Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of the Czech Republic and delivering a Council opinion on the 2016 convergence programme of the Czech Republic
Date: 2016-05-18
Institutions: European Commission, Secretariat-General
Subjects: Czechia, administrative formalities, economic policy, economic reform, fiscal policy, labour market, public contract, public finance, research and development, stability programme

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   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 324 final   Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of the Czech Republic  and delivering a Council opinion on the 2016 convergence programme of the Czech Republic  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2016 national reform programme of the Czech Republic 

and delivering a Council opinion on the 2016 convergence programme of the Czech 
Republic 

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, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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On  26 November 2015,  the  Commission  adopted  the  Annual  Growth  Survey4, 
marking  the  start  of  the  2016  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  17-18 March 2016.  On  26 November 2015,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report5,  in  which  it 
did not identify Czech Republic as one of the Member States for which an in-depth 
review would be carried out.  

the  Czech  Republic6  was  published  on 
The  2016  country 
26 February 2016.  It  assessed  the  Czech  Republic’s  progress  in  addressing  the 

report 

for 

OJ L 209, 2.8.1997, p. 1. 
COM(2016) 324 final. 
P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060. 
COM(2015) 690 final. 
COM(2015) 691 final. 
SWD(2016) 73 final. 

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(3) 

(4) 

(5) 

(6) 

country-specific  recommendations  adopted  by  the  Council  on  14 July 2015  and  the 
Czech Republic’s progress towards its national Europe 2020 targets. 

On  11  May  2016,  the  Czech  Republic  submitted  its  2016  convergence  programme 
and on 12 May it submitted its 2016 national reform programme. To take account of 
their interlinkages, the two programmes have been assessed at the same time. 

recommendations  have  been  addressed 

Relevant  country-specific 
the 
programming  of  the  European  Structural  and  Investment  Funds  for  the  2014-2020 
period.  As  foreseen  in  Article  23  of  Regulation  (EU)  No  1303/2013,  where  it  is 
necessary  to  support  the  implementation  of  relevant  Council  recommendations,  the 
Commission may request a Member State to review and propose amendments to its 
Partnership  Agreement  and  relevant  programmes.  The  Commission  has  provided 
further  details  on  how  it  would  make  use  of  this  provision  in  guidelines  on  the 
application  of  the  measures  linking  effectiveness  of  the  European  Structural  and 
Investment Funds to sound economic governance7. 

in 

The  Czech Republic is  currently in  the  preventive  arm  of  the  Stability and  Growth 
Pact.  In  its  2016  convergence  programme,  the  government  plans  a  slight 
deterioration  in  the  headline  balance  to  -0.6%  of  GDP  in  2016  and  a  broad 
stabilisation at -0.5% of GDP as of 2017. The medium-term budgetary objective — a 
structural deficit of 1 % of GDP — continues to be met over the programme horizon. 
According  to  the  convergence  programme,  the  government  debt-to-GDP  ratio  is 
expected  to  remain  at  41.1%  in  2016  and  to  fall  to  39.3%  in  2019.  The 
macroeconomic scenario underpinning these budgetary projections is plausible. The 
measures needed to support the planned deficit targets from 2017 onwards have not 
been  sufficiently  specified.  Based  on  the  Commission  2016  spring  forecast,  the 
structural  balance  is  forecast  to  be  at  -0.7  %  in  2016  and  -0.9  %  of  GDP  in  2017, 
above  the  medium-term  budgetary  objective.  Possible  future  deviations  would  be 
assessed  against  the  requirement  to  maintain  the  structural  balance  at  the  medium-
term  budgetary  objective.  Based  on  its  assessment  of  the  convergence  programme 
and taking into account the Commission 2016 spring forecast, the Council is of the 
opinion  that  the  Czech  Republic  is  expected  to  comply  with  the  provisions  of  the 
Stability and Growth Pact. 

In the long term, there are medium fiscal sustainability risks for the Czech Republic. 
These  are  derived  primarily  from  the  projected  impact  of  age-related  public 
spending,  mainly  in  healthcare  but  also  in  pensions.  Recently  adopted  or  planned 
measures to amend the pension system would, if implemented, lead to a deterioration 
of public  finances in the  long term. First, in  February 2016, the Czech government 
adopted legislation giving it the power to  adjust the pension indexation mechanism 
more flexibly. Second, proposals are under discussion to cap the statutory retirement 
age  at  65 and establish a  regular review mechanism for the pensionable age.  There 
are currently no plans to increase the low statutory retirement age. On healthcare, the 
projected  increase  in  long-term  spending  is  also  a  matter  of  concern.  The  Czech 
Republic faces challenges in improving the governance and cost-effectiveness of its 
healthcare system, although a number of measures are currently at various stages of 
implementation. Indicators point to a high consumption of goods and services and to 
a comparatively high reliance on hospital-based care, which is more expensive than 
outpatient services. Available medical data do not appear to be used effectively for 

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COM(2014) 494 final. 

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(7) 

(8) 

the  planning  and  rationalisation  of  inpatient  care  capacities.  The  reimbursement 
system  for  hospital  care  is  being  reviewed  due  to  various  drawbacks,  such  as  the 
small  sample  of  hospitals  used  to  calculate  the  reference  rates.  Options  for 
strengthening  outpatient  care  coordination,  improving  the  gate-keeping  role  of 
practitioners and  limiting  unnecessary consumption  of outpatient  services have  still 
not been sufficiently explored.  

The  Czech  Republic’s  fiscal  framework  ranks  among  the  weakest  in  the  EU.  A 
reform package addressing the main shortcomings in this area was approved by the 
government in February 2015 but is still awaiting ratification by the parliament. The 
package aims to transpose Council Directive 2011/85/EU on budgetary frameworks 
into  national  legislation.  The  proposed  reform  envisages  strengthening  expenditure 
limits and directly linking them to the medium-term budgetary objective. Under the 
reform,  the  government  would  be  required  to  adopt  a  budget  that  safeguards  the 
long-term sustainability of public finances and an independent fiscal council would 
be set up to monitor public finances and increase transparency.  

Investment in the Czech Republic remains below the EU average in per capita terms 
and  is  highly  concentrated  in  the  capital  region.  Administrative  and  regulatory 
barriers continue to weigh on the efficiency of the business environment and act as a 
barrier  to  investment.  There  are  specific  bottlenecks  in  the  implementation  of 
transport  and  energy  infrastructure  projects.  Furthermore,  absorption  of  EU  funds 
during  the  2007-2013  programming  period  was  slow,  mainly  due  to  complex 
procedures, deficiencies in management and control systems, inefficiencies in public 
procurement procedures and the weak administrative capacity of the bodies involved 
in  project  implementation.  On  transport  infrastructure,  administrative  barriers  to 
investment  include  lengthy  procedures  for  issuing  land-use  permits  and  delays 
resulting  from  complaint  procedures  at  the  anti-monopoly  office.  On  energy 
efficiency, public programmes to reduce energy intensity have been fragmented and 
cost-inefficient. There are indications that  energy savings are not improving  in  line 
with the national energy efficiency action plan. On services, there is some evidence 
of regulatory restrictiveness. This is the case in particular for some of the individual 
professional  service  sectors,  for  which  barriers  to  entry  and  practice  appear  higher 
than the EU average. The low use of quality online public services also impedes the 
business environment and reflects deficiencies of supply. E-government services do 
not take full advantage of technological possibilities to improve the user experience 
and their level of sophistication is among the lowest in the EU. Available evidence 
points to a relatively high incidence of tax evasion in the Czech Republic. Tackling 
this problem, particularly for VAT, is high on the policy agenda. On the other hand, 
no  measures  are  planned  to  reduce  the  relatively  high  costs  associated  with  paying 
taxes or to simplify the tax system. Pre-filing services offered by the tax authorities 
are  limited.  Taxpayers  make  limited  use  of  systems  to  e-file  tax  returns,  although 
some progress has been made on VAT. Additionally, the costs of tax collection are 
relatively  high,  according  to  the  most  recent  international  reports.  High  employer 
social  contributions  contribute  to  an  overall  high  level  of  taxation  on  labour  and 
diversification into other areas, such as property taxes, is limited. 

(9) 

A  number  of  indicators  point  to  significant  weaknesses  in  public  administration. 
Some  progress  has  been  made  in  adopting  the  legislative  and  non-legislative 
measures in the 2015 anti-corruption plan. The Contract Register Act was approved 
by  the  parliament  in  November  2015.  Its  timely  implementation  and  further 
development  would  improve  the  transparency  and  cost-effectiveness  of  public 

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(10) 

(11) 

tenders. However, some of the key anti-corruption acts, such as an amendment to the 
Act on conflict of interest and a new Act on the financing of political parties, are still 
outstanding.  Several  adopted  measures  are  difficult  to  enforce  and  have  limited 
impact,  while  a  number  of  planned  measures  are  repeatedly  rolled  over  to  the  next 
action  plan.  Despite  some  efforts  to  address  its  shortcomings,  there  is  scope  for 
further  progress  in  the  performance  of  the  Czech  public  procurement  system  with 
regard  to  competition  and  thus  value  for  money.  This  is  partly  due  to  a  lack  of 
appropriate  training  of  procurement  practitioners  and  insufficient  emphasis  on 
quality  criteria  when  awarding  contracts.  The  public  sector  relies  heavily  on  non-
competitive  procedures,  with  limited  ability  to  attract  bidders,  while  aggregated 
procurement  is  seldom  used.  Nevertheless,  the  implementation  of  the  newly 
transposed  public  procurement  directives  on  modernised  public  procurement 
procedures  is  expected  to  be  an  opportunity  to  introduce  a  strategic  and  evidence-
based  approach  to  public  procurement  policy,  in  terms  of  professionalisation, 
aggregation of public purchases, increased focus on quality criteria and the integrity 
of procurement practitioners.  

There  has  been  a  significant  increase  in  R&D  investment  in  recent  years  but 
outcomes  remain  weak  and  there  are  concerns  about  the  sustainability  of  R&D 
infrastructure. The Czech research system is currently in the process of implementing 
long-delayed  but  substantial  governance  reforms,  particularly  on  evaluation  and 
funding.  The  existing  funding  mechanism 
insufficient 
coordination between relevant bodies and an unclear division of responsibilities and 
priorities. A comprehensive evaluation framework for R&D, with links to funding, is 
being  developed  but  progress  is  slow.  There  have  been  limited  efforts  to  increase 
links between academia and the business community. These links are weakened by 
an  evaluation  framework  for  public  research  institutions  that  does  not  take  into 
account the level of cooperation with enterprises. 

is  fragmented,  with 

The  higher  education  reform  was  adopted  by  the  parliament  in  January  2016.  The 
attractiveness of the teaching profession remains a challenge, with relatively low pay 
being  seen  as  one  of  the  causes,  while  at  the  same  time  the  teacher  population  is 
ageing. A new career system for teachers and pedagogical staff is being developed to 
increase  the  attractiveness  of  the  profession,  but  its  implementation  has  been 
postponed.  Educational  outcomes  are  generally  good,  but  they  are  strongly 
influenced by students’ socioeconomic backgrounds. The low educational outcomes 
of disadvantaged groups, in particular the Roma community, are a clear concern. It is 
estimated  that  a  very  large  proportion  of  Roma  children  leave  school  early. 
Numerous  Roma  children  receive  education  outside  mainstream  schools  and  as  a 
result  face  lower  learning  standards  than  children  from  the  rest  of  the  population. 
Training  opportunities  for  teachers  to  help  them  deal  with  this  issue  are 
underdeveloped,  with  a  low  proportion  of  teachers  taking  part  in  professional 
development activities related to teaching mixed groups and inclusive education.  A 
significant  number  of  legislative  and  administrative  measures  towards  inclusive 
education have been taken and are beginning to be implemented. These are expected 
to contribute to reducing the gap in educational attainment and achievement between 
Roma and non-Roma children. The parliament adopted amendments to the Education 
Act  in  March  2016,  extending  compulsory  education  to  the  last  year  of  pre-school 
education and ensuring that younger children are entitled to a place in a kindergarten. 
Nevertheless,  inequalities  in  the  education  system  represent  a  barrier  to  improving 
the quality of human capital and also hamper labour market outcomes later in life. 

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(12) 

(13) 

The  labour  market  situation  in  the  Czech  Republic  has  improved  but  further 
increases  in  the  employment  rate  will  depend  on  greater  participation  by  under-
represented groups. These include women with young children, low-skilled workers 
and  members  of  the  Roma  community.  The  outreach  capacities  of  public 
employment  services,  together  with  appropriate  and  well-targeted  active  labour 
market  policies  and  individualised  services,  would  contribute  to  increasing  the 
participation  of  vulnerable  groups.  The  labour  market  participation  of  women  with 
young children is hampered by a persistent lack of affordable and quality childcare 
services,  in  particular  for  children  up  to  three  years  old,  and  by  the  limited  use  of 
flexible working-time arrangements. Some measures have been taken in recent years 
to address this shortage but there is scope for more substantial efforts. 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the Czech Republic’s economic policy and published it in 
the  2016  country  report.  It  has  also  assessed  the  convergence  programme  and  the 
national  reform  programme  and  the  follow-up  given  to  the  recommendations 
addressed to the Czech Republic in previous years. It has taken into account not only 
their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic 
but also their compliance with EU rules and guidance, given the need to strengthen 
the  EU’s  overall  economic  governance  by  providing  EU-level  input  into  future 
national decisions. The recommendations under the European Semester are reflected 
in recommendations 1 to 3 below. 

(14) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  convergence 
programme,  and  is  of  the  opinion8  that  the  Czech  Republic  is  expected  to  comply 
with the Stability and Growth Pact. 

HEREBY RECOMMENDS that the Czech Republic take action in 2016 and 2017 to: 

1. 

2. 

3. 

Take  measures  to  ensure  the  long-term  sustainability  of  public  finances,  in  light  of 
future  risks  in  the  area  of  healthcare.  Adopt  legislation  to  strengthen  the  fiscal 
framework. 

Reduce regulatory and administrative barriers to investment, notably in transport and 
energy, and increase the availability of e-government services. Adopt the outstanding 
anti-corruption reforms and improve public procurement practices.  

Strengthen governance in the R&D system and facilitate the links between academia 
and enterprises. Raise the attractiveness of the teaching profession and take measures 
to increase the inclusion of disadvantaged children, including Roma, in mainstream 
schools and pre-schools. Remove the obstacles to greater labour market participation 
by under-represented groups, particularly women. 

Done at Brussels, 

For the Council 
The President 

8 

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

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