Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Poland in response to the Council Recommendation of 21 June 2013
Date: 2013-11-15
Institutions: European Commission
Subjects: Poland, budget deficit, budgetary equilibrium, gross domestic product, stability pact













EUR-Lex - 52013PC0907 - EN











|



52013PC0907

Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Poland in response to the Council Recommendation of 21 June 2013 /* COM/2013/0907 final */









Recommendation for a
COUNCIL DECISION
establishing that no effective action has
been taken by Poland in response to the Council Recommendation of 21 June 2013

THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the
Treaty on the Functioning of the European Union, and in particular Article
126(8) thereof,
Having regard to the
recommendation from the European Commission,
Whereas:
(1)       According to Article 126
of the Treaty on the Functioning of the European Union (TFEU) Member States
shall avoid excessive government deficits;
(2)       The Stability and Growth
Pact is based on the objective of sound government finances as a means of
strengthening the conditions for price stability and for strong sustainable
growth conducive to employment creation.
(3)       On 7 July 2009, the
Council decided, in accordance with Article 104(6) of the Treaty establishing
the European Community (TEC), that an excessive deficit existed in Poland and
issued a recommendation to correct the excessive deficit by 2012 at the latest,
in accordance with Article 104(7) TEC and Article 3 of Council Regulation (EC)
No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of
the excessive deficit procedure[1].
In order to bring the general government deficit at or below 3% of GDP in a
credible and sustainable manner, the Polish authorities were recommended to
implement the fiscal stimulus measures in 2009 as planned, ensure an average
annual structural budgetary adjustment of at least 1¼% percentage points of GDP
starting in 2010, spell out detailed measures that are necessary to bring the
deficit below the reference value by 2012 and introduce reforms to contain
primary current expenditure over the following years. The Council established a
deadline of 7 January 2010 for effective action to be taken.
(4)       On 3 February 2010, the
Commission concluded that based on the Commission 2009 autumn forecast, Poland had taken necessary action in compliance with the Council recommendation of 7 July
2009 to bring its government deficit within the Treaty reference value and
considered that no additional step in the excessive deficit procedure was
therefore necessary. On the basis of its 2011 autumn forecast, the Commission
considered that Poland was not on track and asked for additional measures, which
  Poland adopted and publicly announced until 10 January 2012. Thus, on 11
January 2012 the Commission confirmed the Polish authorities had taken
effective action towards a timely and sustainable correction of the excessive
deficit and no further steps in the excessive deficit procedure of Poland were needed at the time[2].
(5)       On 21 June 2013, the
Council concluded that Poland had taken effective action but adverse economic
events with major implications on public finances had occurred, and issued
revised recommendations[3].
Thus, Poland fulfilled the conditions for the extension of the deadline for
correcting the excessive general government deficit as laid down in Article
3(5) of Regulation (EC) No 1467/97. The Council recommended that Poland should put an end to the excessive deficit situation by 2014. Poland should reach a headline general government deficit target of 3.6% of GDP in 2013 and
3.0% of GDP in 2014, which is consistent with an annual improvement of the
structural budget balance of at least 0.8% of GDP and 1.3% of GDP in 2013 and
2014, respectively, based on the Commission updated 2013 spring forecast. Poland should rigorously implement the measures already adopted, while complementing them
with additional measures sufficient to achieve a correction of the excessive
deficit by 2014. Poland should use all windfall gains for deficit reduction.
The Council established the deadline of 1 October 2013 for Poland to take effective action and, in accordance with Article 3(4a) of Regulation (EC) No
1467/97, to report in detail the consolidation strategy that is envisaged to
achieve the targets.
(6)       On 2 October 2013, Poland submitted a report on effective action. The macroeconomic scenario underpinning the
report is similar to the one used for the Convergence Programme 2013. After
recording an average real GDP growth of 4% per year over 2001-2011, the pace of
economic activity slowed down in 2012 to 1.9%. The macroeconomic scenario
underpinning the report on effective action projects real GDP growth to slow down
further in 2013 to 1.5% before rebounding in 2014 and 2015 with real GDP
expanding by 2.5% and 3.8%, respectively. According to the Commission 2013
autumn forecast, real GDP is set to grow at 1.3% in 2013 and accelerate to 2.5%
in 2014 and 2.9% in 2015. Compared to the Polish authorities, the Commission has
a less optimistic view on domestic demand growth over the forecast horizon,
private consumption and private investment in particular. 
(7)       The Polish authorities
foresee a general government deficit of 4.8% of GDP in 2013, up from 3.9% of
GDP in 2012. This is worse than 3.5% of GDP provided in the 2013 update of the
Convergence Programme and is due to a significant revenue shortfall of 1.2 % of
GDP and an expenditure slippage of 0.1% of GDP. Subsequently, the Polish
Ministry of Finance projects a surplus of 4.5% of GDP in 2014 on the back of
the planned pension reform, which in particular results in a one-off transfer
of assets worth 8.5% of GDP. In 2015, the general government balance is
expected to turn back to a deficit of 3% of GDP.
(8)       For 2013 and 2014, the
Commission forecast is similar to the Polish authorities'. It also projects a
deficit of 4.8% of GDP in 2013. The deterioration compared to the 3.9% of GDP
in the EDP baseline scenario is mainly due to revenue shortfalls. In 2014, the
general government balance is projected to be in surplus (+4.6% of GDP) as a
consequence of the planned pension reform. For 2015 the Commission is less
optimistic than the Polish authorities and expect a general government deficit
of 3.3% of GDP. The 0.3 pp. of GDP difference is mainly due to lower current
revenues based on a lower projection of nominal GDP growth as well as higher
government expenditure on intermediate consumption. The deficit targets are
subject to implementation risks. 
(9)       Both the Polish
authorities and the Commission project the general government gross debt to
remain below the 60% threshold over the entire period under consideration.
According to the Commission 2013 autumn forecast, the debt-to-GDP ratio is
forecast to fall from 55.6% in 2012 to 51% in 2014, mainly as an effect of the
announced transfer of pension funds' assets of 8.5% of GDP, before edging up to
52.5% in 2015.
(10)     Since, according to the
Commission's 2013 autumn forecast, the general government deficit in 2013 is
projected to reach 4.8% of GDP, Poland is set to miss the headline deficit
target of 3.6% of GDP recommended by the Council. Also the annual adjusted
structural effort in 2013 (0.3% of GDP) is well below the recommended annual
fiscal effort (0.8% of GDP). The bottom-up analysis of new discretionary
measures complemented by an assessment of expenditure developments[4], shows an overall fiscal effort
of 0.2% of GDP. This falls short of the required additional measures of 0.4% of
GDP underlying the fiscal effort set in the Council Recommendation and confirms
that Poland has not implemented the fiscal effort in 2013 as recommended by the
Council.
(11)     In 2014, the Commission
expect a general government surplus of 4.6% of GDP. Thus, the headline deficit
target is set to be fulfilled only due to the one-off transfer of pension
funds' assets. The expected annual adjusted structural effort is with 1.4% of
GDP in 2014 above the recommended annual fiscal effort of 1.3% of GDP.
(12)     Overall, Poland has not complied with fiscal targets recommended for 2013, while for 2014 the targets
specified in the Council recommendation of 21 June 2013 are forecast to be met.
However, the Commission projection for 2015 expect the correction of the excessive
deficit in 2014 not to be sustainable as the deficit is set to reach 3.3% of
GDP,
HAS DECIDED AS FOLLOWS:
Article 1
Poland has not taken
effective action in 2013 in response to the Council recommendation according to
Article 126(7) of the Treaty of 21 June 2013 
Article 2
This decision
is addressed to the Republic of Poland.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 6.
[2]               Communication from the
Commission to the Council on assessment of budgetary implementation in the
context of the ongoing Excessive Deficit Procedures after the Commission
services' 2011 Autumn forecast - COM(2012) 4 final, 11.1.2012.
[3]               Council Recommendation with a
view to bringing an end to the situation of an excessive government deficit in Poland, 21 June 2013.
[4]               Corrected for expenditure
over- and under-execution which is outside the control of the government.