to close fully in 2041.  

15 

 
 
 
                                                 
is relatively difficult in the current economic circumstances. Once the system settles, it may 
require  legislative  adjustments  to  help  ensure  that  savers  choose  appropriate  investment 
profiles  over  the  life  cycle  of  their  savings  and  that  the  envisaged  pension-payment 
arrangements  do  not  penalise  those  who  opt  for  a  lifetime  annuity.  An  appropriate  level  of 
participation in both the second and the third pillar will be essential to ensure the adequacy of 
old-age pensions. 

Contrary  to  the  country-specific  recommendation,  the  government  introduced  a  new 
early retirement scheme in 2013, which offers the possibility of drawing pensions up to five 
years before reaching the statutory retirement age. The early-retirement pensions are going to 
be paid from the (third) pension savings pillar. However, the pillar enjoys a substantial state 
subsidy  through  direct  co-payments  and  tax  deductibility  of  contributions.  In  addition,  the 
beneficiaries of these pensions will not be penalised for retiring earlier in terms of the level of 
their old-age pensions, as is customarily the case with early-retirement schemes.8 Irrespective 
of whether  the  eligibility  criteria for access to the scheme will effectively be met by only a 
limited number of persons, as the government expects, the measure allows beneficiaries to use 
the  previously  accrued  public  subsidy  for  a  purpose  that  goes  against  policies  to  extend 
working lives. 

The  expected  increase  in  health  and  long-term  care  spending  also  makes  a  substantial 
contribution to the cost of ageing. Reforms aimed at improving the efficiency of the health 
system  via  cost  containment  and  more  market-oriented  solutions  have  been  implemented  in 
recent  years  in  the  Czech  Republic.  For  example,  user  fees  for  doctor  consultations, 
prescriptions and hospital stays that were introduced in 2008 have been generally successful 
in  reducing  overconsumption  of  health  services.9  Monitoring  of  reforms  increasing  private 
payments would reduce the risk of creating unequal access to care. Despite the steps taken so 
far, problems still exist. Compared to other Member States, the Czech healthcare system tends 
to be excessively centred on hospital care, which gives rise to inefficiencies. Both the share of 
public hospital expenditure in total public current health expenditure and the number of acute 
hospital beds per 1 000 persons are among the highest in the EU. Also, patients tend to stay 
too long in hospital care and the share of one-day surgical interventions among total hospital 
admissions is the lowest in the EU.10 There is scope to improve provision of care in the most 
clinically  appropriate  and  cost-effective  way,  for  example  by  moving  to  day-of-surgery 
admission  and  reducing  inappropriate  lengths  of  stay  in  acute  care  hospitals.  Continuing  to 

7  The  statutory  retirement  age  in  the  Czech  pension  system  is  set  to  increase  by  two  months  (and  more)  per 
cohort of birth without any predefined limit. However, the absence of any clear and direct link to life expectancy 
exposes the system to the risk of under- or over-reaction to future changes. 
8 The established early-retirement scheme currently allows workers to retire up to three years before reaching the 
statutory retirement age. The period is set to increase to five years once the statutory retirement age reaches 63 
(subject to a lower limit of 60 years of age). 
9 See Joint EC(ECFIN)-EPC Report on Health Systems (2010). 
10  See  Joint  EC(ECFIN)-EPC  Report  on  Health  Systems  (2010).  The  number  of  acute  hospital  beds  per  100 
inhabitants is 4.9 in the Czech Republic, compared to the EU average of 3.7; the average length of stay is 7 days 
(versus 5.9 in the EU) and the share of day-case surgery is 5 % versus 23 % in the EU. 

16 

 
 
                                                                                                                                                         
develop alternatives to institutional care would also contribute to reducing long-term hospital 
stays  in  favour  of  independent  living  solutions.  Measures  presented  in  2013  NRP  aimed  at 
optimizing  the  network  of  health  and  social  services  and  increasing  efficiency  of  health 
insurance system are steps in the right direction. 

Tax system 

Overall,  the  Czech  Republic  made  some  progress  on  the  2012  recommendation  on 
taxation. The country-specific recommendation called for exploiting the available space for 
increases in taxes least detrimental to growth, shifting the high level of taxation on labour to 
housing  and  environmental  taxation  and  reducing  the  discrepancies  in  the  tax  treatment  of 
employees  and  the  self-employed.  The  tax-to-GDP  ratio  in  the  Czech  Republic  remains 
relatively low in comparison with the rest of the EU. In 2011, it stood at 34.4 %, against the 
EU  average  of  38.8 %.  However,  the  Czech  Republic  has  a  high  implicit  tax  rate  on  labour 
(the  sixth  highest  in  the  EU).  Taxation  on  labour  is  the  main  source  of  revenue  (51.9 %, 
slightly above the EU-27 average of 50.8 %), followed by consumption (32.6 %) and capital 
(15.5 %). 

To  exploit  the  available  room  for  increases  in  taxes  least  detrimental  to  growth,  some 
measures  were  adopted  in  2012.  Effective  from  2013,  both  value  added  tax  rates  were 
increased by 1 pp (until 2015), some exemptions from excise duties related to diesel used in 
agriculture were gradually abolished, and tobacco and cigarettes excise duty rates were also 
increased. In 2014, exemptions from excise duties related to diesel used in agriculture will be 
fully abolished and cigarettes excise duties will be further increased. Full unification of both 
value  added  tax  rates  that  would  simplify  the  system  and  reduce  compliance  costs  was 
postponed to 2016. 

Limited progress was made in 2012 on increasing taxation of housing and environmental 
taxation.  While  the  real  estate  transfer  tax  was  increased  by  1  pp  (to  4 %),  no  steps  were 
taken  to  raise  the  very  low  level  of  recurrent  property  taxes  (the  fourth  lowest  in  the  EU). 
Plans  to  introduce  a  CO2  tax  and  abolish  exemptions  from  excise  duties  on  natural  gas  for 
heating have been dropped. While the revenue from environmental taxes on energy in 2010 
was  the  sixth  highest  in  the  EU,  due  to  the  relatively  high  energy  intensity  of  the  Czech 
economy  the  implicit  tax  rate  on  energy  was  below  the  EU  average.  Moreover,  non-fuel 
environmental taxes in the area of transport remain very low (the third lowest in the EU). 

While  temporary  measures  adopted  in  2012  increased  the  progressivity  of  the  labour 
taxation system and the tax burden on labour, the existing legislation includes a reduction 
of the total labour burden in 2015. The measures adopted in 2012 include the introduction of a 
7 pps additional tax surcharge above the social contributions cap for high-income earners, the 
abolition  of  ceilings  on  health  insurance  contributions,  and  the  abolition  of  the  basic  tax 
allowance  for  working  pensioners.  These  measures  will  all  expire  in  2015.  The  existing 
legislation  includes  the  tax  reform  adopted  in  2011  and  effective  from  2015  which  would 
lower the total tax burden on labour. From 2015, the personal income tax rate will rise by 4 

17 

 
 
pps  to  19 %,  albeit  with  a  narrower  tax  base.  The  social  security  contributions  are  set  to 
increase  slightly,  as  the  current  total  rate  of  34 %  for  employers’  contributions  will  be 
replaced  by  a  payroll  tax  of  32.4 %,  but  employees’  health  insurance  contributions  should 
increase by 2 pps. 

Structural challenges remain in taxation of labour. The tax wedge on low-income earners, 
while not excessively high by EU standards,11 could be one of the factors behind the relatively 
high  unemployment  rate  among  low-skilled  workers.  Currently,  the  minimum  tax  base  for 
health  insurance  contributions  leads  to  a  relatively  high  tax  wedge  for  part-time  workers 
earning less than the minimum wage, which could be one of the factors behind the very low 
utilisation of part-time work. Measures to address this might therefore encourage the labour 
participation of second-income earners. 

Limited progress has been made on reducing  the discrepancies in the tax treatment of 
employees and the self-employed in 2012. In 2012, a cap on selected categories of flat-rate 
expenses deductions available to self-employed was introduced,12 with an impact on a limited 
number of high-income self-employed only, and some limitations were introduced on the use 
of  allowances  for  the  spouse  and  children  of  the  self-employed.  The  current  system  of 
taxation of the self-employed combines a low tax base (50 % of their income tax base) with 
large  flat-rate  deductions  for  expenses  (as  a  percentage  of  total  income)  thereby  creating 
perverse  incentives  for  employers  to  hire  de  facto  dependent  employees  as  self-employed. 
Furthermore, it severely reduces the tax revenue obtained from a large and growing group of 
taxpayers,13 putting more pressure on the authorities to cover the revenue gap with increased 
taxation of other activities, all other things being equal. In spite of the rising number of self-
employed,  the  tax  revenue  from  the  self-employed  has  decreased  substantially,  particularly 
since 2008, when the last major changes to the tax system were enacted. It accounted for only 
2.2 % of the total personal income tax revenue in cash terms in 2011 compared to around 12 % 
in 2008. 

11 At 39.3%, the tax wedge on low-income earners (singles at 67% of the average wage) was the tenth highest in 
the EU in 2012.   
12 Flat-rate expenses deductions were limited to CZK 800 000 per year for activities in the category eligible for 
40 % flat-rate expenses deductions and to CZK 600 000 per year for activities in the category eligible for 30 % 
flat-rate expenses deductions. 
13 The share of self-employed in total employment has been increasing since 1995 and stood at 17% in 2011 (sixth 
highest in the EU).   

18 

 
 
                                                 
Graph 2: Self-employed 

Note: PIT from self-employment is proxied by PIT reported in tax declarations. All self-
employed, unlike most employees, are obliged to submit a tax declaration.  
Source: Czech Financial Administration, AMECO. 

The  Czech  Republic  has  room  to  improve  the  efficiency  of  its  tax  administration.  The 
administrative  cost  per  net  revenue  collected  is  one  of  the  highest  in  the  EU.14  The  tax 
collection system creates one of the  highest tax compliance  burdens for small  and medium-
sized  enterprises  (SMEs)  in  the  EU,  which  is  one  of  the  key  bottlenecks  that  prevent  more 
dynamic development of the business environment in the Czech Republic.15 

In response to the 2012 recommendation to take action to improve tax collection, reduce 
tax  evasion  and  improve  tax  compliance,  the  government  adopted  several  measures  to 
lower VAT avoidance. These include a new concept of ‘unreliable taxpayer’, a requirement 
to  use  verified  bank  accounts  for  all  business  transactions,  and  a  duty  for  newly  registered 
VAT  payers  to  submit  tax  returns  on  a  monthly  basis,  the  two  latter  requirements  being 
implemented  as  from  2013.  The  first  measure  is  intended  to  avoid  taxpayers  declaring 
bankruptcy  before  meeting  their  tax  obligations.  In  particular,  the  business  partners  of 
companies that have seriously breached the VAT law in the past will be liable for the unpaid 
VAT  due  on  their  transactions.  The  2013  national  reform  programme  also  states  that  VAT 
returns will be filed exclusively in electronic form from 2014. All these measures are likely to 
narrow the scope for VAT fraud but also increase the compliance burden on businesses and 
reduce the ease of doing business. 

14 OECD (2011): Tax Administration in OECD and Selected Non-OECD Countries. 
15 See the 2011 OECD Forum on Tax Administration Report for evidence of the size and cost of administration 
per  net  revenue  and  the  PricewaterhouseCoopers  2013  Paying  Taxes  Report  for  estimates  of  the  compliance 
burden on businesses. 

19 

 
 
 
                                                 
Reports  suggest  that  the  largest  compliance  costs  in  terms  of  the  time  it  takes  to  pay 
taxes  are  due  to  personal  and  company  income  taxes  (including  health  and  social 
contributions)16. For these taxes, the government is planning to establish a single collection 
point in 2015, which is expected to centralise the procedural aspects, such as payments, audits 
and  appeals.17  This  measure  could  effectively  streamline  the  tax  administration  and  help 
reduce the complexity of the current system for taxpayers. However, a major drawback of the 
reform is that the tax bases for personal income tax, health and social contributions will not be 
harmonised, thereby leaving a large part of the potential benefits of the reform unexploited. 
Taxpayers  will  still  have  to  conform  to  several  legal  acts,  rulings  and  practices  in  order  to 
determine  the  level  of  taxes.  Although  the  date  of  entry  into  force  of  the  single  collection 
point is laid down in a law, it still faces substantial implementation risks given the delays it 
has already encountered. 

3.2. 

Financial sector 

The banking sector is mostly foreign-owned and the Czech banks as a whole remain net 
creditors  to  their  parent  banks.  Despite  the  deterioration  in  the  real  economy,  the  Czech 
financial  sector  enjoyed  stable  conditions,  as  confirmed  by  key  macro-prudential  indicators, 
and remained resilient to external risks. The banking sector generates sound profits and is well 
capitalised,  with  a  loan-to-deposit  ratio  well  below  100 %.  In  spite  of  a  recent  increase,  the 
proportion of non-performing loans remains well below the EU average. With relatively low 
government debt and falling interest rates on Czech government debt in 2012, the sovereign 
rating has remained stable and benefits from a stable outlook. 

The  SME  Access  to  Finance  Index  for  the  Czech  Republic  in  2011  shows  a  weak 
performance compared to the EU average, in particular due to very poor access to venture 
capital,  while  access  to  banks  loans  is  perceived  by  SMEs  as  still  relatively  good.  The 
deterioration  in  SME  access  to  bank  lending  from  2009  to  2011  was  comparatively  small. 
With an underdeveloped stock exchange and venture capital market, equity financing remains 
very limited and the real economy effectively depends on financing provided by banks or own 
resources.  There  was  some  progress  in  2012  given  that  the  government  started  setting  up  a 
new  State  Seed/Venture  Capital  Fund  designed  to  assist  in  funding  newly  emerging 
innovative  businesses.  Also,  commercial  banks  launched  a  new  guarantee  facility  for 
innovative start-ups in the Czech Republic. 

16 PwC 2013 Paying Taxes report 
17 This measure follows an internal reform of the tax administration, which started in 2011 with its headquarters 
being split off from the Ministry of Finance into a separate entity. In 2012 a specialised unit was created for large 
taxpayers and in 2013 some of the principal tasks (including planning of tax inspections) were shifted from local 
to regional level. This substantial reform, once settled, is expected to harmonise the practical and methodological 
aspects of the work of tax offices. 

20 

 
 
                                                 
3.3. 

Labour market, education and social policies 

After proving resilient in previous years, the Czech Republic’s labour market started to 
show signs of deterioration. The unemployment rate started to increase in 2012, but at 7.0 % 
it  remains  well  below  the  EU  average  10.6 %.  At  the  same  time,  the  employment  rate 
increased  to  71.5 %  in  2012  on  account  of  rising  employment  of  older  workers.  However, 
recent projections18 reveal an expected shortfall of 1.9 pps in meeting the 2020 employment 
target if no countervailing measures are adopted. A persistent challenge remains the situation 
of  women  with  young  children  and  other  disadvantaged  people,  notably  young  and  older 
people, low-skilled workers, long-term unemployed and Roma. The gender employment gap19 
and the gender pay gap20 were among the highest in the EU. While youth unemployment (15-
24) has doubled since 2008 and continued to increase in 2012, it still remains below the EU 
average.  Moreover,  the  proportion  of  youth  not  in  employment,  education  or  training 
stabilised  and  also  compares  favourably  with  the  EU  average.  This  said,  the  worsening 
situation  in  the  labour  market  heightens  the  importance  of  effective  public  employment 
services  and  education  policy  reforms  in  order  to  tackle  the  weak  trend  growth  of  labour 
productivity. 

Labour market 

The Czech Republic made limited progress on the 2012 recommendation to increase the 
availability of affordable and good quality early childhood education and care. Despite a 
continued shortage of childcare facilities, in particular for under three year olds,21 there are no 
plans  to  increase  budgetary  support  to  public  pre-school  childcare,  to  the  detriment  of  the 
female employment rate. Recent (2012) OECD projections show that full convergence of the 
female employment rate with that of males would stop the projected decline of the total labour 
force and increase GDP per capita by as much as 16.5 % by 2030.22 In addition, parental leave 
remains  among  the  longest  and  most  expensive  in  the  EU,  according  to  the  OECD  Family 
database.  A  draft  act  on  pre-school  facilities,  to  be  discussed  by  the  government  in  2013, 
includes plans to introduce private ‘child groups’ led by professional nannies accompanied by 
tax subsidies for care providers and participating families. The measure is a step in the right 
direction but falls short of the objective to allow most workers to return to jobs after parental 
leave. In particular low income families are not likely to benefit much from the planned tax 
credit,  unless  they  work  for  large  companies,  which  are  the  most  likely  to  set  up  a  private 
kindergarten. No steps were taken to ensure quality of care at private facilities. The risk is that 

18 EPC Aging Working Group: 2012 Ageing Report. 
19  In  2012  the  employment  rate  (20-64)  was  62.5 %  for  women  and  80.2 %  for  men,  with  the  high  gender 
employment  gap  standing  at  17.7  pps  (EU:  12.2  pps).  The  gender  employment  gap  is  high  among  young 
employees (e.g. among 30-34 year-olds it reaches 34.3 pps; EU: 13.7 pps) but the figures are also very high with 
respect to older employees (55-64) where the gap stands at 21.3 pps (EU: 14.6 pps). 
20 The gender pay gap was 21 % in 2011, one of the highest in the EU (16.2 %). 
21 In 2011, only 5 % of children under three years of age are cared for in formal childcare, below the EU average 
of 29 %. 
22 Closing the Gender Gap. Act Now, OCED 2012. OECD Publishing. 

21 

 
 
                                                 
the  new  private  facilities  will  fail  to  provide  adequate  human  capital  development  for  the 
children. A European Social Fund (ESF) pilot project supporting the setting-up of company-
based childcare is being implemented from 2013 and will likely improve the situation only to 
a small extent. 

Graph 3: Children below the age of 3 enrolled in formal childcare (%) 

Source: Eurostat (EU SILC). 

Progress  has  been  made  on  improving  the  performance  of  the  public  employment 
service, as recommended in 2012. Implementation of the reform of the public employment 
service adopted in 2011 continued in 2012, with positive effects expected to materialise in the 
medium  term.  However,  in  2012  the  workload  of  the  labour  offices  increased,  to  the  likely 
detriment  of  the  quality  of  employment  services  provided  and  job  search  assistance  against 
the background of rising long-term unemployment. In this context, plans in the 2013 NRP to 
increase staff at labour offices in 2013 by 750 new positions are a step in the right direction. 
Also,  ESF  projects  are  to  be  implemented  in  2013  with  the  aim  of  improving  skills  and 
capabilities  of  labour  office  staff  but  no  measures  have  been  announced  to  reduce  the  high 
administrative  workload  at  the  labour  offices  and  to  increase  the  availability  of  services.  A 
system of outsourcing of employment services to private providers was adopted in 2012 but 
not  implemented  because  of  weaknesses  concerning  the  fee  structure,  arrangements  for 
evaluating  agencies’  performance  and  a  targeted  selection  policy.  A  draft  amendment  that 
would revise the outsourcing system is to be discussed by the government in 2013. While the 
budget for active labour market policies in 2013 was increased, as also mentioned in the 2013 
NRP,  and  the  role  of  training  was  strengthened,  the  overall  expenditure  on  active  labour 
market  policies  remains  relatively  low,  as  does  the  share  of  participating  jobseekers.  To 
address persistent weaknesses in the monitoring and evaluation of activation programmes the 
active  labour  market  policies  are  being  strengthened  through  co-financed  support  from  the 
European  Social  Fund.  Two  new  activation  programmes  were  introduced  in  2012,  aimed  at 

22 

 
 
 
improving access to employment and supporting existing positions in companies affected by 
the economic slowdown.23 

Education 

The  Czech  higher-education  system  has  recorded  an  unprecedented  increase  in  the 
number  of  students,  which  is  likely  to  facilitate  meeting  the  national  Europe  2020 
tertiary  education  target.24  The  main  challenge  now  remains  to  ensure  that  students  are 
equipped with skills needed to succeed in the labour market and to further promote quality of 
education at all levels in order to capitalise on the rising number of students. 

Two  main  measures  were  put  forward  in  response  to  the  2012  recommendation  to 
establish  a  transparent  system  for  quality  evaluation  of  higher-education  and  research 
institutions  with  a  clear  link  to  their  funding.  First,  the  share  of  the  performance-based 
funding  available  to  higher  education  institutions  (HEIs)  has  been  raised  from  20 %  of  the 
total institutional funding in 2012 to 22.5 % as of 2013. The national reform programme does 
not envisage any further changes in the share or the relevance of the quality indicators in the 
near  term.  Secondly,  the  government  is  preparing  a  revision  of  the  Higher  Education  Act, 
planned to be adopted in 2013. The revision is expected to enhance the accreditation system 
(from  2015)  and  to  differentiate  funding  (from  2016)  according  to  the  profile  of  study 
programmes  (professional,  academic  and  research)  offered  by  each  HEI.  Regarding 
accreditation, the plan is notably to move away from ex-ante checks on ‘input’ criteria (such 
as  the  quality  of  academic  staff)  towards  surveillance  based  on  internal  quality-evaluation 
mechanisms.  The  envisaged  change  in  funding  should  promote  stability  over  the  medium 
term, as contracts would be multiannual, and support the development of more professionally 
oriented  bachelor  degrees,  which  could  help  reduce  the  record-high  proportion  of  students 
continuing  for  master’s  degrees  and  contribute  to  a  lower  drop-out  rate.  These  are  relevant 
and  ambitious  proposals,  although  their  actual  impact  will  depend  on  the  final  design  and 
timetable of the reform and on the ownership of key stakeholders. The 2013 national reform 
programme also announced measures concerning strengthened cooperation between education 
and employers, which could help improve labour-market relevance in particular of vocational 
education and training. 

At  the  level  of  compulsory  education,  Czech  pupils  attain  broadly  average  results  in 
international  comparisons  of  education  outcomes  such  as  PISA  (2009).  The  system  is 
relatively cost-efficient in the sense that average results are achieved at below-average costs. 
In  all  areas  tested,  however,  the  education  outcomes  have  worsened  over  time  and  show  a 

23  The  projects  ‘Traineeships  in  companies  —  education  through  practice’  and  ‘Get  trained  for  stability’  are 
being carried out under the ESF in 2012-14. 
24 The share of tertiary graduates among young people aged 30-34 increased by more than 95 % between 2006 
(13.1 %) and 2012 (25.6 %). 

23 

 
 
                                                 
high  degree  of  dispersion  across  students  also  within  the  same  school.25  Against  this 
background,  the  Council  recommended  establishing  an  improvement-oriented  evaluation 
framework that would help identify and develop weak elements of the system. 

Besides  ongoing  curricular  reforms,  the  authorities  responded  to  this  recommendation 
with  two  main  sets  of  measures.  The  first  one  entails  establishing  minimum  education 
standards along with the development of nationwide testing of pupils. The tests are currently 
in the pilot phase and should be fully operational from school year 2013-14. Despite known 
risks,  the  tests  could  help  identify,  and  provide  useful  feedback  to,  schools,  teachers  and 
pupils in need of additional support.26 Such support will need to be provided systematically if 
this  measure  is  to  become  a  relevant  response  to  the  country-specific  recommendation.  A 
second  set  of  measures  aims  to  improve  the  quality  and  attractiveness  of  teaching.  The 
government  raised  the  entry  salary  for  teachers  in  2012  and  is  developing  a  new  career 
system,  which  is  expected  to  enter  in  force  in  2014.  The  system  should  enhance  in-service 
training  and  tighten  the  link  between  wages  and  performance.  The  effectiveness  of  this 
measure  will  also  depend  on  whether  it  will  include  incentives  to  attract  high-quality 
headmasters and teachers to schools with low social and economic status. 

Social policies 

The share of population at risk of poverty or social exclusion remained among the lowest 
in the EU at 15.3 % in 2011. Poverty is mostly concentrated in disadvantaged groups, such 
as the unemployed (at risk of poverty of 46.4 %), single parent families (at risk of poverty of 
35.6 %) and the Roma, who face significant barriers to better integration, in particular in the 
education system and the labour market. Recent UNDP/WB/EC surveys (2011) estimated the 
risk  of  poverty  among  Roma  in  some  territories  at  above  80 %,  their  unemployment  rate  at 
above  50 %  and  their  experience  of  discrimination  when  looking  for  work  at  above  60 %.27 
Equal access to quality and inclusive education for Roma children remains impaired, as only 
24 %  of  Roma  children  attend  pre-school  facilities,  and  the  education  system  fosters 
segregation  through  the  widespread  practice  of  putting  Roma  children  into  sub-standard 
schools designed to cater for the mentally challenged. According to Czech School Inspection 
data, 26.4 % of children educated in such sub-standard institutions in 2012 were Roma, but on 
the  positive  side,  their  number  has  decreased  by  8.6  pps  over  the  previous  two  years  and  a 
reassessment  and  correction  of  diagnostic  tools  is  planned  from  January  2014.28  Ensuring 
quality  and  inclusive  care  for  all  children  is  crucial  for  supporting  children’s  development. 

25  See  the  2009  results  of  the  OECD  PISA  Report.  However,  latest  data  from  'Trends  in  International 
Mathematics  and  Science  Study'  (TIMMS)  and  'Progress  in  International  Reading  Literacy  Study'  (PIRLS) 
suggest that the downward trend could have been reversed recently. 
26 Computer tests are likely to be biased in favour of a narrow range of competences. There is also a risk that 
teaching will become excessively focused on the topics tested. See SWD 2012 for further details. 
27 FRA Roma Pilot Survey 2011; UNDP/World Bank/EC Regional Roma survey 2011. 
28 See Czech School Inspection Report (2012) ‘Postup transformace bývalých zvláštních škol ve školním roce 
2011/2012’. According to the 2011 UNDP/WB/EC survey, early school leaving among young Roma (18-24) in 
the Czech Republic is above 90 %. 

24 

 
 
                                                 
The Agency for Social Inclusion has developed several initiatives to improve the situation in 
several  excluded  localities,  but  its  capacity  and  resources  remain  limited.  The  government 
policies  to  fight  social  exclusion  are  described  in  two  strategic  documents29  but  the 
responsibilities  for  coordination  channels  are  not  fully  clear,  which  creates  substantial 
implementation  risks.  The  strategies  lack  an  integrated  approach,  more  concrete  measures, 
quantifiable indicators, a clear timeline and a robust monitoring mechanism. No new concrete 
measures are proposed in the 2013 NRP. 

3.4. 

Structural measures promoting growth and competitiveness 

Potential output growth in the current decade is expected to slow to less than half of the 
level  achieved  in  the  previous  decade.  This  is  mostly  due  to  the  downward  trend  in 
productivity growth. Low expected productivity growth is consistent with the overall ranking 
of the Czech Republic as ‘a moderate innovator with below average performance’ in the 2012 
Innovation Union Scoreboard. The relative strengths of the Czech economy are the quality of 
human resources and the solid dynamism of businesses in terms of introducing marketing or 
organisational  innovations  and  entering  new  markets.  However,  some  of  the  key  drivers  of 
innovation performance both outside and inside firms are clearly underperforming compared 
to  other  Member  States.  This  concerns  especially  the  level  of  openness,  excellence  and 
attractiveness of the research system and the country’s performance in patent applications and 
Community trademarks and designs. There is also ample room for improvement regarding the 
business environment, resource efficiency and the quality of transport infrastructure. 

Research and innovation 

The  Czech  innovation  system  is  dominated  by  foreign  affiliates  of  large  multinational 
firms.  In  2011,  business  research  and  development  (R&D)  expenditure  reached  1.11 %  of 
GDP,  a  value  which  is  approaching  the  EU  average  but  is  still  not  in  line  with  the  strong 
innovation  potential  of  the  country’s  manufacturing  sector.  The  low  proportion  of  business 
R&D expenditure by domestic firms is reflected in particular in the weak output performance 
of the country in terms of patent applications under the Patent Cooperation Treaty and licence 
and patent revenues from abroad.30 

There is scope for improving the quality and relevance of public research, which seem 
relatively  low  by  international  comparison.  In  particular,  the  number  of  high-impact 
scientific publications and the degree of collaboration between public research institutions and 
the business sector is very low.31 In terms of inputs, public expenditure on R&D rose in 2011 

29  The  National  Roma  Integration  Strategy  for  2010-2013,  and  the  Strategy  on  the  Fight  Against  Social 
Exclusion 2011-2015. 
30 In terms of patent applications under the Treaty, the Czech Republic ranks 18th in the EU with a normalised 
value (per GDP) of 22 % of the EU average. Regarding licence and patent revenues from abroad, it ranks 20th in 
the EU with a normalised value (per GDP) of 9 % of the EU average. 
31 The Czech Republic ranks 21st in the EU with only 5.5 % of all Czech scientific papers published in the 10 % 
most cited scientific publications worldwide (‘high impact scientific publications’), compared to the EU average 

25 

 
 
                                                 
 
to 0.72 % of GDP, the ninth best performance in the EU. The main challenge for the Czech 
innovation  system  therefore  remains  to  improve  the  effectiveness  of  its  science  base  in 
reaching a higher level of excellence and supporting the development of innovative activities 
through  enhanced  collaboration  with  domestic  firms.  Public  research  activities  are  currently 
split between academic institutes (with a limited teaching curriculum) and universities. This 
entails  a  risk  of  diluting  skills  and  competencies  to  the  detriment  of  critical  mass  and 
excellence needed for sustainable partnerships with industry. 

To  ensure  that  public  R&D  funding  is  allocated  on  the  basis  of  excellence,  the  Council 
recommended that the government improve the system for evaluating the quality of research 
institutions  and  ensure  that  funding  is  linked  to  the  outcome  of  the  quality  assessment.  The 
current  system  for  funding  public  research  institutions  does  not  sufficiently  reflect  the 
specificities  of  each  scientific  field  and  the  needs  of  the  business  sector.  Moreover,  the 
outcomes  of  the  evaluation  methodology  are  not  binding  for  the  allocation  of  institutional 
funding,  as  only  about  20 %  of  the  institutional  funding  of  public  research  institutions  is 
allocated  on  the  basis  of  the  evaluation  of  their  performance.  In  response  to  this,  the 
government intends to adopt for the period 2014-16 a revised methodology based upon new 
evaluation criteria and peer review to better take into account the quality and relevance of the 
research performed. In parallel, work is expected to start, with the support of EU funds, on the 
development  of  a  new  evaluation  and  funding  system  aimed  at  promoting  excellence  and 
maximising  the  economic  impact  of  research.  The  governance  of  the  national  research  and 
innovation system remains, however, split between several bodies32 and this may cause delays 
in implementing the planned reforms. 

Some  steps  to  increase  involvement  of  the  private  sector  have  been  taken.  New 
programmes, including the Technology Agency’s ‘Alpha’ Programme, have been launched to 
stimulate  cooperation  between  public  research  institutions  and  businesses  in  sectors  such  as 
transport, energy and the environment. Furthermore, the Income Tax Act has been amended 
to allow from January 2015 private firms to deduct the cost of R&D activities contracted out 
from their taxable income. 

Business environment 

Improving  the  business  environment  remains  an  issue  in  the  Czech  Republic,  in 
particular  with  respect  to  starting  a  business.33  In  fact,  the  Czech  Republic  is  lagging 
behind on fulfilling the objectives of conclusions of the May 2011 Competitiveness Council 
on the need to set up a fully functional one-stop shop for businesses and reduce the time and 

of 10.9 %. Only 1 % of the R&D carried out by universities is funded by the business sector (and only 3.4 % in 
the case of R&D carried out by other public research institutions). 
32  The  Intergovernmental  Steering  Committee  coordinates 
the  International 
Competitiveness  Strategy,  while  the  Council  for  R&D  and  Innovation  advises  the  Prime  Minister  on  related 
matters. 
33 World Bank Doing Business 2013 ranks the Czech Republic in 140th place (out of 160 countries) in terms of 
the ease of starting a business.  

implementation  of 

the 

26 

 
 
                                                                                                                                                         
cost to start up a business. However, a new Act on Business Corporations, adopted in 2011 
and  effective  from  2014,  is  expected  to  provide  some  improvement  to  the  business 
environment  for  selected  groups  of  companies,  mainly  for  limited  liability  companies. 
Regarding  other  indicators  of  the  quality  of  the  business  environment,  the  average  time  to 
enforce  contracts  and  resolve  insolvency  remains  above  the  EU  average  but  some  progress 
has  been  made  on  shortening  the  delays  in  payments.34  Moreover,  the  Czech  Republic 
performs relatively well with respect to the time and cost it takes to obtain licences.35 The use 
of e-government services has also improved, likely due to the establishment of basic public 
administration registers. E-government services were used by 92 % of businesses (2012) and 
42 % of citizens (2011), which is expected to support progress in meeting the 2015 target in 
this  area.  The  2013  NRP  includes  information  on  the  on-going  eco-audit  project  aimed  at 
reducing administrative burden of companies related to environmental regulation.  

The Czech Republic is amongst the Member State with the highest number of regulated 
professions according to the database on regulated professions.36 A public consultation on 
the review of the regulatory framework for professions was conducted in 2012 and the results 
are to be presented in 2013. This is an important step in order to reduce or eliminate barriers 
to those professions for which regulation is not proven necessary or is considered excessive 
(including  the  length  of  mandatory  traineeships)  and  for  which  easier  access  could  unlock 
further employment creation and growth. 

Energy, climate and resource efficiency 

Despite  improvement  in  the  last  few  years,  the  Czech  Republic  has  still  one  of  the 
highest  energy  and  carbon  intensities  in  the  EU.37  The  potential  for  energy  savings  is 
substantial, especially in the buildings and industry sectors.38 Current plans to improve energy 
efficiency  show  only  limited  ambition  as  they  target  to  achieve  only  about  a  third  of  the 
potential energy savings attainable through higher energy efficiency.39 Lack of an integrated 
energy efficiency strategy and of strong coordination capacity is a major limitation for further 
improvement. Such a  strategy would bring  a  long-term vision and  the sectoral prioritisation 
required  to  effectively  allocate  available  resources  and  identify  adequate  tools.40  The  Czech 

34 World Bank, Doing Business 2013. 
35 European Commission study ‘Business Dynamics: Start-ups, business transfers and bankruptcy’ 2011. 
36 See Commission website: http://ec.europa.eu/internal_market/qualifications/regprof. 
37 Energy intensity in the Czech Republic stood at 383 kgoe/k€ in 2005-10, more than twice the EU-27 average 
(153 kgoe/€).  Accordingly,  with  a  1.2 t CO 2  equivalent/1000 €,  the  carbon  in tensity  of  the  Czech  economy  is 
more than twice the EU average (source: Eurostat). 
38  All  key  sectors  of  the  economy,  including  industry,  transport,  and  housing,  display  significantly  lower 
performance  in  terms  of  energy  and  carbon  efficiency  than  the  EU  average  (with  an  energy  intensity  of  263 
toe/k€  against  an  EU  average  of  150  toe/k€,  627  toe/k€  against  an  EU  average  of  512  toe/k€  and  112  toe/k€ 
respectively).  Nevertheless,  the  planned  energy  savings  announced  in  the  second  National  Energy-Efficiency 
Action  Plan  (NEEAP)  are  particularly  low  for  the  buildings  and  industry  sectors  compared  to  their  potential 
(source: Commission’s Energy Efficiency Database). 
39  The  Czech  Republic  reported  only  small  planned  energy  savings  for  2016  in  its  second  NEEAP.  For  a 
comparison with potential savings, see the Commission Energy Efficiency Database. 
40 See STE Research Report (2011) by Forschungszentrum Jülich. 

27 

 
 
                                                 
Republic  has  not  set  an  indicative  national  energy  efficiency  target  as  required  under  the 
Energy  Efficiency  Directive,41  and  has  not  indicated  how  it  will  reach  an  acceptable  2020 
level of primary consumption and final energy consumption. Regarding the efficiency of the 
housing  sector,  funding  for  the  second  building-efficiency  programme  (planned  for  another 
seven-year  period)  is  not  fully  ensured  as  it  relies  on  income  from  auctioning  of  ETS 
allowances,  which  are  difficult  to  predict.  High  energy  intensity  is  also  reflected  in  the 
relatively  low  quality  of  air  in  the  Czech  Republic.  The  Czech  Republic  has  repeatedly 
exceeded EU standards for PM1042 over the past few years in numerous regions. Following 
the adoption of the Clean Air Act in 2012, the Czech Republic must prepare a new national 
emission reduction programme in 2013. 

Regarding  renewable  energy,  the  Czech  Republic  achieved  its  2011/12  interim  target 
already in 2009 but progress has  slowed significantly since, mainly due to a moratorium 
put in place in 2010 for connecting new renewable energy sources to the electricity grid. The 
main source of renewable energy remains biomass used for heating. In electricity generation, 
renewables  amount  only  to  7 %  (the  EU  average  is  17 %),  of  which  most  stems  from 
hydropower  and  biomass  co-firing.43  The  National  Renewable  Energy  Action  Plan  outlines 
some measures to develop renewable energy sources but these are not considered to be strong 
in all sectors, particularly in transport and grid reinforcements. The 2013 NRP mentions plans 
to revise and stabilise the legislation concerning RES in 2013.  

The  Czech  Republic  has  a  large  implementation  gap  concerning  the  national  waste 
management  policy  as  it  still  relies  heavily  on  landfilling  of  municipal  waste.44  Despite 
encouraging progress on recycling and composting, municipal waste generation increased in 
2008-10, contrary to the general tendency in the EU-27. A pending amendment to the national 
Waste  Act  entails  a  gradual  increase  in  fees  for  landfilling,  which  would  be  one  of  the 
relevant  steps  towards  putting  the  ‘waste  hierarchy’  in  place,  even  though  income  from 
landfilling fees is already relatively high. Embedding this in the updates of the National Waste 
Plan  and  in  the  Waste  Prevention  Programme  planned  for  2013  would  strengthen  the 
credibility of the authorities’ effort. 

Transport 

The  capacity  limitations  of  the  transport  infrastructure  are  one  of  the  bottlenecks  to 
growth. The lack of effective interconnections between railways and other modes of transport 
also  adversely  affects  transport  performance.  The  railway  network  is  extensive  but  under-
maintained.  Several  regional  railway  connections  have  been  discontinued  recently  due  to 
unprofitability. 

41  Article  3  of  the  Energy  Efficiency  Directive  requires  Member  States  to  report  their  national  energy 
consumption targets before 1 May 2013. 
42 PM 10 (particulate matter) values became mandatory in 2005 in accordance with the Air Quality Directive. 
43 Member States’ energy dependence: an indicator-based assessment, 13 December 2012 (country factsheets). 
44 See DG Environment website on ‘Support to implementation — municipal waste’. 

28 

 
 
                                                 
The 2011 and 2012 NRPs outlined an ambitious list  of rail  and  highway  projects,  with 
further plans to develop transport infrastructure in the 2013 NRP. The progress achieved 
is, however, limited and future prospects are uncertain due to cuts in transport infrastructure 
investment.45 In addition, infrastructure projects are often not very effective and efficient, due 
to  non-compliance  with  public  procurement  rules,  increasing  costs  of  ongoing  projects,  and 
the lack of economic analysis and a systematic approach in the planning. In the first half of 
2013, the government is planning to adopt the second phase of the Transport Sector Strategy 
and  a  new  transport  policy  for  2014-20,  both  of  which  are  relevant  steps  towards  better 
strategic  planning.  The  new  transport  strategy  is  expected  to  include  measures  to  improve 
interoperability in urban, public passenger and rail transport through better use of intelligent 
transport  systems  and  innovative  technologies.  On  the  positive  side,  for  certain  connections 
the opening of the railway market to private operators has contributed to more competition, 
lower prices and better services to passengers. Overall, though, competition is still limited and 
further  opening  of  the  railway  sector,  together  with  full  separation  of  transport  and 
infrastructure operations, is necessary. 

3.5.  Modernisation of public administration 

Efficiency  and  quality  of  public  administration  remains  a  challenge  in  the  Czech 
Republic.  Key  problems  highlighted  in  business  surveys  include  excessive  red  tape, 
corruption, low enforceability of law, frequent changes in the legal framework, instability and 
inefficient  public  spending.  The  Transparency International  Corruption  perception  index  for 
the  Czech  Republic  improved  slightly  in  2012,  moving  up  to  54th  place  in  2012  from  57th 
place in 2011; however, the country’s position in the EU ranking has remained the same, at 
21st place, for the last three years. 

Limited progress has been made on the need to step up the fight against corruption, as 
stressed in the 2012 country-specific recommendation on public administration. Most of 
the non-legislative measures have been taken but progress in adopting the priority legal acts in 
the  anti-corruption  strategy  for  2011-12  is  very  slow  (e.g.  on  independence  of  the  state 
prosecution,  conflicts  of  interest,  freedom  of  information,  creation  of  specialised  courts, 
regulation of lobbying, the Public Servants Act, financing of political parties); in some cases 
the  adoption  process  has  been  stopped  in  the  Czech  parliament  (extension  of  powers  of  the 
Supreme  Audit  Office,  protection  of  whistleblowers).46  A  new  anti-corruption  strategy  for 
2013-14, adopted by the government in January 2013, and the 2013 NRP retain the intention 
to adopt the priority acts. 

The Public Servants Act, called for in the 2012 recommendations, has not been adopted. 
A  draft  version  of  the  act,  prepared  after  the  inter-ministerial  consultation  process  in  April 
2013 and to be discussed by the government in 2013, retains significant weaknesses, despite 

45 Total investment expenditure in transport infrastructure stood at CZK 83 billion in 2008 and CZK 44.4 billion 
in 2011 (Transport Yearbook Czech Republic 2011). 

29 

 
 
                                                 
some improvements compared to previously presented draft versions. The new draft does not 
seem to adequately assuring the objective of separating political appointees from non-political 
staff,  guaranteeing  independence  and  stability  of  state  officials  and  creating  a  well-
functioning  career  system.  In  this  regard,  the  Public  Servants  Act  falls  short  of  the  Act  on 
Public  Service  which  was  adopted  in  2002  but  has  not  entered  into  force  due  to  several 
postponements and is to be replaced by the new Public Servants Act. The quality of the public 
administration  is  one  of  the  ex-ante  conditionalities  for  the  use  of  the  EU  funds  in  the  new 
programming  period  2014-20.  The  2013  NRP  retains  the  intention  to  prepare  a  new  public 
servants act. 

The  Czech  Republic  has  made  substantial  progress  in  implementing  the  Public 
Procurement Act, as recommended in 2012. The amendment to the Act has been in force 
since April 2012 and additional implementation rules for the act were adopted in 2012. Recent 
monthly data suggest that the number and value of new public tenders is closer to the average 
for  the  last  two  years,  indicating  that  initial  difficulties  with  implementation  have  been 
overcome.  However,  only  limited  efforts  have  been  made  to  address  difficulties  in 
implementing  the  Act  reported  by  local  authorities,  in  particular  the  lack  of  administrative 
capacity and of guidance that would speed up and smooth the process. 

Some  progress  has  been  made  on  improving  the  implementation  of  EU  funds,  in  line 
with  the  2012  recommendation.  Due  to  irregularities  in  projects  financed  from  EU  funds, 
financial corrections were applied in 2012. An action plan to strengthen the management and 
control system of the implementation structure for the European Regional Development Fund 
(ERDF)  and  the  Cohesion  Fund  (CF)  was  agreed  with  the  Commission  and  most  of  the 
measures  included  in  it  were  implemented  by  the  end  of  2012.  However,  fulfilment  of  the 
action plan will need to be continuously monitored. In March 2013, in addition to the three 
programmes  with  payments  from  ERDF/CF  stopped  fully  or  partially  at  the  end  of  2012, 
payments were stopped fully or partially for another six Operational Programmes, with further 
possible  financial  corrections  under  discussion.  The  vast  majority  of  deficiencies  in  the 
implementation of EU funds stem from a weak public administration, inadequate legislation 
dealing  with  conflicts  of  interest,  lack  of  transparency  in  the  ownership  structure  of 
participating companies, and bypassing of public procurement legislation. 

Substantial  progress  has  been  made  on  the  issue  of  anonymous  paper  shares,47 
highlighted  in  the  2012  recommendations.  The  lack  of  transparency  regarding  the 
ownership of firms with anonymous shares encourages corruption, money laundering and tax 
evasion. In December 2012, 53.5 % of joint stock companies in the Czech Republic had only 

46 Implementation report on the 2011-12 strategy from 2012. 
47  Czech  legislation  allows  the  existence  of  specific  types  of  shares:  paper  bearer  shares  (listinné  akcie  na 
majitele/doručitele), ownership of which is determined by the physical holding of the paper share and which are 
not registered anywhere, and registered paper shares (listinné akcie na jméno), ownership of which is determined 
by  the  list  of  shareholders  held  by  the  company.  Both  registered  shares  and  bearer  shares  can  also  exist  in  a 
book-entry form registered in the central depository.  

30 

 
 
                                                                                                                                                         
paper  bearer  shares  and  41.7 %  had  only  registered  paper  shares  according  to  the  Czech 
Capital Information Agency. An act that regulates anonymous paper shares was approved by 
the  parliament  in  May  2013.  According  to  the  proposed  act,  unless  firms  enter  the  paper 
bearer shares in a central depository or deposit them in a bank, they would be converted into 
registered  paper  shares.  The  regulation  enables  selected  public  authorities  to  request 
information  on  ownership  of  the  paper  bearer  shares  deposited  in  banks  and  the  central 
depository.  While  the  act  is  a  step  in  the  right  direction,  extending  the  right  to  request 
information to other public authorities, in particular the competition authority, would further 
improve the situation. Also, requiring third party registration for all types of shares, including 
registered paper shares, would help increase transparency. Importantly, the new citizen’s code 
effective from 2014 introduces a new form of property ownership, the so-called ''svěřenecký 
fond' trust with limited transparency on the user of and beneficiary of proceeds from property, 
including  shares.  This  step  seems  to  go  against  the  direction  of  the  proposed  changes  in 
anonymous shareholding. 

31 

 
 
4. 

 OVERVIEW TABLE 

2012 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

CSR  1:  Ensure  planned  progress  towards  the  timely 
correction  of  the  excessive  deficit.  To  this  end,  fully 
implement  the  2012  budget  and  specify  measures  of  a 
durable  nature  necessary  for  the  year  2013  so  as  to 
achieve 
the  annual  average  structural  adjustment 
specified  in  the  Council  recommendation  under  the 
excessive  deficit  procedure.  Thereafter,  ensure  an 
adequate  structural  adjustment  effort  to  make  sufficient 
progress  towards  the  MTO,  including  meeting  the 
expenditure  benchmark.  In  this  context,  avoid  across-
the-board cuts, safeguard growth-enhancing expenditure 
and  step  up  efforts  to  improve  the  efficiency  of  public 
spending.  Exploit  the  available  space  for  increases  in 
taxes least detrimental to growth. Shift the high level of 
to  housing  and  environmental 
taxation  on 
taxation.  Reduce  the  discrepancies  in  the  tax  treatment 
of  employees  and  the  self-employed.  Take  measures  to 
improve tax collection, reduce tax evasion and improve 
tax  compliance,  including  by  implementing  the  Single 
Collection Point for all taxes. 

labour 

Some progress 

The general government deficit target of 2.9 % of 
GDP  in  2013  is  in  line  with  the  deadline  for 
correcting  the  excessive  deficit  set  out  in  the 
Council 
recommendations.  The  2013  spring 
forecast  projects  a  headline  deficit  of  2.9%  of 
GDP in 2013. The average annual fiscal effort of 
1.4%  of  GDP  over  the  period  2010-2013,  based 
on  the  (recalculated)  structural  budget  balance,  is 
above the effort of 1 % of GDP recommended by 
the Council. 

Some progress was made on decreasing the size of 
across-the-board  cuts  and  of  cuts  in  growth-
enhancing  expenditure.  In  2013,  the  government 
adopted 
state 
administration  in  2014-15  and  expenditure  on 
R&D is set to increase. 

streamline 

plans 

the 

to 

Some  progress  on  taxation.  A  package  of  tax 
measures  adopted  in  December  2012  increased 
indirect  taxes  (VAT  and  excise  duties)  and 
property  taxation  (real  estate  transactions)  and 
reduced limits on deductible expenses for the self-
employed.  The  package  also  included  temporary 
measures  increasing  labour  taxation  and  also  the 
progressivity  of  the  system.  No  measures  on 
environmental  taxation  and  recurrent  real  estate 
taxes were adopted and current plans are likely to 
be delayed. 

tax 

collection 

and 
Limited  progress  on 
compliance. Measures were adopted to limit VAT 
fraud  and  the  introduction  of  a  single  collection 
point for income taxes is envisaged for 2015. This 
does not, however, exploit the room to reduce the 
administrative  burden  from  paying  taxes  and  its 
effective implementation is subject to risks.   

CSR 2: Introduce further changes to the public pension 
scheme to ensure its long-term sustainability. Reconsider 
plans  to  allow  an  earlier  exit  from  the  labour  market. 
Promote  effective  participation  of  younger  workers  in 

No progress 

No 
on 
progress  made 
sustainability.  As  part  of 

pension 
system 
the  consolidation 

32 

 
 
 
 
 
 
 
 
the  envisaged  funded  scheme  to  improve  adequacy  of 
pensions. 

CSR  3:  Take  additional  measures  to  significantly 
increase  the  availability  of  affordable  and  quality  pre-
school childcare. 

CSR  4:  Strengthen  PES  by  increasing  the  quality  and 
effectiveness  of  training,  job  search  assistance  and 
individualised services, including of outsourced services. 

to  promote 

CSR 5: Adopt and implement as a matter of urgency the 
Public  Servants  Act 
stability  and 
effectiveness  of  the  public  administration  in  avoiding 
irregularities.  Ensure  adequate  implementation  of  the 
new  Public  Procurement  Act.  Address  the  issue  of 
anonymous 
correct 
implementation  of  EU  Funds  and  step  up  the  fight 
against corruption. 

holding. 

Ensure 

share 

33 

package, indexation of pensions was lowered. The 
Czech  Republic  introduced  an  early  retirement 
scheme,  which  goes  against  policies  to  extend 
working lives. Participation in the newly launched 
fully  funded  pillar  is  below  expectations.  The 
pillar has still to prove its viability.   

Limited progress 

The  draft  law  on  pre-school  childcare  is  to  be 
adopted  by  the  government  in  2013.  The  law 
facilitates  the  provision  of  private  childcare  and 
introduces  tax  incentives  for  companies  and 
families.  Broader  provision,  affordability  and 
adequate  quality  of  the  new  facilities  may  not  be 
ensured.  No  additional  capacities 
in  public 
childcare were provided.  

Some progress 

The reform of the public employment service was 
adopted  in  2011  and  implemented  throughout 
2012,  the  effects  of  which  should  materialise  in 
the medium term. Additional support is also being 
granted  from  various  European  Social  Fund 
projects  aimed  at 
improving  provision  of 
assistance,  quality  and  accessibility  of  services, 
etc.  Two  new  activation  programmes 
for 
safeguarding jobs and training were put in place in 
2012.  Plans  to  increase  employment  service  staff 
and  improve  evaluation  were  announced.  The 
outsourcing  of  employment  services  should  be 
revised in 2014.  

Some progress 

fighting  corruption.  Key 
Limited  progress 
measures 
the  2011-12  anti-corruption 
strategy not adopted. Plans retained with delay in 
implementation in the 2013-14 strategy. 

from 

Limited  progress  on  the  Public  Servants  Act:  a 
new  proposal  from  April  2013  retains  important 
weaknesses. 

Substantial  progress  in  implementation  of  the 
Public Procurement Act with scope for providing 
further support for administrative capacity at local 
and regional level. 

Substantial  progress  in  addressing  anonymous 
shares issue: An act regulating anonymous shares 

 
 
 
 
 
 
 
from  2014  was  approved  by  parliament  in  May 
2013. According to the act, unless firms enter the 
paper  bearer  shares  in  a  central  depository  or 
deposit  them  in  a  bank,  they  would  be  converted 
into  registered  paper  shares.  Information  on 
ownership  of  unregistered  bearer  shares  will  be 
made  available  to  selected  public  authorities. 
Scope  for  greater  transparency  by  requiring  third 
party registration for all types of paper shares. 

Some  progress  on  EU  funds  implementation. 
Implementation  of  an  action  plan  on  EU  funds 
control  system  agreed  with  the  Commission. 
Problems in reimbursement of EU funds occurred 
again  in  March  2013  and  measures  adopted  in 
2012  on  the  level  of  irregularities  in  EU  projects 
have yet to show a positive impact. 

Limited progress 

has 

changed 

institutions 

The  system  for  evaluating  the  quality  of  higher 
education 
only 
marginally  over  the  reporting  period.  Further 
progress  is  expected  from  the  implementation  of 
the  higher  education  reform,  which  is  planned  to 
be adopted in 2013. The link between quality and 
funding  was  strengthened  somewhat  in  2013  but 
no further steps are envisaged in the near future. 

CSR  6:  Adopt  the  necessary  legislation  to  establish  a 
transparent  and  clearly  defined  system  for  quality 
evaluation of higher education and research institutions. 
Ensure  that  the  funding  is  sustainable  and  linked  to  the 
the  quality  assessment.  Establish  an 
outcome  of 
improvement-oriented 
in 
compulsory education. 

framework 

evaluation 

A  framework  that  would  define  and  integrate  the 
responsibilities and capacities of the state, funding 
bodies,  headmasters  and  teachers  in  improving 
quality in compulsory education has not been put 
forward. Measures to strengthen the evaluation of 
educational  outcomes  and  quality  of  teaching  in 
compulsory  education  are  under  preparation 
(nationwide  testing  from  2014  and  new  career 
system for teaching staff announced), but systemic 
support to underperforming pupils and teachers is 
yet to be organised. 

Europe 2020 (national targets and progress) 

Employment rate target set in the 2011 NRP: 75 % 

Employment rate: 
- 2011: 70.9 % 
- 2012: 71.5 % 

Given  the  relatively  high  employment  rate,  the 
target/sub-targets are within reach; however: 
- there is a lack of substantial progress in key areas 
such  as  childcare  provision,  activating  parents  with 
the  public 
small  children,  or 

strengthening 

34 

 
 
 
 
 
 
R&D target set in the 2011 NRP: 1 % 
Greenhouse  gas  (GHG)  emissions  target:  limit  the 
to  2005  emissions, 
(compared 
increase 
Emissions Trading Scheme emissions are not covered by 
this national target). 

to  +9 % 

employment service; 
-  the  increase  in  the  effective  taxation  of  working 
pensioners  and  the  elimination  of  the  current  lower 
statutory  minimum  wage  levels  applicable  to  those 
aged 18 to 21 and to the disabled as of January 2013 
are measures that may cause small job losses. 

Change in greenhouse gas emissions not covered by 
the  Emissions  Trading  Scheme  between  2005  and 
2011: -6 % 
According 
latest  national  projections 
submitted  to  the  Commission  and  taking  into 
account existing measures, the target is expected to 
be reached: -6 % in 2020 compared to 2005 (with a 
projected margin of 15 percentage points).  

the 

to 

Renewable energy target: 13 % 

Share  of  renewable  energy  in  all  modes  of  transport: 
10 % 

National indicative energy efficiency target for 2020: not 
notified  

R&D target (public funding of R&D): 1 %  

The share of renewable energy sources in gross final 
energy consumption was 9.4% in 2011 and 0.6 % in 
the  transport  sector.  (Source:  Eurostat.  April  2013. 
For 2011, only formally reported biofuels compliant 
with  Art.  17  and  18  of  Directive  2009/28/EC  are 
included). 

The  Czech  Republic  has  failed  to  notify  its  energy 
efficiency target as required by Articles 3 and 24 of 
the Energy Efficiency Directive. 
Strong  increase  from  0.63 %  in  2010  to  0.70 %  in 
2011.  

Early school leaving target: 5.5 % 

Early school leaving rate: 5.5 % in 2012. 

Tertiary education target: 32 % 

Tertiary  attainment:  25.6 %  in  2012.  The  country, 
tertiary 
having  very  high  enrolment  rates 
education, is assigning higher priority to improving 
quality  than  to  further  increasing  the  number  of 
students.  

in 

35 

 
 
 
 
5.  ANNEX 

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate

Output gap 1

HICP (annual % change)
Domestic demand (annual % change) 2

Unemployment rate (% of labour force) 3

Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)

General Government (%  of GDP)

Net lending (+) or net borrowing (-)

Gross debt

Net financial assets 

Total revenue 

Total expenditure
  of which: Interest

Corporations (%  of GDP)

Net lending (+) or net borrowing (-)

Net financial assets; non-financial corporations

Net financial assets; financial corporations

Gross capital formation
Gross operating surplus

Households and NPISH (%  of GDP)

Net lending (+) or net borrowing (-)

Net financial assets

Gross wages and salaries

Net property income

Current transfers received
Gross saving

Rest of the world (%  of GDP)

Net lending (+) or net borrowing (-)

Net financial assets

Net exports of goods and services

Net primary income from the rest of the world

Net capital transactions 

Tradable sector

Non tradable sector
  of which: Building and construction sector

Real effective exchange rate (index, 2000=100)

Terms of trade goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)

1995-
1999

2000-
2004

2005-
2009

2010

2011

2012

2013

2014

2.3

-2.2

7.1

2.6

5.6

29.9

26.7

-5.6

13.8

43.9

38.9

44.5

1.1

3.6

0.0

2.5

3.5

8.1

27.5

23.9

-5.1

25.3

16.9

39.8

44.9

1.0

-3.3

-0.6

-124.5

-102.6

5.5

21.7

25.9

5.1

72.3

31.6

4.9

16.0

6.8

-3.8

3.6

-2.9

-0.9

0.0

54.6

36.2

7.0

68.7

99.9

77.2

-0.6

19.1

27.8

1.4

70.2

31.3

3.8

17.2

5.5

-4.2

16.4

-1.0

-3.3

0.3

55.0

35.9

6.0

86.7

100.9

89.1

3.6

3.5

2.7

2.3

6.3

26.0

24.2

-2.9

29.5

9.9

39.5

42.4

1.1

-0.7

-95.7

-4.1

17.4

29.3

1.1

59.3

31.5

3.7

17.1

5.6

-2.5

30.9

3.0

-5.6

0.7

53.3

37.0

6.1

109.9

98.4

105.4

2.5

-1.3

1.2

2.1

7.3

24.5

19.7

-4.8

37.8

-5.1

39.0

43.8

1.4

0.2

-93.1

-2.9

14.7

28.4

1.4

63.5

31.8

3.2

18.5

6.4

-3.1

38.3

3.1

-7.5

2.1

50.4

39.8

6.6

118.0

96.9

114.0

1.9

-0.6

2.1

-0.1

6.7

23.9

20.7

-3.3

40.8

-5.8

39.8

43.0

1.4

0.2

-95.6

-1.4

15.8

28.6

1.1

64.7

32.2

3.1

18.6

5.4

-2.0

38.9

4.0

-7.0

1.9

51.4

38.7

6.1

121.7

95.4

117.8

-1.3

-2.3

3.5

-2.9

7.0

23.6

21.3

-4.4

45.8

n.a

40.1

44.5

1.5

-1.6

n.a

n.a

15.8

27.2

4.6

n.a

32.9

3.5

19.1

7.4

-1.4

n.a

5.3

-7.1

1.2

51.6

38.0

5.7

-0.4

-3.3

1.9

-0.6

7.2

22.6

20.7

-2.9

48.3

n.a

40.5

43.4

1.6

-1.2

n.a

n.a

14.9

26.6

3.2

n.a

33.0

3.2

19.3

7.4

-0.9

n.a

5.6

-7.2

1.6

n.a

n.a

n.a

1.6

-2.4

1.2

1.6

7.2

22.5

20.8

-3.0

50.1

n.a

40.3

43.3

1.6

-1.2

n.a

n.a

14.9

26.4

2.8

n.a

32.9

3.1

19.3

7.4

-1.4

n.a

5.7

-7.3

1.1

n.a

n.a

n.a

119.3

94.8

121.5

117.5

95.1

121.1

116.5

95.1

120.9

Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. The labour force 
is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

Source :

Commission services’ 2013 spring forecasts (COM); Convergence programme (CP).

36 

 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)

Private consumption (% change)

Gross fixed capital formation (% change)

Exports of goods and services (% change)

Imports of goods and services (% change)

Contributions to real GDP growth:

- Final domestic demand

- Change in inventories

- Net exports

Output gap1
Employment (% change)

Unemployment rate (%)

Labour productivity (% change)

HICP inflation (%)

GDP deflator (% change)

Comp. of employees (per head, % change)

Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

Note:

2012

2013

2014

2015

2016

COM CP

COM CP

COM CP

-1.3

-3.5

-1.7

3.8

1.9

-2.4

-0.4

1.5

-2.3
0.4

7.0

-1.7

3.5

1.4

1.8

-1.3

-3.5

-1.7

3.8

1.9

-2.4

-0.4

1.5

-2.3
0.4

7.0

-1.7

3.5

1.4

2.1

-0.4

-0.4

-3.2

1.1

1.0

-0.9

0.3

0.1

-3.3
0.0

7.2

-0.4

1.9

1.3

1.5

0.0

-1.2

-0.4

1.3

0.9

-0.8

0.3

0.4

-3.0
-0.2

7.6

0.2

2.1

0.4

1.5

1.6

1.4

2.3

5.1

5.2

1.3

0.1

0.2

-2.4
0.2

7.2

1.4

1.2

0.7

2.1

1.2

1.0

0.9

3.7

3.5

0.4

0.5

0.3

-2.6
0.0

7.7

1.2

1.7

0.9

2.8

CP

2.1

2.1

2.6

4.9

4.7

1.5

0.2

0.4

-1.7
0.1

7.3

2.0

1.9

1.4

3.0

CP

2.6

2.5

3.1

5.4

5.1

2.0

0.1

0.5

-0.4
0.2

6.7

2.4

1.1

1.1

3.9

-1.4

-1.4

-0.9

-1.3

-1.4

-1.2

-1.3

-1.6

1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme 
scenario using the commonly agreed methodology.

Source:

Commission services’ 2013 spring forecasts (COM); Convergence programme (CP).

37 

 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

Revenue

of which:

- Taxes on production and imports

- Current taxes on income, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

of which:

Compensation of employees

Intermediate consumption

Social payments

Subsidies

Gross fixed capital formation

Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures
GGB excl. one-offs

Output gap

2

Cyclically-adjusted balance

2

3
Structural balance (SB)
Change in SB

Two year average change in SB 

Structural primary balance
Change in structural primary balance

3

Expenditure benchmark

Applicable reference rate

4

5

Deviation
Two-year average deviation (% GDP)

 (% GDP)

2012

2013

2014

2015

2016

COM COM

40.1

40.5

12.0

7.2

15.6

5.3

44.5

12.3

7.3

15.5

5.4

43.4

CP

40.4

12.4

7.3

15.5

5.2

43.3

1
COM

40.3

12.3

7.3

15.4

5.3

43.3

CP

40.2

12.1

7.5

15.5

5.1

43.0

CP

39.5

12.0

6.9

15.6

5.0

42.3

CP

38.9

11.4

6.8

15.8

4.9

41.7

43.0

41.8

41.8

41.7

41.5

40.8

40.2

7.3

5.7

20.0

2.0

3.1

4.9

1.5

-4.4

-2.9
-1.8

-2.6

-2.3

-3.5

-1.7

1.4

1.4

-0.2

1.25

-1.1

-0.8

7.3

5.7

20.2

2.0

3.3

3.3

1.6

-2.9

-1.3
0.0

-2.9

-3.3

-1.6

-1.6

0.1

0.7

0.0

0.1

1.25

-2.3

-1.7

7.3

5.8

20.2

2.0

3.2

3.1

1.5

-2.8

-1.3
-0.1

-2.7

-3.0

-1.6

-1.5

0.1

0.8

0.0

0.2

1.25

-3.1

-1.7

7.3

5.5

20.1

2.0

3.5

3.2

1.6

-3.0

-1.4
0.0

-3.0

-2.4

-2.1

-2.1

-0.5

-0.2

-0.4

-0.4

0.45

0.0

-1.2

7.2

5.5

20.3

2.0

3.3

3.1

1.5

-2.9

-1.3
-0.1

-2.8

-2.6

-1.9

-1.8

-0.3

-0.1

-0.3

-0.3

0.45

-0.4

-1.8

6.9

5.4

20.2

2.0

3.3

3.1

1.5

-2.8

-1.3
-0.1

-2.7

-1.7

-2.1

-2.0

-0.2

-0.3

-0.5

-0.2

0.45

0.3

0.0

6.7

5.3

19.9

1.9

3.3

3.0

1.5

-2.8

-1.3
-0.1

-2.7

-0.4

-2.6

-2.5

-0.5

-0.4

-1.0

-0.5

0.45

0.5

0.4

Change: 
2012-2016

CP

-1.2

-0.6

-0.4

0.2

-0.4

-2.8

-2.8

-0.6

-0.4

-0.1

-0.1

0.2

-1.9

0.0

1.6

1.6
1.7

-0.1

1.8

0.9

-0.9

-

-

-0.8

-

-

-

-

Notes:

1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services on 
the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its 
M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates applicable 
to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the 
applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 

Source :

Convergence programme (CP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

38 

 
 
Table IV. Debt dynamics 

(% of GDP)

1
Gross debt ratio
Change in the ratio
Contributions 2 :

1. Primary balance

2. “Snow-ball” effect

Of which:

Interest expenditure

Growth effect

Inflation effect

3. Stock-flow adjustment

Of which:

Cash/accruals diff.

Acc. financial assets

Privatisation

Val. effect & residual

5,6

Gap to the debt benchmark
7
Structural adjustment
To be compared to:
Required adjustment8

Notes:

Average
2007-2011

33.9

2.5

2.1

0.5

1.2

-0.5

-0.3

-0.1

2012

45.8

4.9

2.9

1.5

1.5

0.5

-0.6

0.5

2013

2014

COM

48.3

2.6

CP

48.5

2.7

COM

50.1

1.8

1.3

1.2

1.6

0.2

-0.6

0.1

1.4

0.5

1.6

-0.8

-0.3

-0.1

1.3

1.3

1.5

0.0

-0.2

0.1

0.5

-0.4

0.0
0.0

2015
CP

51.2

0.9

2016
CP

51.9

0.7

1.3

-0.2

1.5

-1.0

-0.7

-0.2

0.0

-0.1

0.0
0.0

1.3

-0.3

1.5

-1.3

-0.5

-0.3

-0.2

-0.1

0.0
0.0

CP

50.3

1.8

1.3

0.6

1.6

-0.6

-0.4

-0.1

0.1

-0.2

0.0
0.0

2013

2014

2015

2016

2012

COM / 

3

CP
n.r.
n.r.

n.r.

n.r.
n.r.

n.r.

4

CP

n.r.
n.r.

COM / 

3

CP
n.r.
n.r.

4

CP

n.r.
n.r.

n.r.

n.r.

n.r.

CP

n.r.
n.r.

n.r.

CP

n.r.
n.r.

n.r.

1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in CP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the CP assuming growth follows the CP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years 
following the correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio 
does not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary 
projections for the previous years are achieved.

Source :

Convergence programme (CP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

39 

 
 
 
Table V. Sustainability indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

CZ

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

5.0

1.3

3.7

1.8

1.1

0.4

0.3

0.7

0.9

-0.6

0.4

5.7

1.7

4.0

2.3

1.1

0.4

0.3

1.2

1.3

-0.6

0.5

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

0.24

45.8

20.1

:

87.0

25.8

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' scenario depicts the sustainability gap 
under the assumption that the budgetary plans in the programme are fully implemented.                                                                 
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.               
** The critical threshold for the S0 indicator is 0.44.

Source: 
Commission services; 2013 stability programme.                                                                                                   

40 

 
 
 
4
1

S
C
P
s
c
e
n
a
r
i
o

C
O
M
c
o
n
s
o

l
i

d
a
t
i
o
n
s
c
e
n
a
r
i
o
(
1
%
p
e
r

y
e
a
r

o
n
S
B

)

i

n
o
r
d
e
r

t

i

o
a
c
h
e
v
e
M
T
O

C
O
M
c
o
n
s
o

l
i

d
a
t
i
o
n
s
c
e
n
a
r
i
o
(
0
.
5
%
p
e
r

y
e
a
r

o
n
S
B

)

i

n
o
r
d
e
r

t

i

o
a
c
h
e
v
e
M
T
O

0

1
0

2
0

3
0

4
0

5
0

6
0

7
0

8
0

9
0

(

%
o
f

G
D
P

)

G

r
o
s
s
d
e
b
t

a
s
%
o
f

G
D
P

-

C
Z
-

M
e
d
u
m

i

t
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r
m
d
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b
t
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p
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c
y

c
h
a
n
g
e
s
c
e
n
a
r
i
o

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

C
O
M
+
S
h
o
c
k

(
+
1
p
.
p
.

C
O
M
+
S
h
o
c
k

(

-
1
p
.
p
.

i

n
t
h
e
s
h
o
r
t
-
t
e
r
m

/
l
o
n
g
-
t
e
r
m

i

n
t
e
r
e
s
t

t

t

r
a
e
o
n
m
a
u
r
i
n
g
a
n
d
n
e
w
d
e
b

t

i

n
t
h
e
s
h
o
r
t
-
t
e
r
m

/
l
o
n
g
-
t
e
r
m

i

n
t
e
r
e
s
t

t

r
a
e
o
n
m
a

t

u
r
i
n
g
a
n
d
n
e
w
d
e
b

t

f
r
o
m
2
0
1
5
)

f
r
o
m
2
0
1
5
)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

34.6

35.3

34.4

33.4

33.5

34.4

2002

2006

2008

2009

2010

2011

Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

              - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth

     p.m.  Environmental taxes

2

3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

Note: 

9.6

6.0

1.0

2.1

0.5

10.3

10.3

10.8

10.9

11.2

6.4

1.3

2.3

0.3

6.8

1.1

2.2

0.3

6.9

1.4

2.2

0.3

6.9

1.4

2.2

0.3

7.0

1.6

2.2

0.4

17.1

17.1

16.8

15.7

16.1

16.5

1.2

5.8

0.8

2.4

1.3

6.0

0.7

2.5

1.2

5.4

0.6

2.4

1.3

5.0

0.6

2.4

1.4

4.5

0.6

2.4

1.4

4.6

0.8

2.3

41.0

53.3

57.5

56.0

53.9

54.7

1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.
2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 The VAT efficiency is measured via the VAT revenue ratio. The VAT revenue ratio is defined as the ratio between the actual VAT revenue collected and the 
revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due 
to large exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection 
gap'). See European Commission (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

42 

 
 
Table VII. Financial market indicators 

2008

2009

2010

2011

2012

Total assets of the banking sector (% of GDP)

101.8

113.8

116.7

115.5

125.8

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans)1),2)
              - capital adequacy ratio (%) 1),2)
              - return on equity (%) 1),2),3)
Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

CB liquidity as % of liabilities

Banks' exposure to countries receiving official financial assistance  (% of GDP)

Private debt (% of GDP)
Gross external debt (% of GDP)4)
            - Public
            - Private

Long term interest rates spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

62.1

97.8

2.8
11.6

20.7

16.3

20.2

71.6

0.0

…

47.4

7.1
20.0

0.6

35.2

62.4

89.8

4.6
14.0

26.4

1.5

11.7

77.0

1.0

…

53.8

9.8
22.9

1.6

82.4

62.5

…

5.4
15.3

19.7

4.2

6.9

74.7

0.0

…

56.9

12.3
23.1

1.1

85.9

61.8

…

5.2
15.0

18.3

5.9

7.6

76.1

0.0

…

56.2

11.7
23.0

1.1

…

…

5.1
15.7

20.9

3.4

5.6

75.4

0.1

…

…

14.3
24.6

1.3

106.7

114.1

1) Latest data (September 2012).
2) FSI Compilation Guide methodology from 2008 onwards; previous years may not be comparable.
3) After extraordinary items and taxes. Tier 1 capital.
4) Latest data 2012Q3.

* M easured in basis points.

Source :

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

43 

 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment (% of total employment, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

Early leavers from education and training (% of pop. 18-24 with at 
most lower sec. educ. and not in further education or training)

Tertiary educational attainment (% of population 30-34 having 
successfully completed tertiary education)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (annual % change)

Hours worked per person employed  (annual % change)
Labour productivity per hour worked (annual % change; constant 
prices)

Compensation per employee (annual % change; constant prices)

Nominal unit labour cost growth (annual % change)

Real unit labour cost growth (annual % change)

2007

2008

2009

2010

2011

2012

72.0

72.4

70.9

70.4

70.9

71.5

2.1

62.4

81.5

46.0

5.0

8.5

2.3

8.6

4.0

5.3

2.8

10.7

6.9

5.2

2.3

62.5

82.0

47.6

4.9

8.5

2.2

8.0

3.3

4.4

2.2

9.9

6.7

5.6

-1.8

61.4

80.2

46.8

5.5

9.2

2.8

8.5

3.5

6.7

2.0

-1.0

60.9

79.6

46.5

5.9

9.9

2.9

8.9

3.1

7.3

3.0

0.3

61.7

79.9

47.6

5.5

9.4

2.5

8.5

3.2

6.7

2.7

0.4

62.5

80.2

49.3

5.8

9.6

2.9

8.8

:

7.0

3.1

16.6

18.3

18.1

19.5

8.5

5.4

8.8

4.9

8.3

4.9

8.9

5.5

13.3

15.4

17.5

20.4

23.8

25.6

2.0

0.0

3.5

-0.8

4.4

2.8

2.6

-0.7

1.0

0.0

0.8

0.4

0.4

2.2

3.4

1.5

3.0

0.0

-2.8

-1.2

-1.5

-2.9

2.2

-0.1

2.0

0.0

3.5

1.9

1.6

5.0

0.0

1.4

4.0

1.0

1.6

1.0

0.6

3.5

1.1

1.9

:

:

-1.7

-1.6

0.0

0.5

3.6

2.2

Notes:
1 Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within 
two weeks. The labour force is the total number of people employed and unemployed.

2 Long-term unemployed are unemployed persons for at least 12 months.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

44 

 
 
 
Expenditure on social protection benefits (% of 
GDP)
Sickness/Health care

Invalidity

Old age and survivors

Family/Children

Unemployment

Housing and Social exclusion n.e.c.

Total

of which:  means tested benefits
Social inclusion indicators
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households 4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices5
Gross disposable income (households)
Relative median poverty risk gap (60% of median equivalised 
income, age: total)

2006

2007

2008

2009

2010

5.96

1.49

7.52

1.31

0.56

0.07

17.39

0.89

5.88

1.43

7.67

1.61

0.60

0.06

17.46

0.57

5.79

1.42

8.02

1.39

0.61

0.06

17.46

0.37

6.36

1.52

9.01

1.43

1.04

0.08

19.68

0.35

6.30

1.52

9.19

1.33

0.82

0.11

19.49

0.38

2007

2008

2009

2010

2011

15.8

21.5

10.9

9.6

7.4

8.6

3.3

15.3

18.6

12.5

9.0

6.8

7.2

3.6

14.0

17.2

11.7

8.6

6.1

6.0

3.2

14.4

18.9

10.1

9.0

6.2

6.4

3.7

15.3

20.0

10.7

9.8

6.1

6.6

4.0

52.2

55.0

52.0

50.3

45.6

92212

98198

99800

101694

101507

1921296

2053789

2124749

2155612

2140752

18.1

18.5

18.8

21.1

17.2

Notes:
1 People at-risk-of poverty or social exclusion (AROPE): individuals who are at-risk-of poverty (AROP) and/or suffering from severe 
material deprivation (SM D) and/or living in household with zero or very low work intensity (LWI).
2 At-risk-of poverty rate (AROP): share of people with an equivalised disposable income below 60% of the national equivalised median 
income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility bills, ii) keep their 
home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent every second day, v) enjoy a week of 
holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour tv, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households where the adults (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

Sources: 
For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

45 

 
 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007

4.7

11.7

6.8

2.7

2008

2009

2010

2011

2012

0.8

9.5

-2.8

3.5

-7.3

15.1

1.6

4.8

-1.7

0.0

17.0

-10.9

-4.0

-11.5

n.a.

-4.3

-4.8

6.4

-1.7

-5.4

25.9

39.7

45.5

51.2

n.a.

n.a.

2003-
2007
657

32

1.3

2008

2009

2010

2011

2012

653

20

1.4

611

20

1.5

611

20

1.6

611

20

1.8

611

20

n.a.

12.9

15.4

17.5

20.4

23.8

25.3

4.2

3.9

4.4

4.2

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

1.6

1.6

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.0

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 

4 The methodologies of the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.
5 Aggregate Energy, Transport and Communications Regulation (ETCR).
*figure for 2007.

Source :
Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

46 

 
 
 
Table X. Green Growth 

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users**
Gas prices for medium-sized industrial users***
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS*
Transport energy intensity
Transport carbon intensity
Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €

%
HHI
HHI
%

2002-
2006

0.61
1.97
2.50
n.a.
-2.3%
n.a.
n.a.
13.5%
7.0%

0.37
14.2
n.a.
n.a.
n.a.
n.a.
17.7%
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

2007

2008

2009

2010

2011

0.53
1.69
2.23
n.a.
-3.3%
14
0.1
13.0%
6.7%

0.27
14.7
0.09
0.02
0.01%
0.01%
23.0%
59.5%
0.62
1.78

25.0%
0.27
0.31
4.6%

0.50
1.58
2.13
0.28
-4.3%
15
7.9
13.3%
7.0%

0.24
14.8
0.11
0.04
0.02%
0.01%
21.9%
56.6%
0.61
1.73

27.9%
0.29
0.29
4.9%

0.49
1.55
2.03
n.a.
-2.9%
13
7.9
14.1%
7.1%

0.25
13.9
0.11
0.03
0.02%
0.01%
23.5%
55.3%
0.61
1.70

27.0%
0.30
0.28
5.7%

0.50
1.56
n.a.
0.27
-3.4%
13
-1.9
13.6%
7.1%

0.25
n.a.
0.11
0.03
0.02%
0.01%
30.7%
55.0%
n.a.
n.a.

25.6%
0.29
0.28
6.2%

0.48
n.a.
n.a.
n.a.
-4.1%
14
3.8
n.a.
n.a.

n.a.
n.a.
0.11
0.03
0.02%
0.01%
n.a.
55.6%
n.a.
n.a.

28.6%
n.a.
0.28
6.8%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

47