Recommendation for a COUNCIL RECOMMENDATION on Poland’s 2013 national reform programme and delivering a Council opinion on Poland’s convergence programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Poland, budget deficit, budgetary equilibrium, female work, innovation, liberalisation of the market, public expenditure, social-security harmonisation, trans-European network, youth unemployment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 371 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Poland’s 2013 national reform programme  

and delivering a Council opinion on Poland’s convergence programme for 2012-2016 

{SWD(2013) 371 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Poland’s 2013 national reform programme  

and delivering a Council opinion on Poland’s convergence programme for 2012-2016 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(2) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

(3) 

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

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

On 29 June 2012, the Heads of State or Government decided on a Compact for Growth 
and  Jobs,  providing  a  coherent  framework  for  action  at  national,  EU  and  euro  area 
levels using all possible levers, instruments and policies. They decided on action to be 
taken  at  the  level  of  the  Member  States,  in  particular  expressing  full  commitment  to 
achieving the objectives of the Europe 2020 Strategy and to implementing the country-
specific recommendations. 

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OJ L 209, 2.8.1997, p. 1. 
COM(2013) 371 final . 
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision 2013/208/EU of 22 April 2013. 

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(4) 

(5) 

(6) 

(7) 

(8) 

On 6 July 2012, the Council adopted a recommendation on Poland’s national reform 
programme  for  2011  and  delivered  its  opinion  on  Poland’s  updated  convergence 
programme for 2011-2015. 
On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey5, 
marking  the  start  of  the  2013  European  Semester  of  economic  policy  coordination. 
Also  on  28  November  2012,  the  Commission,  on  the  basis  of  Regulation  (EU)  No 
1176/2011, adopted the Alert Mechanism Report6, in which did not identify Poland as 
one of the Member States for which an in-depth review would be carried out. 

On  14  March  2013,  the  European  Council  endorsed  the  priorities  for  ensuring 
financial stability, fiscal consolidation and action to foster growth. It underscored the 
need  to  pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal 
lending conditions to the economy, to promote growth and competitiveness, to tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 

On  30  April  2013,  Poland  submitted  its  2013  convergence  programme  covering  the 
period 2012-2016 and its 2013 national reform programme. In order to take account of 
their interlinkages, the two programmes have been assessed at the same time. 

Poland  undertook  considerable  consolidation  efforts  in  2011-2012  in  line  with  the 
Council  recommendation.  However,  in  view  of  a  deteriorating  global  economic 
situation the deadline to correct the excessive deficit has been missed and more time is 
needed  to  correct  it.  Based  on  the  assessment  of  the  2013  convergence  programme 
pursuant  to  Council  Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that 
the macroeconomic scenario underpinning the budgetary projections in the programme 
is optimistic. In particular, private consumption and private investment is expected to 
increase  more  strongly  than  in  the  Commission  2013  spring  forecast,  leading  to  an 
overall  higher  growth  rate  in  2013  (1.5%  against  1.1%).  The  objective  of  the 
budgetary strategy outlined in the programme is to bring the deficit to 3.5% of GDP by 
2013  (one  year  after  the  original  2012  EDP  deadline)  and  reach  the  medium-term 
budgetary  objective  (MTO)  by  2016.  However,  the  2013  Convergence  Programme 
plans to bring the headline deficit below 3% of GDP only by 2015. Given the overly 
optimistic  growth  forecast  and  revenue  projections  in  the  programme  the  Council 
considers that the fiscal effort envisaged by the authorities is not compatible with an 
actual  correction  of  the  excessive  deficit  by  2013  unless  significant  additional 
measures are taken to reinforce the effort for this year. The programme is based on an 
optimistic  scenario  and  not  sufficiently  supported  by  detailed  measures  in  order  to 
credibly ensure the correction of the deficit at the latest by 2014. Additional efforts are 
therefore required based on detailed measures for both 2013 and 2014. The authorities 
have  not  sufficiently  exploited  the  pre-crisis  growth  environment  to  reform  the 
structure  of  public  spending  to  prioritise  growth-enhancing  items.  The  programme 
confirms the previous MTO of -1% of GDP, which reflects the objectives of the Pact. 
Based on the (recalculated) structural deficit, the MTO is not projected to be attained 
by  2016,  as  planned  in  the  programme,  as  the  planned  annual  progress  towards  the 
MTO of 0.3% of GDP (in structural terms) in 2015 and 0.7% of GDP in 2016 is not 
sufficient.  The  growth  rate  of  government  expenditure,  taking  into  account 
discretionary  revenue  measures,  is  in  line  with  the  benchmark  of  the  Stability  and 
Growth Pact over the entire programme period. Additional efforts as well as changes 

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COM(2012) 750 final. 
COM(2012) 751 final. 

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in  the  composition  of  the  adjustment  may  be  required  also  in  the  outer  years  of  the 
programme as the progress towards the MTO predominantly relies on sizeable cuts in 
public investment expenditure and is not sufficiently supported by detailed measures. 
General government debt is projected to remain below 60% of GDP in Poland over the 
programme  period.  The  national  authorities  forecast  it  to  remain  broadly  constant  at 
slightly  above  55.5%  of  GDP  until  2014/2015  (and  decrease  in  2016),  whereas  the 
Commission,  taking  account  of  possible  risks  to  the  consolidation  plans  and  debt 
decreasing items, expects an increase to around 59% of GDP in 2014. Tax compliance 
remains a key issue in terms of combating tax evasion, which also requires reducing 
the  administrative  burden  on  taxpayers  and  improving  the  efficiency  of  tax 
administration.  To  ensure  the  success  of  the  fiscal  consolidation  strategy,  it  is 
important that the fiscal consolidation is backed by comprehensive structural reforms. 

(9) 

A  low  share  of  growth-enhancing  expenditure  (education,  research  and  innovation) 
and  declining  public  investments  hamper  long  term  growth  prospects.  The  health 
sector in Poland is confronted with limitations in access to care and cost-inefficiencies, 
while  healthcare  spending  is  expected  to  grow  considerably  in  the  medium  to  long 
term because of an aging society, increasing the burden on public finances. The system 
could be improved by strengthening primary care and referral systems and exploiting 
the potential for cost-efficiency gains in hospital care. 

(10)  The  Polish  government  has  not  yet  implemented  a  permanent  expenditure  rule 
consistent  with  the  European  System  of  Accounts  (ESA).  Poland  made  also  no 
progress in medium-term planning and improving coordination among different levels 
of government when it comes to the budgetary process. 

(11)  Youth unemployment is growing which is largely the result of the insufficient match 
between education outcomes and labour market needs. While implemented reforms of 
education systems are meant to address the job-skills mismatch, there is still a need to 
increase the availability of apprenticeships and work-based learning, to strengthen the 
cooperation  between  schools  and  employers  and  to  improve  the  quality  of  teaching. 
The  implementation  of  a  Youth  Guarantee,  building  upon  current  efforts,  would 
contribute  to  support  young  people  into  employment.  The  proportion  of  adults 
participating  in  lifelong  learning  remains  very  low  and  the  adoption  of  the  lifelong 
learning strategy is pending. 

(12)  With  respect 

to  early  childcare,  government  efforts  have  concentrated  on 
implementing  the  ‘Toddler  programme’.  As  a  result,  the  number  of  nurseries  has 
almost doubled over the last two years, but is still extremely low in relative terms and 
do  not  satisfy  demand.  Poland  took  only  minor steps to address the extensive use of 
temporary employment. The country has the third highest share of involuntary fixed-
term  employment  in  the  EU,  in  particular  in  the  age  group  15-24.  While  fixed  term 
contracts are often argued to be an instrument for the unemployed to enter the labour 
market with a view to later move into a permanent contract, this seems not to be the 
case for the majority of workers in Poland. Instead, the extensive use of such contracts 
appear to have a negative impact on the quality of human capital and on productivity, 
as temporary employees tend to have less access to vocational training. Wage penalty 
on  fixed-term  contracts  is  also  relatively  high,  leading  to  one  of  the  highest  in-work 
poverty  rates  in  the  EU.  In  addition,  the  use  of  revolving  civil  law  contracts  with 
significantly  reduced  social  protection  rights  is  widespread.  According  to  the 
government  report  'Youth  2011',  over  50%  of  young  workers  are  employed  on  the 
basis of such contracts. 

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(13)  Poland  faces  low employment rates of older workers. Whereas possibilities for  early 
retirement  have  been  significantly  reduced  and  general  pension  reform  has  been 
carried  out,  a  special  pension  scheme  for  miners  remains.  In  addition,  the  social 
security  system  for  farmers  (KRUS)  creates  incentives  for  small-scale  farmers  to 
remain  in  the  agricultural  sector  mainly  since  individual  farmers'  incomes  are  not 
accurately  traced  in  the  system.  This  results  in  hidden  unemployment  in  rural  areas, 
holding back productivity growth and keeping regional and sectoral labour mobility at 
bay. 

(14)  Poland  is  among  the  EU  countries  with  the  lowest  level  of  R&D  expenditure  and  is 
one of the worst performers in broader innovativeness indicators. The overall ratio of 
R&D expenditures to GDP in Poland, at 0.77 % in 2011, was among the lowest in the 
EU.  In  particular,  private  R&D  expenditure  is  low  (0.2%  of  GDP  in  2011).  Polish 
enterprises  have  relied  largely  on  technology  absorption,  i.e.  application  of  already 
existing technologies through fixed capital investment. While this has been successful 
in  ensuring  productivity  gains  and  economic  growth,  Poland  now  needs  a  transition 
towards  a  more  indigenous  innovation-based  model.  Reforms  of  the  science  and 
higher  education  system  initiated  a  major  restructuring  to  induce  science-industry 
cooperation. No evaluation of these reforms is available yet. A more holistic approach 
is  needed  to  align  efforts  in  research,  innovation  and  industrial  policy  and  ensuring 
that there are adequate instruments supporting the whole innovation cycle.  

(15)  There are still very high potential gains from improvements in energy efficiency in all 
sectors  of  Poland’s  economy,  in  particular  by  insulating  buildings,  and  such  gains 
could  support  growth.  The  domestic  electricity  grid  is  still  congested,  but  plans  are 
advancing  to  create  more  interconnection  capacity  to  neighbouring  markets. 
Competition  in  the  gas  market  is  still  hampered  by  a  number  of  factors,  notably  the 
phasing  out  of  regulated  prices  is  still  to  be  completed,  the  incumbent  holding  a 
market share of around 97% in retail and whole sale markets and 90% of natural gas 
imports are from Russia. 

(16)  Despite  some  progress,  Poland’s  underdeveloped  transport  infrastructure  remains  a 
major  bottleneck  to  growth.  Major  road  infrastructure  projects  have  advanced,  but 
railway  investment  projects  are  still  largely  delayed.  Degraded  rail  infrastructure 
requires substantial, growing investment, since only 36 % of approximately 20 000 km 
of rail lines in operation are in good technical condition. Despite recent efforts, Poland 
still  lags  considerably  behind  other  Member  States  when  it  comes  to  seizing  the 
growth  potential  of  information  and  communication  technologies  (ICT).  Fixed 
broadband  coverage  is  the  lowest  in  the  EU,  both  at  national  and  for  rural  areas. 
Investment in water networks has remained insufficient.  

(17)  Poland’s public administration performs below the EU average. Key problems include 
transparency,  the  complexity  of  the  tax  system  and  compliance  costs,  the  increasing 
average  length  of  proceedings  in  civil  and  commercial  cases,  and  long  insolvency 
proceedings  and  low  recovery  rates.  The  use  of  eGovernment  in  the  public 
administration  also  remains  below  the  EU  average.  Poland  initiated  a  reform  to 
facilitate  access  to  regulated  professions  that  is  behind  the  initially  announced 
schedule. 

(18) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of Poland’s economic policy. It has assessed the convergence 
programme  and  national  reform  programme.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socio-economic  policy  in  Poland  but  also  their 

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compliance  with  EU  rules  and  guidance,  given  the  need  to  reinforce  the  overall 
economic governance of the European Union by providing EU-level input into future 
national decisions. Its recommendations under the European Semester are reflected in 
recommendations (1) to (7) below. 

(19) 

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

HEREBY RECOMMENDS that Poland should take action within the period 2013-2014 to: 

1. 

2. 

3. 

4. 

5. 

6. 

Reinforce  and  implement  the  budgetary  strategy  for  the  year  2013  and  beyond, 
supported  by  sufficiently  specified  measures  for  both  2013  and  2014,  to  ensure  a 
timely  correction  of  the  excessive  deficit  by  2014  in  a  sustainable  manner  and  the 
achievement of the fiscal effort specified in the Council recommendations under the 
EDP. A durable correction of the fiscal imbalances requires credible implementation 
of  ambitious  structural  reforms,  which  would  increase  the  adjustment  capacity  and 
boost potential growth and employment. After the correction of the excessive deficit, 
pursue the structural adjustment effort that will enable Poland reaching the medium-
term  objective  by  2016.  With  a  view  to  improving  the  quality  of  public  finances 
minimise  cuts  in  growth-enhancing  investment,  reassess  expenditure  policies 
improving  the  targeting  of  social  policies  and  increasing  the  cost  effectiveness  and 
efficiency of spending in the healthcare sector. Improve tax compliance, in particular 
by increasing the efficiency of the tax administration. 

Ensure  the  enactment  of  a  permanent  expenditure  rule  in  2013  consistent  with  the 
rules of the European System of Accounts. Take measures to strengthen annual and 
medium-term  budgetary  coordination  mechanisms  among  different  levels  of 
government. 

Strengthen  efforts  to  reduce  youth  unemployment,  for  example  through  a  Youth 
Guarantee,  increase  the  availability  of  apprenticeships  and  work-based  learning, 
strengthen  cooperation  between  schools  and  employers  and  improve  the  quality  of 
teaching.  Adopt  the  proposed  life-long  learning  strategy.  Combat  in-work  poverty 
and  labour  market  segmentation  through  better  transition  from  fixed-term  to 
permanent employment and by reducing the excessive use of civil law contracts. 

Continue  efforts  to  increase  female  labour  market  participation,  in  particular  by 
investing in affordable quality childcare and pre-school education, by ensuring stable 
funding and qualified staff. With a view to improving sectoral labour mobility, take 
permanent steps to reform the farmers' social security scheme KRUS. Phase out the 
special  pension  system  for  miners  with  a  view  to  integrating  them  into  the  general 
scheme.  Underpin  the  general  pension  reform  with  measures  promoting  the 
employability of older workers to raise exit ages from the labour market.  

Take additional measures to ensure an innovation-friendly business environment by 
strengthening the links between research, innovation and industrial policy, by further 
developing revolving instruments and tax incentives and by better targeting existing 
instruments to the different stages of the innovation cycle. 

Renew  and  extend  energy  generation  capacity  and  improve  efficiency  in  the  whole 
energy chain. Speed up and extend the development of the electricity grid, including 
cross-border  interconnections,  and  eliminate  obstacles  in  electricity  cross  border 
exchange.  Reinforce  competition  in  the  gas  sector  by  phasing  out  regulated  prices. 

7 

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

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Strengthen  the  role  and  resources  of  the  railway  market  regulator  and  ensure 
effective  implementation  of  railway  investment  projects  without  further  delay. 
Accelerate  efforts  to  increase  broadband  coverage.  Improve  waste  and  water 
management. 

7. 

Take  further  steps  to  improve  the  business  environment  by  simplifying  contract 
enforcement  and  requirements  for  construction  permits  and  by  reducing  tax 
compliance  costs.  Adopt  and  implement  the  planned  liberalisation  of  access  to 
professional services. 

Done at Brussels,  

For the Council 
The President 

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