COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: Czechia, EU employment policy, EU investment, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 69 final   COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP  2017 European Semester: Assessment of progress on structural reforms,  prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}   
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

2. 

Progress with country-specific recommendations 

3. 

Reform priorities 

3.1.  Public finances and taxation 

3.2. 

Labour market, education and social policies 

3.3. 

Investment 

3.4. 

Sectoral policies 

3.5.  Public administration 

A.  Overview Table 

B.  MIP Scoreboard 

C. 

Standard Tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

B.1. 

Key economic, financial and social indicators - Czech Republic 

Summary table on 2016 CSR assessment 

The MIP scoreboard for the Czech Republic 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market and social indicators (continued) 

C.4. 

Product market performance and policy indicators 

C.5.  Green Growth 

LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

Breakdown of real GDP growth 

Nominal GNI per capita as a percentage of EU-28 

Potential GDP growth & drivers 

Year-on-year growth in real investment activity (selected categories) 

Harmonised index of consumer prices (HICP) & contributions 

1 

4 

11 

14 

14 

18 

23 

29 

32 

35 

39 

40 

45 

10 

12 

39 

40 

41 

42 

43 

44 

4 

4 

5 

5 

6 

 
 
 
 
1.6. 

1.7. 

1.8. 

1.9. 

Labour market developments 

Unemployment rate by educational attainment 

Determinants of change in unit labour costs 

Current and capital accounts 

1.10.  Developments in export market share 

1.11. 

Real house price index and credit growth 

3.1.1.  VAT compliance gap (2014 and annual change) 

3.1.2. 

Time to comply with tax requirements (2015, in hours) 

3.1.3. 

Tax wedge on labour 

3.1.4.  Projections of the pension balance (% of GDP) 

3.2.1.  Employment by detailed age group 

3.2.2.  Gender pay gap (difference in male and female hourly earnings as percentage of male 

earnings), unadjusted (2014) 

3.2.3.  People at risk of poverty or social exclusion (% of population), 2015 

3.2.4.  Salary of teachers, relative to earnings for full-time, full-year workers with tertiary education 

(ISCED 5 to 8), 2014 

3.3.1. 

Indicators of ease of doing business (2016) 

3.3.2.  Small Business Act factsheet (2016) 

3.3.3.  Summary restrictiveness indicator for regulated professions (2015) 

3.4.1.  R&D intensity by sector, Czech Republic 

3.4.2.  Energy intensity (gross inland consumption divided by GDP) 

3.5.1.  Control of corruption — global percentile rank (2015) 

3.5.2.  Negotiated contracts without prior publication (2016) 

3.5.3.  Selected indicators of digital skills (2016) 

LIST OF BOXES 

2.1. 

Contribution of the EU budget to structural change in the Czech Republic 

3.3.1. 

Investment challenges and reforms in the Czech Republic 

6 

6 

7 

7 

8 

8 

14 

15 

15 

16 

18 

19 

20 

22 

25 

25 

26 

29 

30 

32 

33 

34 

13 

27 

 
 
 
 
EXECUTIVE SUMMARY 

in 

the 

light  of 

the  survey 

report  assesses 

the  Czech  Republic’s 
This 
economy 
the  European 
Commission’s  Annual  Growth  Survey  published 
the 
on  16  November  2016.  In 
Commission  calls  on  EU  Member  States  to 
redouble  their  efforts  on  the  three  elements  of 
the virtuous 
triangle  of  economic  policy  — 
boosting  investment,  pursuing  structural  reforms 
and  ensuring  responsible  fiscal  policies.  In  so 
doing,  Member  States  should  focus  on  enhancing 
social  fairness  in  order  to  deliver  more  inclusive 
growth. 

in 

to  2.4 % 

to  have  fallen 

Economic  growth 
the  Czech  Republic 
remains  robust,  despite  a  slowdown  in  2016. 
Domestic  demand  has  continued  to  be  the  main 
driver  of  growth  in  the  country  since  it  emerged 
from  recession 
in  2014.  Real  GDP  growth 
accelerated  to  4.5 %  in  2015  but,  according  to 
the Commission  winter  2017  forecast,  this  is 
in  2016. 
expected 
Household  consumption  has  been  growing  at  a 
steady  pace  in  recent  quarters,  amid  renewed 
growth  in  disposable  income.  The  pattern  of 
investment  growth  has  been  volatile,  however, 
giving rise to some volatility in headline economic 
growth.  High  investment  growth  in  2015,  which 
translated into high overall GDP growth that year, 
was  mainly  due  to  the  accelerated  drawdown  of 
available  EU  funds  at 
last 
programming period. A significantly lower rate of 
drawdown  in  2016,  at  the  start  of  the  new 
to  have 
programming  period, 
contributed  to  a  fall  in  investment  and  impacted 
negatively  on  headline  economic  growth.  With 
investment  growth  expected  to  accelerate  in  2017 
and  2018  and  household  consumption  growth 
expected  to  remain  steady,  real  GDP  growth  is 
forecast 
to  2.6 %  and  2.7 %, 
respectively. 

to  accelerate 

is  expected 

the  end  of 

the 

improved 
Labour  market  outcomes  have 
considerably  in  recent  years  but  there  is  now 
a growing  risk  of  labour  market  shortages. 
The unemployment rate stood at 4.0 % in 2016, the 
lowest  rate  in  the  EU.  The  employment  rate  has 
risen  quite  rapidly  in  recent  years  amid  high 
demand 
is 
expected  to  slow  down  in  the  coming  quarters, 
however,  with  limited  scope  for  the  participation 
rate  to  rise  further.  The  likely  emergence  of 
demographic  constraints  in  the medium  term  is 
expected  to  put  further  pressure  on  labour  market 

labour.  Employment  growth 

for 

1 

conditions. Wage growth has accelerated, although 
it  has  been  modest  given  to  the  current  degree  of 
tightness  in  the  labour  market.  Unemployment, 
including long-term unemployment, has continued 
to  fall  and  the Czech  Republic  continues  to  have 
one of the lowest poverty rates in the EU. 

the 

euro 

since  November 

the  Czech 
Inflation  has  accelerated  and 
National  Bank  (CNB)  has  signalled  that  it  will 
exit  from  its  exchange  rate  commitment  no 
earlier  than  in  the  second  quarter  of  2017. 
The CNB has operated an exchange rate floor vis-
2013. 
à-vis 
The euro/koruna exchange rate has remained close 
to the announced CZK 27/EUR floor since August 
2015  and 
the  CNB  has  undertaken  market 
interventions  in  order  to  defend  its  commitment, 
giving  rise  to  a  substantial increase in  its  foreign-
denominated  reserves.  Inflation  has  started  to 
accelerate, reaching 2.1 % in December 2016, one 
of the highest rates in the EU. While this is partly 
due to base effects, inflation is expected to stay at 
the CNB's inflation target of 2 % in 2017.  

to 

improve 

Overall,  the  Czech  Republic  has  made  some 
progress in addressing the 2016 country-specific 
recommendations.  Substantial  progress  has  been 
achieved with the parliament approval of the fiscal 
framework  legislation  (January  2017)  as  well  as 
with a new career system and salary increases for 
teachers,  as  part  of  efforts 
the 
attractiveness  of  the  teaching  profession.  Some 
progress has been achieved with the reform aimed 
at  making  education  more  inclusive.  There  was 
some  progress  in  removing  barriers  to  greater 
labour  market  participation  by  under-represented 
groups,  in  particular  women.  Several  measures 
contained  in  the  anti-corruption  action  plan  have 
been adopted and a new act on public procurement 
entered  into  force  in  October  2016.  There  was 
limited  progress 
long-term 
finances.  Healthcare 
sustainability  of  public 
expenditure  continues 
to  pose  a  challenge, 
although  some  measures  aimed  at  improving  cost 
efficiency are at various stages of adoption. On the 
other  hand,  the  decision  to  cap  the  retirement  age 
at  65  from  around  2030  will  have  a  negative 
impact  on  the  sustainability  of  public  finances. 
There was limited progress towards increasing the 
services.  The 
e-government 
availability  of 
government  has  presented  a  draft  amendment  to 
the  Construction  Act,  with  the  aim  of  simplifying 
the 
the  permitting  process 

in  ensuring 

reducing 

and 

the 

 
 
administrative  burden.  Limited  progress  has  also 
been achieved on strengthening the governance of 
the R&D system and cooperation between business 
and academia remains weak.   

its 

targets 

towards 

the  Europe  2020  strategy, 

Regarding progress in reaching the national targets 
under 
the  Czech 
Republic  has  either  reached  or  is  making  good 
progress 
in  most  areas, 
including  employment,  R&D,  renewable  energy, 
greenhouse  gas  emissions  and  tertiary  education. 
The country has also successfully reduced the risk 
of  poverty  or  social  exclusion.  While  the  early 
school  leaving  rate  remains  low  in  international 
comparison, it has increased slightly over the past 
years and there are marked regional disparities. On 
energy efficiency, the final energy consumption is 
still below the 2020 target, but the primary energy 
consumption  increased  above  the  target  level, 
according  to  the  latest  available  data.  The  main 
findings  of  the  analysis  in  this  report,  and  the 
related policy challenges, are as follows: 

  While 

substantial 

efforts  have  been 
undertaken  to  tackle  tax  non-compliance, 
only  a  few  measures  are  being  pursued  to 
simplify the tax system or to reduce the costs 
associated with paying taxes. Tax compliance 
in  the  area  of  VAT  has  improved  in  recent 
years and the VAT compliance gap is expected 
to  decrease  further  following  the  adoption  of 
measures  such  as  the  VAT  control  statement 
and the electronic recording of sales. The costs 
associated with paying taxes still remain above 
the EU median, partly due to the low use of e-
government  services.  The  government 
is 
currently drafting a new income tax law, which 
aims to simplify the tax system. 

  Pension  and  healthcare  expenditure  poses 
a risk  to  the  long-term  sustainability  of 
public  finances.  The Czech  authorities  still 
face challenges in improving cost effectiveness 
in 
the  healthcare  sector,  although  recent 
measures  are  going  in  the  right  direction.  The 
fiscal  framework  was  evaluated  as  one  of  the 
weakest 
in  2016.  The fiscal 
responsibility law was adopted in January 2017 
and  is  likely  to  address  the  most  serious 
shortcomings of the fiscal framework. 

the EU 

in 

Executive summary 

  In  the  context  of  a  tight  labour  market, 
under-represented 
of 
the participation 
groups, 
including  women  with  young 
children  and  low-skilled  workers,  remains 
low. The labour market participation of women 
with  young  children  is  negatively  affected  by 
the  low  availability  of  affordable  childcare, 
long parental leave entitlements and low use of 
flexible  working  arrangements.  Labour  market 
outcomes  for  low-skilled  workers  are  notably 
weaker than for all other groups. While the rate 
of  poverty  is  one  of  the  lowest  in  the  EU, 
people  with  disabilities  and  members  of  the 
Roma  community  face  a  much  higher  risk  of 
poverty  due  to  low  participation  in  the  labour 
market.  

  Reform  measures  aimed  at 

improving 
the inclusiveness  of  compulsory  education 
started to be implemented in 2016. While it is 
too  early  to  gauge  their  impact,  inclusion  of 
Roma  children 
in  mainstream  education 
remains  limited.  Recent  salary  increases  for 
teachers and a new career system contribute to 
improving  the attractiveness  of  the  teaching 
profession. 

  Investment 

is 

also 

other 

hampered 

administrative 

by 
inefficiencies in the business environment, in 
particular  related  to  the  regulatory  burden, 
and 
hurdles. 
Inefficiencies  are  notable  in  connection  with 
construction  permits  and  paying  taxes.  Entry 
requirements  into  professions  are  relatively 
restrictive.  The Czech  authorities  are  taking 
measures  to  reduce  the  administrative  burden. 
With  regard  to  transport  infrastructure,  the 
quality  of  the road  network  remains  relatively 
low.  There  are  delays 
implementing 
transport  infrastructure  projects,  an  area  in 
which investment has been inadequate in recent 
years.  The  rollout  of  a number  of  EU  co-
financed  projects  has  been  delayed  by  non-
compliant  environmental  impact  assessments, 
the 
which 
reflects  wider  deficiencies 
such 
preparation  and 
projects. 

implementation  of 

in 

in 

  While  R&D 

investment  has 

increased, 
governance  reforms  are  not  being  fully 
implemented yet. The level of total investment 
in R&D has come close to the EU average and 

2 

 
 
Executive summary 

the corresponding Europe 2020 target of public 
R&D  expenditure  is  likely  to  be  achieved  if 
recent 
trends  are  maintained.  The  Czech 
Republic  still  faces  challenges  in  a  number  of 
areas,  particularly  in  relation  to  cooperation 
between businesses and research institutes. 

  The  incidence  of  corruption  in  the  Czech 
Republic continues to be perceived as major 
ongoing  problem.  Advances  have  been  made 
on  the  implementation  of  the  anti-corruption 
plan,  with  a  number  of  measures  adopted  yet, 
but  a  large  number  of  announced  reforms  are 
still pending. 

  Public  procurement 

indicators 

reveal 
inefficiencies  and  challenges. 
significant 
These  include  the  extensive  use  of  contracts 
without  prior  calls  for  tenders  and  contracts 
with  just  a single  bidder.  Other  shortcomings 
include  inadequate  training  for  procurement 
officers  and  a  high  incidence  of  corruption. 
joint  purchasing  activities 
Centralised  or 
remain 
in 
the healthcare sector. 

underutilised, 

particularly 

  The  use  of  e-government  services  in  Czech 
Republic is one of the lowest in the EU, but 
has increased from 2015. The actions taken to 
improve  availability  of  e-government  services 
are  in  progress  and  some  have  not  yet  been 
initiated.  Responsibility  for  the  rollout  of 
services  is  spread  over  several  ministries. 
Stakeholders  perceive 
limited  cross-sector 
cooperation.  The  drawdown  of  available  EU 
funds  for  the  development  of  e-government 
services has been low so far. 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

convergence  is  weaker  –  81  %  of  the EU  level  in 
2015  (Graph  1.2)  –  when  measured  using  gross 
national  income  (GNI)  per  capita  on  a purchasing 
power  basis.  This  measure  is  probably  more 
representative  of  households'  purchasing  power 
than GDP per capita in countries such as the Czech 
Republic,  which  have  a significant  presence  of 
foreign-owned  firms  and  associated  dividend  and 
profit  outflows.  The  trend  in  GNI  per  capita  in 
recent  years  has  nonetheless  been  positive,  albeit 
with  a  somewhat  slower  rate  of  convergence  than 
for GDP per capita. 

Graph 1.2:  Nominal GNI per capita as a percentage of 

EU-28 

Growth performance 

in 

2016, 

growth 

Economic  growth  remains  solid  in  the  Czech 
Republic,  although  it  slowed  down  in  2016 
following a spike in 2015 (Graph 1.1). Real GDP 
growth  reached  4.5 %  in  2015,  with  a  significant 
positive  contribution  from  investment.  Investment 
is  forecast  to  have  contributed  negatively  to  real 
according 
GDP 
to 
the Commission  winter  2017 
forecast,  with 
a significant  fall  in  EU  co-financed  investment 
activity at the start of the new programming period 
for EU funds (see below). A projected recovery in 
investment 
positive 
give 
rise 
contributions 
in  2017  and  2018.  Domestic 
consumption is expected to remain the main driver 
of growth over  this period,  amid  rising household 
income.  Real  GDP  growth  is  forecast  to  have 
fallen to 2.4 % in 2016 but to rise to 2.6 % in 2017 
and  2.7 %  in  2018.  However,  downside  risks  to 
these forecasts are posed by the highly open Czech 
economy,  which  is  particularly  vulnerable  to 
negative 
demand. 
A weaker-than-expected  recovery  in  investment 
would also weigh on economic growth.  

developments 

in  world 

should 

to 

Graph 1.1: 

Breakdown of real GDP growth 

(1) Adjusted for purchasing power parity 
Source: Eurostat, European Commission calculations 

a 

to 

due 

demographic 

environment,  with 

Potential  GDP  growth  rose  above  2 %  in  2015 
but is expected to fall somewhat in the medium 
constraints 
term 
(Graph 1.3). Potential growth fell below 1 % in the 
post-crisis 
substantial 
reduction in the contributions of all components. It 
has  picked  up  significantly  between  2012  and 
2015,  with  growing  contributions  from  all  three 
reflects  strong 
components.  This 
investment 
growth,  a  sharp 
labour  market 
increase 
participation  and  stronger  productivity  growth. 
While  these  factors  are  expected  to  lead  to 
sustained  strength  in  potential  growth  in  the  short 
term, the emergence of demographic constraints is 
projected to weigh on potential growth in the years 
up to 2021. Indeed, as discussed below, emerging 
labour  market  shortages  are  already  posing 
challenges to the Czech economy.  

in 

Source: Eurostat, European Commission winter 2017 forecast 

Economic  growth  has  been  stronger  than  in 
the EU  as  a  whole  in  recent  years,  fostering 
continued  economic  convergence.  Czech  GDP 
per  capita  on  a  purchasing  power  basis  stood  at 
around  87 %  of  the  EU  level  in  2015,  up  from 
level  of  real 
81 % 

in  2010.  However 

the 

4 

-3-2-101234510111213141516*17*18*pps.Net exportsPrivate consumptionInventoriesPublic consumptionInvestmentReal GDP (y-o-y%)40%50%60%70%80%90%2000200120022003200420052006200720082009201020112012201320142015Czech RepublicSlovakiaPolandHungary 
 
 
 
1. Economic situation and outlook 

Graph 1.3: 

Potential GDP growth & drivers 

Graph 1.4: 

Year-on-year growth in real investment 
activity (selected categories) 

Source: European Commission 

Investment 

Following  a  spike  in  2014  and  2015,  there  was 
a significant reduction in the level of investment 
in 2016 (Graph 1.4). Total investment rose by 9 % 
in  real  terms  in  2015  amid  accelerated  drawdown 
of available funding from the European Structural 
and  Investment  Funds  (ESIFs)  at  the  end  of  the 
previous  programming  period.  With  the  rate  of 
fallen  quite 
drawdown  of  ESIFs  having 
substantially  at  the  start  of  the  new  programming 
period, total investment is expected to have fallen 
by  -1.6 %  in  real  terms  in  2016.  This  is primarily 
due to a sharp fall in public investment, which has 
mainly  affected 
in  buildings  and 
investment 
structures  other  than  housing.  As  discussed  in  the 
Czech  National  Bank’s  (CNB)  Inflation  Report 
(Q4-2016), private investment may also have been 
negatively affected by a lower drawdown of ESIF. 
The  growth  rate  of  investment  in  dwellings  has 
also  slowed  in  recent  quarters,  despite  mounting 
demand  pressures  (see  Section 3.3).  Investment  is 
expected 
the  short-term,  with 
in 
projected growth rates of 2.5 % and 3.3 % in 2017 
and 2018, respectively, according the Commission 
winter  2017  forecast.  Risks  to  this  outlook are  on 
the  downside,  however,  largely  due  to  possibly 
weaker-than-expected drawdown of ESIFs. 

to  recover 

Note: 2010 prices, 2-quarter moving average 
Source: Czech Statistical Office 

Inflation 

The  inflation  rate  reached  the CNB's  target  of 
2 %. The annual inflation rate had remained below 
1 %  since  2014.  This  has  mainly  been  due  to 
falling  energy  prices  (Graph  1.5).  In  contrast, 
domestic price pressures have been rising in recent 
quarters amid tight labour market conditions and a 
widening output gap. This has been most visible in 
rising  service  price  inflation  and  recently  in 
processed food. The headline inflation rate reached 
2 %  in  December.  In  an environment  of  rising 
consumer  price  inflation,  the  CNB  has  signalled 
that it will not discontinue the use of the exchange 
rate  as  a  monetary  policy  instrument  before  the 
second  quarter  of  2017.  Under  this  policy,  the 
CNB has maintained an exchange rate floor vis-à-
vis  the  euro  since  November  2013.  The  exchange 
rate  has  remained  very  close  to  the  floor  value  of 
CZK 27/EUR  since  July  2015  amid  appreciation 
pressure  on  the  koruna.  In  this  context,  the  CNB 
has  undertaken  market  interventions  in  order  to 
defend the exchange rate floor. As a consequence, 
the  foreign  currency  reserves  of  the  CNB  have 
risen  from  around  22 %  of  GDP  in  October  2013 
to  around  47 %  of  GDP  in  December  2016. 
Private-sector  analysts  are  generally  of  the  view 
that  the  expected  exit  of  the  CNB  from  its 
exchange rate policy will give rise to some degree 
of CZK appreciation, representing a downside risk 
to inflation. 

5 

-1.00.01.02.03.04.05.0040506070809101112131415161718192021Rate of change y-o-y (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growth-20%-15%-10%-5%0%5%10%15%20%2010Q12010Q32011Q12011Q32012Q12012Q32013Q12013Q32014Q12014Q32015Q12015Q32016Q12016Q3Total InvestmentDwellingsOther buildings/structures 
 
 
1. Economic situation and outlook 

Graph 1.5:  Harmonised index of consumer prices (HICP) & 

Graph 1.6: 

Labour market developments 

contributions 

Source: Eurostat, European Commission winter 2017 forecast 

Source: Eurostat 

Labour market 

Graph 1.7: 

Unemployment rate by educational 
attainment 

in 

for 

increases 

Labour  market  outcomes  have 
improved 
considerably  in  recent  years  and  there  is 
a growing risk of labour market shortages. Over 
the  past  five  years,  the  employment  rate has  risen 
steadily  to  reach  76.8 %  in  the  third  quarter  of 
2016  (Graph  1.6).  Overall  employment  growth  is 
expected  to  slow  in  the  coming  quarters  amid 
reduced  scope 
the 
further 
participation  rate.  The unemployment  rate  has 
fallen  considerably,  reaching  an  average  of  4.0 % 
in 2016, and is currently the lowest in the EU. The 
youth  unemployment  rate  (15-24)  has  also  fallen 
quite  significantly  in  recent  years,  reaching  an 
average of 10.5 % in 2016. In the context of very 
low unemployment, labour shortages are becoming 
apparent in some sectors. However, labour market 
outcomes still remain significantly weaker for low-
skilled 
unemployment 
disproportionally affecting those with primary and 
lower  secondary  education  (Graph  1.7).  This 
group,  however,  only 
represents  9.5 %  of 
the working age population. 

workers, 

with 

Note: Number of individuals between 20 and 64 in 
an economy who either are employed or are seeking 
employment. 
Source: Eurostat 

tight 

increasingly 

Wage  growth  has  remained  quite  moderate, 
despite 
labour  market 
conditions.  Nominal  compensation  per  employee 
is  expected  to  have  risen  by  3.5 %  in  2016, 
according to the Commission winter 2017 forecast. 
While  this represents  an  acceleration  compared  to 
previous years, it is slightly below the growth rate 
that  could  be  predicted  based  on  economic 
fundamentals,  such  as  the  development  in  prices, 

6 

-1012341011121314151617*18*ServicesProcessed foodUnprocessed foodEnergyNon-energy industrial goodsHICP%024681012141618202260626466687072747678802005Q12005Q32006Q12006Q32007Q12007Q32008Q12008Q32009Q12009Q32010Q12010Q32011Q12011Q32012Q12012Q32013Q12013Q32014Q12014Q32015Q12015Q32016Q12016Q3% of labour force% of populationEmployment rate 20-64 (lhs)Unemployment rate 15-74 (rhs)Long-term unemployment rate 15-74 (rhs)Youth unemployment rate 15-24 (rhs)051015202530200120022003200420052006200720082009201020112012201320142015% labour force (1)High skilledMedium skilledLow skilled 
 
 
 
 
 
1. Economic situation and outlook 

inequality  and  disposable  income  inequality  (i.e. 
after  taxes  and  transfers)  is  similar  to  the  EU 
average,  suggesting  the  Czech  tax-benefit  system 
performs  in  line  with  the  EU  average  in  terms  of 
reducing inequality. 

External trade 

The  Czech  Republic  continues  to  maintain 
a sizeable  positive  trade  balance,  with  the 
surplus  driven  mainly  by  trade 
in  goods 
(Graph 1.9). The trade balance has increased quite 
strongly  in  recent  years  and  is  expected  to  stay 
broadly  constant  in  2017  and  2018.  Over  the  last 
decade, 
trade  balance  has  been 
counterbalanced  by  a  large  and  negative  primary 
income balance. This mainly reflects dividend and 
profit  outflows  by  foreign-owned  firms  operating 
in 
the  Czech  Republic.  The current  account 
balance has nevertheless been improving in recent 
years and is expected to worsen slightly, according 
to the Commission winter 2017 forecast. 

the  positive 

Graph 1.9:  Current and capital accounts 

Source: Eurostat  

in 

2014 

2015, 

The  Czech  Republic  gained  export  market 
share 
indicating 
and 
competitiveness gains (Graph 1.10). The increase 
in  export  market  share  (EMS)  has been driven by 
the export  of  goods,  with  the  Czech  Republic 
losing export market share in services in 2015. As 
discussed in the 2016 country report on the Czech 
Republic, the initial gains in export market share in 
2014  were  partly  driven  by  a  depreciation  of  the 
real effective exchange rate (REER), following the 

in  2016  and 

unemployment  and  productivity  (1).  Growth  of 
nominal compensation per employee is expected to 
accelerate 
the  following  years 
(reaching  4.6 %  in  2018).  Nominal  unit  labour 
costs have grown moderately in recent years, with 
a  decline  of  0.5 %  in  2015  followed  by  an 
expected  increase  of  2.5 %  in  2016  (Graph  1.8). 
reflect 
However, 
the somewhat volatile pattern of GDP growth over 
the last two years. In the coming years, the growth 
of nominal unit labour costs is expected to stabilise 
at around 2.0 % in 2018. 

these  developments  partly 

Graph 1.8:  Determinants of change in unit labour costs 

Source: AMECO, European Commission winter 2017 forecast 

The Czech Republic has among the lowest levels 
of  income  inequality  in  the  EU.  The  incomes  of 
the richest 20 % of the population were around 3.5 
times higher than the incomes of the poorest 20 % 
in  2015  and  this  ratio  has  remained  stable  since 
2005  (2).  Stability  in  the  degree  of  inequality 
reflects  the  fact  that  real  disposable  household 
income  has  evolved  relatively  equally  across  the 
income distribution in recent years. Low inequality 
in  the  Czech  Republic  can  be  explained  by 
relatively  equally  distributed  market  incomes,  i.e. 
income  received  by  households  before  taxes  and 
social  transfers.  The  gap  between  market  income 

(1)  European  Commission  calculations  based  on  an  update  of 

Arpaia and Kiss (2015). 

(2)  As measured by the S 80/ S 20 income quintile share ratio. 
This  is  the  ratio  of  total  income  received  by  the  20 %  of 
the population with the highest income (top quintile) to that 
received  by  the  20 %  of  the  population  with  the  lowest 
income 
is  measured  by 
equivalised disposable income. 

(lowest  quintile). 

Income 

7 

-8-6-4-2024681001020304050607080910111213141516*17*18*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Area-15-10-505109900010203040506070809101112131415% of GDPCapital account (KA)Secondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA) 
 
                                                           
 
1. Economic situation and outlook 

although  profitability  is  falling  on  the  back  of  a 
lower  intermediation  margin.  The cost-to-income 
ratio  stood  at  43.7 %  in  September  2016,  one  of 
the lowest in the EU. 

Graph 1.11:  Real house price index and credit growth 

adoption  of  the  exchange  rate  floor  vis-à-vis  the 
euro  in  November  2013  and  the  subsequent 
depreciation  of  the  euro  against  the  US  dollar  in 
2014.  There  was  a  slight  depreciation  of  the  real 
effective 
2015.  Cost 
competitiveness gains during this period were also 
supported  by  falling  unit  labour  costs.  While  unit 
labour costs are forecast to rise in 2017 and 2018, 
they are not expected to strongly outpace growth in 
the euro area. 

exchange 

rate 

in 

Graph 1.10:  Developments in export market share 

Source: ECB, Eurostat 

Source: Eurostat 

Financial sector 

foreign-owned  banking 
The  predominantly 
system is well capitalised and resilient to short-
term  liquidity  risks,  according  to  the  most 
recent stress tests undertaken by the CNB. Data 
from  June  2016  show  that  the  Czech  banking 
system  is  well  capitalised  overall,  with  a  system-
wide  Tier  1  ratio  of  15.9 %.  Domestically-owned 
banks,  which  account  for  around  12 %  of  total 
(2014  data),  display 
banking  sector  assets 
a slightly  lower  Tier  1  ratio  (3)  of  13.2 %.  Non-
performing  loans  are  low  (4.2 %)  compared  to 
other  countries  in  the  region  and  provisioning 
seems  appropriate  (48.8 %).  Foreign  currency 
loans  in  the  household  sector  are  almost  non-
existent (1 % of total lending). In contrast to many 
other  Member  States,  the  Czech  banking  system 
has  remained  profitable  in  the  past  10  years, 

(3)  The Tier 1 capital ratio is the comparison between a bank's 
core  capital  and  its  total  risk-weighted  assets  measuring 
a bank's financial health. 

Mortgage lending to households has accelerated 
in recent years and real house prices have risen 
from  their  2013  post-crisis  low  (Graph 1.11). 
Real  house  price  growth  accelerated  to  3.9 %  in 
2015,  compared  to  1.8 %  in  2014.  Quarterly  data 
suggest a further increase, reaching growth of 6 % 
in  the  third  quarter  of  2016.  Rising  house  prices 
reflect higher confidence on the part of households 
to  enter  the housing  market,  amid  low  long-term 
interest  rates  and  higher  wage  growth.  However, 
supply  constraints 
the  housing  market, 
particularly  in  key  urban  centres,  may  also  be 
(see 
contributing 
Section 3.3).  As  discussed  above,  the  growth  rate 
of investment in housing has fallen since the start 
of 2014 but increased by around 2 % year-on-year 
in the third quarter of 2016. 

rising  house 

prices 

to 

in 

The  recent  acceleration  in  house  price  growth 
has  prompted  the  CNB  to  introduce  new 
macroprudential  measures  in  an  effort  to  curb 
excessive credit growth in the sector. Household 
indebtedness continues to rise, reaching 30.4 % of 
GDP  in  November  2016,  still  far  below  the  EU 
average  (50.4 %).  However,  an  easing  of  credit 
interest  rates  and 
standards,  historically 
accelerating  property  price  growth 
represent 
potential  sources  of  systematic  risk  for  the  Czech 

low 

8 

-8-6-4-20246810120506070809101112131415Rate of change y-o-y (%)Contribution to EMS: goodsContribution to EMS: servicesExport market share growth yoy9095100105110-2%0%2%4%6%8%10%12%10Q110Q311Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q32010=100Rate of change y-o-yMFI loans for house purchase (% GDP, annual change)Real House Price Index (2010=100), right axis 
 
                                                           
 
1. Economic situation and outlook 

banking  sector.  For  this  reason,  the  CNB  has 
strengthened  macroprudential  measures  in  recent 
quarters,  with  a  tightening  of  loan-to-value  limits 
in  2015  and  2016.  The  Czech  Republic  is  one  of 
the  first  EU  Member  States  to  increase  its 
countercyclical  capital  buffer,  which  has  risen  to 
0.5 % in since January 2017. 

Public finances  

to 

the  general  government  balance 

The  Czech  Republic’s  headline  balance 
is 
forecast  to  have  reached  surplus  in  2016. 
the  Commission  winter  2017 
According 
forecast, 
is 
expected  to  have  improved  to  0.3  %  of  GDP  in 
2016,  from  -0.6  %  in  2015.  The  improvement  is 
driven  by  a combination  of  better  tax  collection 
and  weaker  public  investment  at  the  start  of  the 
new programming period for EU funds. Continued 
strong  growth  in  government  consumption  – 
mainly due to rising wages in state administration 
and for teachers and medical staff — should partly 
offset  the  effect  of  the  slump  in  investment.  In 
2017,  the  headline  balance  is  projected  to  worsen 
slightly to 0.1 % of GDP. Tax revenues are set to 
be  bolstered  by  measures  aimed  at  fighting  non-
compliance. The expected recovery of spending on 
infrastructure  projects 
the  main  driver  of 
is 
investment.  Furthermore, 
increasing 
government  consumption  is  expected  to  continue 
growing  strongly  in  2017,  after  which  upward 
pressure  on  current  expenditure  is  expected  to 
abate. Owing to expected budgetary surpluses and 
healthy economic growth, the debt-to-GDP ratio is 
forecast  to  remain  on  a downward  path,  dropping 
from  around  40 %  of  GDP  in  2015  to  35.6 %  of 
GDP in 2018.  

public 

9 

 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators - Czech Republic 

Source: European Commission, ECB 

10 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)5.3-4.82.32.0-0.8-0.52.74.52.42.62.7Private consumption (y-o-y)4.2-0.71.00.3-1.20.51.83.02.62.42.4Public consumption (y-o-y)0.23.00.4-2.2-2.02.51.12.02.22.62.1Gross fixed capital formation (y-o-y)6.5-10.11.30.9-3.1-2.53.99.0-1.62.53.3Exports of goods and services (y-o-y)15.5-9.814.89.24.30.28.77.73.34.54.4Imports of goods and services (y-o-y) 13.3-11.014.96.72.70.110.18.22.54.44.4Output gap3.7-2.0-1.2-0.4-1.8-3.1-2.10.00.20.50.7Potential growth (y-o-y)4.41.51.41.20.60.91.72.32.32.32.4Contribution to GDP growth:Domestic demand (y-o-y)3.6-2.70.9-0.1-1.80.12.14.11.22.22.4Inventories (y-o-y)0.4-2.70.80.3-0.2-0.71.10.30.30.00.0Net exports (y-o-y)1.30.50.51.81.30.1-0.50.10.80.40.3Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.6-0.5-0.2-0.1-0.40.00.50.60.70.50.4Capital accumulation (y-o-y)1.00.70.70.60.50.30.40.60.50.50.6Total factor productivity (y-o-y)2.81.31.00.70.50.50.81.11.11.31.3Current account balance (% of GDP), balance of payments-3.0-2.3-3.6-2.1-1.6-0.50.20.9...Trade balance (% of GDP), balance of payments1.93.73.03.95.05.86.46.3...Terms of trade of goods and services (y-o-y)-0.72.0-2.0-1.5-0.61.21.50.11.0-0.60.0Capital account balance (% of GDP)0.41.31.00.31.32.00.72.3...Net international investment position (% of GDP)-30.0-44.0-46.1-45.2-45.9-41.4-36.6-30.7...Net marketable external debt (% of GDP) (1)16.29.07.98.19.612.715.217.4...Gross marketable external debt (% of GDP) (1)30.636.739.841.343.049.349.551.7...Export performance vs. advanced countries (% change over 5 years)75.837.920.917.37.0-1.11.42.26...Export market share, goods and services (y-o-y)10.41.0-5.0-0.1-3.9-1.44.80.9...Net FDI flows (% of GDP)-4.0-1.0-2.4-1.2-3.00.2-1.90.6...Savings rate of households (net saving as percentage of net disposable income)6.48.57.66.06.05.66.66.6...Private credit flow, consolidated (% of GDP)7.40.82.62.13.04.31.60.9...Private sector debt, consolidated (% of GDP)53.966.068.168.370.673.771.668.6...of which household debt, consolidated (% of GDP)19.728.629.030.030.931.730.530.6...of which non-financial corporate debt, consolidated (% of GDP)34.137.439.138.339.742.041.138.0...Corporations, net lending (+) or net borrowing (-) (% of GDP)-3.01.0-0.7-2.0-0.80.5-0.10.6-1.2-0.8-0.6Corporations, gross operating surplus (% of GDP)29.629.128.928.728.328.430.730.829.930.130.2Households, net lending (+) or net borrowing (-) (% of GDP)1.52.71.91.83.61.92.51.72.62.62.5Deflated house price index (y-o-y)5.4-4.7-2.3-1.3-3.5-0.81.83.9...Residential investment (% of GDP)3.73.84.13.73.73.23.43.4...GDP deflator (y-o-y)2.12.6-1.50.01.51.42.51.01.11.21.6Harmonised index of consumer prices (HICP, y-o-y)3.10.61.22.23.51.40.40.30.62.01.8Nominal compensation per employee (y-o-y)5.6-0.63.32.91.7-0.32.62.63.54.54.6Labour productivity (real, person employed, y-o-y)3.8-3.13.42.3-1.2-0.82.23.1...Unit labour costs (ULC, whole economy, y-o-y)1.82.60.00.63.00.50.4-0.52.52.02.0Real unit labour costs (y-o-y)-0.30.01.40.51.5-0.9-2.0-1.51.30.70.4Real effective exchange rate (ULC, y-o-y)5.3-5.43.02.8-2.6-2.6-6.0-2.12.90.90.2Real effective exchange rate (HICP, y-o-y)5.5-3.71.22.1-2.8-2.3-5.2-0.62.5-0.7.Tax rate for a single person earning the average wage (%)23.322.322.523.022.922.923.123.3...Tax rate for a single person earning 50% of the average wage (%)17.8*13.513.914.814.714.615.015.5...Total Financial sector liabilities, non-consolidated (y-o-y)9.71.44.02.97.37.47.26.2...Tier 1 ratio (%) (2).17.219.118.415.914.915.412.0...Return on equity (%) (3).14.411.58.58.63.67.71.3...Gross non-performing debt (% of total debt instruments and total loans and advances) (4)...........Unemployment rate6.66.77.36.77.07.06.15.14.03.93.8Long-term unemployment rate (% of active population)3.52.03.02.73.03.02.72.4...Youth unemployment rate (% of active population in the same age group)15.616.618.318.119.518.915.912.610.5..Activity rate (15-64 year-olds)70.070.170.270.571.672.973.574.0...People at risk of poverty or social exclusion (% total population)17.214.014.415.315.414.614.814.0...Persons living in households with very low work intensity (% of total population aged below 60)8.46.06.46.66.86.97.66.8...General government balance (% of GDP)-2.2-5.5-4.4-2.7-3.9-1.2-1.9-0.60.30.10.2Tax-to-GDP ratio (%)34.032.132.633.834.334.833.934.334.734.834.9Structural budget balance (% of GDP)..-4.1-2.6-1.40.2-0.8-0.70.2-0.1-0.1General government gross debt (% of GDP)28.234.138.239.844.544.942.240.337.836.735.6(1) Sum of portfolio debt instruments, other investment and reserve assets.(2,3) domestic banking groups and stand-alone banks.(4) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.(*) Indicates BPM5 and/or ESA95forecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the 

started  with 

The Czech Republic’s progress in implementing 
the recommendations addressed to it in 2016 (4) 
has  to  be  seen  in  a  longer-term  perspective, 
introduction  of 
which 
the European  Semester  in  2011.  The  Czech 
Republic  reduced  its  fiscal  deficit  and  exited  the 
excessive  deficit  procedure  in  2013.  Furthermore, 
it achieved its medium-term budgetary objective in 
2015. However, the authorities have made limited 
progress in addressing the long-term sustainability 
of  public  finances,  particularly  with  regard  to 
the health  and  pension  systems.  An  accelerated 
increase  of  the  statutory  retirement  age  has  been 
recommended  several  times  (2011-2014)  but  an 
explicit  link  to  life  expectancy  has  not  been 
implemented.  The  recommendation  (in  2014  and 
2016)  to  strengthen  the  fiscal  framework  have 
been 
fiscal 
responsibility law in January 2017. 

approving 

addressed 

the 

by 

Some progress can be observed in the fight against 
tax  evasion  (recommendations  in  2011,  2012  and 
2015),  thanks  to  the  implementation  of  measures 
such as the VAT control statements and electronic 
evidence  of  sales.  The  level  of  labour  taxation 
remains  high,  particularly  for  low-income  earners 
(recommendations 
from  2011-2015).  Gradual 
increases in excise taxes and taxation on gambling 
have  helped  to  shift  taxation  to  consumption, 
which is considered less detrimental to growth. 

labour 

market 

The 
of 
under-represented  groups,  in  particular  women, 
has improved slightly in recent years, but remains 
subdued (recommendations from 2011-2016). 

participation 

The  Civil  Service  Act  (recommendations  from 
2011-2014) entered into force in 2014 with the aim 
of enhancing the quality of public employment and 
promoting  public  administration  effectiveness  and 
stability.  There  is  still  room  for  improving  the 
effectiveness  of  the  public  employment  service. 
Substantial  progress  was  made  in  the  area  of 
education  with 
the  higher 
in  2016  but  the reform  of 
education  reform 
the funding  system  for  higher  education  is  still  to 
be adopted. 

the  adoption  of 

(4)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular Section 3. 

and 

The efficiency 
transparency  of  public 
procurement practices has (recommendations from 
2012-2016)  remains  out  of  line  with  EU  best 
practices.  Some  progress  has  been  achieved  in 
implementing 
plan 
(recommendations 
from  2011-2016)  but  key 
measures  have  not  yet  translated  into  significant 
results.  Although  some  measures  to  improve 
the management  of  EU  funds  have  been  adopted, 
deficiencies 
the funds  are  still 
common (recommendations from 2012-2014). 

anti-corruption 

in  managing 

the 

in 

of 

the 

and 

barriers 

improving 

e-government 

administrative 

Overall,  the  Czech  Republic  has  made  some 
progress in addressing the 2016 country-specific 
recommendations.  The  authorities  have  made 
long-term 
limited  progress 
sustainability  of  public 
finances.  The fiscal 
framework  legislation  was  approved.  To  reduce 
regulatory 
to 
investment,  the  government  has  presented  a draft 
amendment  to  the  Construction  Act,  with  the  aim 
of achieving a higher degree of simplification and 
integrating  the  environmental  impact  assessment 
into the procedure for approving building permits. 
There  was  limited  progress  towards  increasing 
the availability 
services. 
The Czech  parliament  has  adopted  several  of 
the measures contained in the anti-corruption plan, 
but other measures are still pending. A new Act on 
public  procurement  entered  into  force  in  October 
2016,  although  it  is  still  too  early  to  assess  its 
impact.  Limited  progress  has  been  achieved  on 
strengthening  the  governance  of  the R&D  system. 
Some progress has been achieved in increasing the 
participation  of  women  in  the  labour  market, 
particularly  by  increasing  the number  of  ‘child 
insufficient 
there 
groups’,  although 
childcare  provision  for  children  under  the age  of 
three.  Teachers’  salaries  have  been  increased, 
while  a reform  aimed  at  making  education  more 
inclusive  was  instituted  in  September  2016.  The 
idea  is  to  gradually  increase  the  participation  of 
pupils with  special  needs  including  disadvantaged 
children,  but  only  a  small  number  of  them  have 
benefited to date. 

is  still 

11 

 
 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary table on 2016 CSR assessment 

Source: European Commission 

12 

The Czech Republic Overall assessment of progress: some progress CSR 1: 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. Some progress  Limited progress in addressing long-term sustainability of public finances  Substantial progress in strengthening the fiscal framework CSR 2: Reduce regulatory and administrative barriers to investment, in particular in transport and energy, and increase the availability of e-government services. Adopt the outstanding anti-corruption reforms and improve public procurement practices. Limited progress  Limited progress in addressing shortcomings in the construction permit procedure  Limited progress on e-government services  Some progress in adopting anti-corruption reforms  Limited progress in improving public procurement practices CSR 3: 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, in particular women. Some progress  Limited progress in strengthening governance in the R&D system  Substantial progress in improving the attractiveness of the teaching profession  Some progress on increasing the inclusion of disadvantaged children  Some progress in removing obstacles to greater labour market participation by some underrepresented groups   
 
 
 
 
 
2. Progress with country-specific recommendations 

13 

Box 2.1: Contribution of the EU budget to structural change in the Czech Republic The Czech Republic is the fifth largest beneficiary of the European Structural and Investment Funds (ESI funds) with an allocation of up to EUR 24 billion until 2020. This is equivalent to around 2 % of GDP annually (over 2014-2017) and 40 % of national public investment (1). Out of the EU financing, EUR 0.5 billion is planned to be delivered via financial instruments. By 31 December 2016, an estimated EUR 3.3 billion, which represents about 14 % of the total allocation for ESI funds, have already been allocated to concrete projects. The contribution of the ESI funds to the development of public investment is discussed in Section 3.3. Financing under the European Fund for Strategic Investments, Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is additional to the ESI funds. By end 2016, the Czech Republic has signed agreements for EUR 842 million for projects under the Connecting Europe Facility.  The EIB Group approved financing under EFSI amounts to EUR 378 million, which is expected to trigger nearly EUR 1.9 billion in total investments (as of end 2016).  ESI funds helped progress on a number of structural reforms in 2015 and 2016 via ex-ante conditionalities (2) and targeted investment. Examples include improving investments in R&D&I, improving the availability of broadband through the adoption of a national strategy for the development of a next generation of networks, the strengthening of drinking and waste water tariff policy, social inclusion through improving the collection of information on Roma, and education through the introduction of an action plan on structured inclusive reform. The reforms prepared the ground for better implementation of public investment projects in general, including those financed from national sources and the other EU instruments mentioned above. Administrative reforms support is available through targeted financing under the European Social Fund, advice from the Structural Reform Support Service and, indirectly, through technical assistance. The relevant CSRs focusing on structural issues were taken into account when designing the 2014-2020 programmes. These include providing more places in nurseries and kindergartens, improving the inclusiveness of education system, enhancing the attractiveness of the teaching profession, reducing corruption, improving e-government and improving the application of public procurement (3). In addition to challenges identified in the past CSRs, ESI funds address wider structural obstacles to growth and competitiveness. These include improving the coverage of fast broadband (target 500 000 households in 2023); addressing bottlenecks in infrastructure via improving accessibility by 1 010 km of newly build or modernised roads; 1 040 km of railway lines will be upgraded and made more safe; incentivising innovation and private investments; supporting 19 800 enterprises and 4 580 agricultural enterprises for the modernisation of processing and marketing as well as supporting short supply chains and local markets; more than 57 000 jobs were created; and additionally 5 600 jobs for the most disadvantaged and 90 % of schools were supported; additional capacity of waste recycling of 700 000 tonnes/year; improved water supply for 150 000 and; provision of adequate waste water treatment to 60 000 population equivalent; and enhancing competitiveness of aquaculture and processing sector by modernising and diversifying production, supporting innovation in aquaculture and increasing productivity through renovation and construction of new farms, recirculation systems and processing facilities. https://cohesiondata.ec.europa.eu/countries/CZ                                                            (1) National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries. (2) Before programmes are adopted, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and conditions for the majority of public investments areas. For Members States that did not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments. (3) The Commission may request Member States to review and propose amendments to its Partnership Agreement and relevant programmes where this is necessary to support the implementation of relevant CSRs.  
 
 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

Taxation 

low 
The  Czech  Republic  has  a  relatively 
tax-to-GDP  ratio.  Total 
tax  revenues  as  a 
proportion  of  GDP  stood  at  34.4 %  in  2015, 
compared with an EU average of 40.0 %. Indirect 
taxes  represent  a  higher  proportion  of 
total 
revenues  than  direct  taxes.  In  comparison  with 
the EU average for 2014, direct taxes are relatively 
low  (7.2 %  compared  to  13.1 %  of  GDP),  while 
social  security  contributions  are  rather  high 
(15.6 %  compared  to  13.6 %  of  GDP).  Revenues 
from labour taxes have been slightly increasing as 
a  proportion  of  GDP  in  recent  years,  reaching 
17.5 % in 2014 (19.6 % in the EU). There has been 
no recent shift from labour taxation towards other 
taxes  (see  2016  country  report).  Revenues  from 
recurrent  property  taxes  (0.2 %  of  GDP  vs  an 
average of 1.6 % in 2014) and environmental taxes 
remain low. 

The incidence of tax non-compliance in the area 
of  VAT  has  fallen  in  recent  years  and  further 
improvement in this area remains a priority for 
the  Czech  government.  The  occurrence  of  tax 
evasion,  as  measured  by  the  VAT  compliance 
gap (5), declined by 3 pps. in 2014 (to 16 %) and is 
now quite  close  to  the  unweighted  EU  average  of 
14 % (Graph 3.1.1). Furthermore, available data do 
not incorporate the effect of recent measures aimed 
at  curbing  VAT  fraud,  which  are  likely  to  have 
contributed to a further reduction in the VAT gap 
in 
two 
measures  that  entered  into  effect  in  2016,  namely 
the  VAT  control  statement  and  the  electronic 
recording of sales (see 2016 country report). While 
it is still too early to determine the specific impact 
of these measures on the public finances, they are 
expected to give rise to an increase in revenues. In 
the  area  of  corporate  taxation,  the  tax  authorities 
have  reportedly  performed  controls  focused  on 
transfer pricing, but the gap in respect of corporate 

the  Czech  Republic.  These 

include 

income tax is estimated at up to 0.3 % of GDP or 
10 % of total corporate tax receipts (6). 

Graph 3.1.1:  VAT compliance gap                                    
(2014 and annual change) 

Note:  Cyprus is not included due to national accounts data 
availability.  
Red dots represent an annual worsening of the indicator 
compared to 2013, green an improvement. 
Source: CASE and CPB (2016) 

Tax  compliance  costs  for  businesses  are  above 
the  EU  average.  According  to  the  2017  Doing 
Business  Report  (World  Bank,  2016),  the  time 
needed to pay and file taxes in the Czech Republic 
totalled  234  hours  in  2015,  the  same  as  in 
the previous  year  (Graph  3.1.2).  The  previous 
Doing  Business  reports  singled  out  the  Czech 
Republic  as  an  outlier  in  comparison  to  other 
countries  with  comparable  tax  systems.  However, 
even  taking  into  account the  revised  methodology 
of  the  most-recent  report  (7),  the  Czech  Republic 
still ranks at the higher end of the distribution. 

(6)  OECD  (2015)  and  the  Ministry  of  Finance  estimate 
the scale  of  international  corporate  tax  avoidance  to  be 
between  0.1 %  and  0.3 %  of  GDP.  Jansky  (2016)  reports 
a median estimate of 0.3 % of GDP. 

(7)  The revision takes better account of the use of payroll and 

accounting software. 

(5)  The  VAT  compliance  gap  has 

two  components: 
i) the assessment  gap  captures  the  difference  between 
the potential tax and the assessed amount of tax due while; 
ii)  the  collection  gap  estimates  the  difference  between 
the amount  of  tax  assessed  as  due  and  the  tax  actually 
collected. 

14 

-5%-4%-3%-2%-1%0%1%2%3%4%5%0510152025303540SELUFISIBEHRESIEEEDKUKATDENLPTEUFRCZHUBGLVPLITELSKMTLTROVAT gap (% of theoretical VAT liability)annual change (right axis) 
 
                                                           
 
                                                           
3.1. Public finances and taxation 

Graph 3.1.2:  Time to comply with tax requirements        

(2015, in hours) 

Following 

a converging 

average (10). 
trend 
between  2005  and  2009,  the  tax  wedge  for  low-
income  earners  has  started  to  diverge  again  from 
the EU  average  since  2013  (Graph 3.1.3).  While 
there  have  been  renewed  discussions  about  social 
security  reform  recently,  there  are  currently  no 
concrete  proposals  for  reforms  targeted  at  low-
wage earners (Section 3.2). 

Graph 3.1.3:  Tax wedge on labour 

Note: The unweighted EU average is 176 hours. The EU 
median of 161 takes better into account outliers. 
Source: World Bank / PwC Paying Taxes 2017 Report 

The Czech authorities are planning to introduce 
some  steps  to  simplify  the  tax  system.  The 
Ministry  of  Finance  is  in  the  process  of  drafting 
a new  income  tax  law,  to  be  presented  in  2017. 
According  to  preliminary  information,  envisaged 
changes  will  include  an  integrated  tax  and  social 
security administration, greater digitalisation of the 
tax 
towards 
and 
self-assessment  of  tax  obligations.  The  aim  is  to 
simplify 
tackling  other 
tax  code  while 
shortcomings  in  parallel.  These  include  frequent 
amendments 
the  negative 
perception  of  tax  regulation  (World  Economic 
Forum,  2016b)  and  low  but  increasing  use  of  e-
government services (8). 

administration 

tax  code, 

shift 

the 

the 

to 

a 

The  taxation  of  labour  remains  high  for  both 
low- and average-wage earners. This is primarily 
to  high  employers’  social  contributions 
due 
(the highest  in  the  EU-28  for  single  low-wage 
earners).  A high  tax  burden  on  labour  can  act  as 
a disincentive  to  low-wage  earners  and  reduce 
their  labour  market  participation.  This  is  of 
particular  importance,  given  the  growing  risks  of 
labour  market  shortages,  as  discussed  in  Section 
3.2.  The  tax  wedge (9)  for  low-income  earners, 
particularly  at  the  level  of  50 %  of  the  average 
wage,  has  persistently  been  higher  than  the  EU 

(8)  According to the authorities, the overall ratio of tax returns 
submitted  electronically  increased  from  around  6 %  in 
2013 to 44 % in 2015. This was mainly due to progress on 
VAT e-filing. 

(9)  The  tax  wedge  shows  the  proportional  difference  between 
the costs of a worker to their employer and the employee’s 
net earnings. 

Note: Refers to single earners without children at 50 %/ 67 % 
of average wage.  
Source: European Commission (2016b), Tax and Benefit 
Indicators 

Fiscal framework 

The fiscal framework in the Czech Republic has 
been  evaluated  among  the  weakest  in  the  EU. 
Expenditure ceilings have been subject to frequent 
revisions  and  have  applied  only  to  bodies  within 
central  government,  mainly  line  ministries  and 
state  funds.  The macroeconomic  forecasts  of  the 
Ministry  of  Finance  are  compared  with  key 
institutions  and  this  comparison  offers  a  useful 
benchmark  for  independent  scrutiny.  However, 
this  has  not  guaranteed  fiscal  planning  based  on 
prudent  macroeconomic  and  budgetary  forecasts. 
Furthermore,  the  framework  has  not  included 
appropriate  coordination  mechanisms  across  sub-
sectors of general government and, therefore, does 
not  provide 
consistent 
coverage  of  all  sectors  for  multiannual  fiscal 
planning and for the assessment of fiscal rules. The 

comprehensive 

and 

(10)  Social  policies  for  families  include  refundable  child 
allowances,  which  reduce  the  tax  wedge  for  people  with 
children. 

15 

050100150200250300350400450LUIEEEFIUKNLSECYDKATFRMTESBEROLVLTSKELHRDECZITPTSIPLHUBGEU averageEU median3032343638404244200120022003200420052006200720082009201020112012201320142015Czech Republic (50 % of AW)Czech Republic (67 % of AW)EU 28 average (50 % of AW)EU 28 average (67 % of AW) 
 
                                                           
 
                                                           
3.1. Public finances and taxation 

Graph 3.1.4:  Projections of the pension balance (% of GDP) 

Source: European Commission, Eurostat, Ministry of Finance  

to 

the  pension 

system,  gives 

Recently-adopted measures on pensions further 
contribute  to  a  deterioration  of  the long-term 
budgetary  outlook.  In  September  2016 
the 
government  approved  a  cap  on  the  retirement  age 
at  65  from  around  2030,  thus  cancelling  the 
previous  approach  of  continuously  increasing  the 
retirement  age  with  no  upper  limit  (12).  The  new 
cap  is  to  be  reviewed  every  five  years,  with  the 
aim  being  to  allow  workers  to  spend  around  a 
quarter  of  their  lives  in  retirement.  A  second 
change 
the 
government  leeway  to  increase  pensions  on  an  ad 
hoc basis by a maximum of 2.7 % annually, if the 
system  of  pension  indexation  foresees  a  lower 
increase. The precise  impact  of  these  changes  has 
not  yet  been  verified  and  hence  they  are  not 
reflected  in  the  calculation  of  the sustainability 
indicators.  However,  these  measures  reduce  the 
predictability  of  the  system  and  can  worsen  the 
long-term  sustainability  of  public  finances  via  an 
increase in pension expenditure. With regard to the 
pension  cap,  the authorities  expect  a  negative 
impact  on  the  long-term  sustainability  indicator 
(S2)  of  up  to  1.5 pps.,  depending  on  whether  the 
cap  is  revised  regularly  based  on  the  basis  of  life 
expectancy or remains set at 65 years. 

Czech  Republic  does  not  have  a  fully-fledged 
independent  fiscal  council  with  responsibility  for 
assessing  compliance  with 
rules  and 
strengthening  the  transparency  and  credibility  of 
public  finances.  The 
transparency  of  budget 
execution  has  been  significantly  affected  by 
uneven drawdown of EU funds over time. 

fiscal 

fiscal  responsibility 

The 
law,  which  was 
approved in January 2017, aims to address the 
identified shortcomings. The main features of the 
adopted  legislative  package  were  already  outlined 
in  the  2016  country  report.  Moreover,  a  new 
expert  panel  will  be  set  up 
to  evaluate 
macroeconomic  and  revenue  forecasts  used  for 
budgetary  planning,  with  members  representing 
independent  institutions  producing  forecasts  and 
nominated  by 
the  fiscal  council.  The  most 
important  aspects  of  the  reform  were  originally 
supposed  to  be  enshrined  in  a constitutional  law, 
which  was  meant  to  strengthen  effectiveness  and 
stability.  However,  the  parliament  opted  for  an 
ordinary law. 

Long-term sustainability of public finance  

the 
(S2 

forecast, 
indicator 

long-term 
indicator 

Age-related  expenditure  in  the  Czech  Republic 
pose  a  risk  to  the  long-term  sustainability  of 
public  finances.  According  to  the  Commission 
fiscal 
winter  2017 
(11)) 
sustainability 
improved from 3.2 pps. in the Commission winter 
2016  forecast  to  2.0  pps.  This  improvement  is 
mainly due to better budgetary forecasts, while the 
contribution  of  ageing-related  costs  to  the  long-
term  sustainability  gap  remains  substantial.  Risks 
to  long-term  sustainability  are  considered  to  be 
medium.  Age-related  spending  for  healthcare  and 
pensions  is  the  largest  contributing  factor.  Public 
expenditure  on  healthcare  is  projected  to  increase 
by  1.0  pp,  slightly  above  the  average  increase  of 
0.9  pps.  for  the  EU  over  the  horizon  until  2060 
(European  Commission,  2015a).  The  balance  of 
the  pension  system  remains  in  deficit  and  is 
projected  to  remain  stable  at  around  -1.0  %  of 
GDP  until  2040,  after  which  the  negative  drag 
from  demographics  will  start  to  weigh  more  on 
expenditure (Graph 3.1.4). 

(11)  The S2 long-term sustainability indicator gives the upfront 
structural adjustment required to stabilise the debt-to-GDP 
ratio over the infinite horizon. If the value of the indicator 
is between 2 and 6, it is assessed as medium risk. 

(12)  The law is due to enter into force on 1 January 2018, with 

the cap affecting people born after 1971. 

16 

-2.0-1.8-1.6-1.4-1.2-1.0-0.8-0.6-0.4-0.20.02013201820232028203320382043204820532058 
                                                           
 
 
 
                                                           
3.1. Public finances and taxation 

(11.1 versus 6.7 in the EU in 2013) indicates high 
health care utilisation and possible inefficiencies in 
terms  of  duplicate  diagnoses  and  unnecessary 
treatments.  Based  on  indicators  of  unmet  care 
needs,  access  to  healthcare  in  the Czech  Republic 
is better than the EU average (15). 

Ongoing reform efforts are headed in the right 
direction  but  progress  is  rather  slow.  The 
parliament is currently discussing a new system for 
a  more  equitable  distribution  of  funds  among 
health  insurance  companies.  The  aim  is  to  move 
away  from  a  purely  demographic  model  towards 
one  implicitly  accounting  for  parameters  such  as 
costs  of  chronic  conditions  (e.g.  pharmacy  cost-
based  groups).  The  reform  aims  to  tackle  the 
is  not  financially 
existing  bias,  whereby 
attractive to insure patients suffering from chronic 
illnesses.  There  are  also  signs  that  the revamped 
financing  of  hospitals  based  on  diagnosis-related 
groups (DRG) is slowly taking off. A pilot in data 
collection  was  due  to  be  concluded  in  2016. 
Tangible outcomes from the project, particularly in 
terms  of  implementing  DRGs  and  improving  the 
cost effectiveness of hospitals, are to be phased in 
throughout 2018 and 2019. 

it 

to  counterbalance 

To  counter  possible  shortages  of  medical  staff, 
the authorities approved a 10 % salary increase 
from  January  2017  and  a  fixed  salary  increase 
for  nurses  from  mid-2017.  Work  is  also  being 
carried  out  to  improve  health  workforce  planning 
the  ageing  of  health 
and 
workers.  The authorities  also  intend  to  make 
changes  to  the education  system  for  healthcare 
professionals, e.g. by making it easier for medical 
school  graduates 
to  pursue  further  specialist 
training or by shortening the required education of 
nurses.  There  have  been  no  specific  proposals  to 
shift  inpatient  care  towards  more  cost-effective 
outpatient  care  services.  While  implementation  of 
Directive 2014/24/EU on public procurement aims 
at making the healthcare system more transparent, 
central  procurement  is  still  not  widely  used 
(Section 3.5 on public procurement). 

(15)  In  2014  EU-SILC  surveys,  1.1 %  of  Czechs  citizens 
reported  that  during  the  last  12  months  they  had  not 
received  health  services  when  really  needed,  compared  to 
3.6 % in the EU as a whole. 

Healthcare 

Current  healthcare  expenditure  and  health 
outcomes are lower than the EU average. Public 
healthcare  expenditure  stood  at  6.3 %  of  GDP  in 
2014 (compared to the EU average of 7.8 %). With 
regard  to  specific  health  outcomes,  female  life 
expectancy  in  2014  was  82  years  and  male  life 
expectancy  75.8  years,  below  the  EU  averages  of 
83.6  and  78.1  years  respectively.  Both  indicators 
have  been  improving  for  over  a  decade  but  they 
have 
at 
the aggregate  EU  level.  The  mortality  rates  of 
Czech  citizens  are  particularly  high  (compared  to 
other  Member  States)  with  regard  to  preventable 
and  cancer-related  deaths  and  deaths  caused  by 
diseases  of  the  circulatory  system.  In  addition, 
respiratory  and  perinatal  mortality  trends  have 
worsened recently (13). 

improvement 

outpaced 

not 

the 

The Czech Republic faces substantial challenges 
in improving the cost effectiveness of healthcare 
spending.  The  main  challenges,  highlighted  in 
the Joint  Report  on  Health  Care 
(European 
Commission, 2016c), include the need to improve 
primary care, reduce the excessive use of specialist 
and hospital care, and improve the cost efficiency 
of  hospitals.  Additional  challenges  are  posed  by 
the lack of a human resource strategy, the need to 
improve equitable financing for health insurers and 
the 
technology 
for 
need 
assessments (14). 

health 

better 

Structural inefficiencies in the healthcare sector 
relate  mainly  to  the  over-use  of  hospital  care, 
but also to potentially excessive use of resources 
in  outpatient  care.  In  particular,  the  number  of 
curative beds per 1 000 inhabitants and the number 
of  inpatient  care  discharges  are  above  the  EU 
average, indicating that there is potential to benefit 
from  restructuring  hospital  bed  capacity.  Bed 
occupancy  rates  rose  significantly  between  2011 
and  2014  but  remain  lower  than  the  EU  average. 
The  length  of  stay  in  hospitals  suggests  that 
services  such  as  rehabilitative,  long-term  and 
palliative care are provided in hospitals more often 
than in the EU as a whole. The very high number 
of  outpatient  doctors’  consultations  per  capita 

(13)  European  Commission's  services'  calculations  based  on 

EUROSTAT data and WHO-NFA data. 

(14)  For  a  detailed  analysis  of  challenges,  see  European 
Commission  (2016c),  Joint  Report  on  Health  Care  and 
Long-Term Care Systems & Fiscal Sustainability. 

17 

 
                                                           
                                                           
3.2.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market 

to 

closer 

With the unemployment rate falling to very low 
levels  and  participation  rising  quite  rapidly, 
Czech  labour  market  outcomes  have  improved 
in  recent  years,  getting 
full 
employment levels. The Czech Republic is among 
the  best  performers  in  the  EU  according  to  the 
scoreboard  on  employment  and  social  indicators. 
The  tightening  of  labour  market  conditions  is 
making  it  increasingly  difficult  for  employers  to 
recruit workers. The ratio of job vacancies to total 
posts  (i.e.  the  job  vacancy  rate)  has  been  rising 
steadily  for  over  two  years,  reaching  3.1 %  in  the 
third  quarter  of  2016,  one  of  the highest  levels  in 
the  EU.  There  were  fewer  than  two  unemployed 
persons  for  every  advertised  job  vacancy,  with 
the number  of  vacancies  rising  across  almost  all 
occupational levels. The trends in these indicators 
suggest 
terms  of 
in 
to  vacancies  might  be 
matching  workers 
decreasing. Indeed, Czech employers point to staff 
shortages as an obstacle to growth potential.  

that  market  efficiency 

There  is  still  some  potential  to  offset  labour 
shortages  by  mobilising  groups  that  are  most 
underrepresented  on  the  labour  market.  In 
particular,  mothers  with  young  children, 
the 
low-skilled, members of the Roma community and 
disabled  workers  remain  underrepresented  on  the 
labour  market.  Increasing  labour  mobility,  both 
from  EU  and  non-EU  countries,  could  also  help 
offset the shortages.  

(Graph 

employment 

Female  employment  remains  strongly  affected 
by  motherhood.  As  extensively  discussed  in 
previous country reports, young female cohorts are 
much less active on the labour market than men of 
the  same  age,  despite  a  generally  high  level  of 
female 
3.2.1).  This 
'motherhood  penalty'  is  one  of  the  highest  in 
the EU  and  the  employment  gap  between  women 
with a child below the age of six and women (aged 
20-49)  without  children  was  34.8  pps.  in  2015, 
four  times  more  than  the  EU  average.  After 
to 
leave,  women  generally 
parental 
employment but remain particularly vulnerable on 
the  labour  market.  Indeed  women  with  young 
children  (aged  from  3-5  years)  have,  on  average, 
a greater  chance  of  being  unemployed  than  other 
the 
women.  The  probability  depends  on 
educational  level  and  is  higher  for  women  with 
low and medium levels of education (80 % higher 

return 

chance  of  being  unemployed)  than  for  those  who 
are highly educated (45 % higher chance of being 
unemployed) (16). 

Graph 3.2.1:  Employment by detailed age group 

Source: Eurostat 

The low labour market participation of women 
of  childbearing  age  is  due  to  an  acute  lack  of 
childcare  facilities  (in  particular  for  children 
under  the  age  of  three),  long  parental  leave 
entitlement  and  low  uptake  of  flexible  working 
arrangements. In 2014, only up to 5 % of children 
under the age of three were in any form of formal 
childcare,  which  is  far  below  the  EU  average  of 
28% and the EU Barcelona target of 33 %, and not  
Commission 
in 
Recommendation on investing in children. Women 
are  nearly  always  the  main  carers  of  young 
children  and  the  principal  users  of  parental  leave. 
In  2014  only  1.8 %  of  men  used  any  kind  of 
parental leave available to them. Inactivity among 
women  aged  25-49  because  of  looking  after 
children or incapacitated adults reached 74.4 % in 
2015, the highest figure in the EU. 

line  with 

2013 

the 

The  Czech  labour  market  does  not  fully  use 
women's potential and skills. Inequalities remain 
substantial,  as  shown  by  the  large  difference  in 
average earnings between men and women, which 
amounted to 40.5 % in 2014. Although women are 
more  likely  to  hold  a  tertiary  degree,  their 
employment  rate  is  much  lower  than  that of  men. 

(16)  Educational  attainment  comprises  three  categories:  low-
educated (ISCED 0-2), medium-educated (ISCED 3-4) and 
high-educated (ISCED 5-8).  

18 

02040608010015-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-74MaleFemale% of population 
 
 
                                                           
Gender  inequalities  are  also  apparent  in  salary 
levels,  with  the  unadjusted  pay  gap  amounting  to 
22.5 %  in  2014,  one  of  the  highest  in  the  EU 
(Graph 3.2.2). About a third of the gender pay gap 
can  be  explained  by  gender  segregation 
in 
the labour  market,  i.e.  women  are  more  often 
employed in occupations and industries which pay 
comparatively  lower  salaries  (17).  Various  other 
factors  account  for  the  remainder  of  the  gap, 
including low transparency of wage negotiations in 
the private  sector,  low  awareness  of  salary  levels 
on the part of female employees, or discrimination. 

flexible 

Several  amendments  have  been  proposed  to 
support  the  labour  market  participation  of 
women.  The  Czech  government  has  recently 
presented  amendments  to  the  Labour  Code  with 
the  aim  of  offering  more 
labour 
arrangements and better protection for employees. 
The new  provisions  include greater  availability of 
home  working  arrangements.  In  addition,  a  new 
paternity  leave  allowance  (a  week  of  paternity 
leave  within  the  first  six  weeks  after  the  birth  of 
the  child)  is  currently  being  discussed  in  the 
parliament.  An  amendment  to  the  law  on  social 
support  was  proposed  to  make  drawing  of  the 
parental  allowance  more  flexible  and  independent 
of childcare facility attendance. The Family Policy 
includes 
Concept,  currently  under  discussion, 
measures  to  increase  the  employment  rate  of 
women,  such  as  the  increased  job  sharing  and 
abolition  of  the  tax  deduction  for  non-working 
spouses. EU funds continue to co-finance projects 
on  'child  groups'  to  be  delivered  by  firms,  NGOs 
and  other  providers.  New  'micro-nurseries'  for 
children  aged  from  six  months  to  four  years  are 
being  piloted,  with  the  support  of  the  European 
Social  Fund.  Measures  to  guarantee  places  in 
kindergartens  also  aim  to  bring  about  a  faster 
return  of  mothers  to  the  labour  market.  This 
guarantee is already approved for children of four 
years of age as of September 2017, three years of 
age as of 2018 and two years of age in 2020. 

(17)  Commission calculations based on the 2014 SES data. The 
analysis  is  based  on  the  average  difference  in  the  hourly 
wages  between  male  and  female  employees  with  similar 
characteristics  in  terms  of  age,  occupation,  education, 
sector, contract type and type of employment (full-time vs. 
part-time). Boll et al. (2016) also find that a substantial part 
of the wage gap remains unexplained.   

3.2. Labour market, education and social policies 

Graph 3.2.2:  Gender pay gap (difference in male and 

female hourly earnings as percentage of male 
earnings), unadjusted (2014) 

Source: Eurostat 

performance 

labour  market 

of 
The 
the low-skilled  remains  a  concern.  While  they 
represent only a small part of the population, their 
activity  rate  (18)  (52 %)  and  employment  rate (19) 
(40 %)  are  far  below  the  EU  averages  in  2015 
(64 % 
Their 
unemployment  and  long-term  unemployment  are 
also  much  higher  than  average  Czech  levels, 
standing  at  22.2 %  and  14.4 %  respectively  in 
2015 (20).  However,  there  is  a  demand  for  low-
skilled  workers  for  whom  the  job  vacancy  rate 
reached 6.5 % in 2015. 

respectively). 

53 % 

and 

Tax  disincentives  for  low-wage  earners  and 
the limited  outreach  capacity  of  the  public 
employment  services  hinder  the  labour  market 
participation  of  low-skilled  workers.  The  tax 
wedge  and  inactivity  trap  for  low-wage  earners  is 
high,  creating  potentially  work  disincentives  for 
low-skilled  workers  (see  Section  3.1).  Public 
employment  services  do  not  have  the  sufficient 
capacity  to  provide  relevant  low-skilled-oriented   
interventions 
services 
consistently  across  all regions.  Labour  mobility is 
low,  therefore  a  new  measure  to  support  regional 
in  several 
mobility  was  recently 

individualised 

introduced 

and 

(18)  The  activity  rate  is  the  percentage  of  economically  active 
population aged 15-64 on the total population of the same 
age. 

(19)  The  employment  rate  of  the  total  population  is  calculated 
by  dividing  the  number  of  people  aged  20  to  64  in 
employment by the total population of the same age group. 
(20)  Figure  for  long-term  unemployment  based  on  the  average 

of the first two quarters of 2015. 

19 

051015202530EECZDEATUKSKFILVEA19EU28NLDKFRHUESPTBGCYIESELTMTHRPLSIBEITLURO% 
                                                           
 
                                                           
3.2. Labour market, education and social policies 

labour  market  (21).  It  results  in  the  at-risk-of 
poverty  rate  for  Roma  being  around  six  times 
higher than for non-Roma. In other Member States 
with  a  sizable  Roma  minority  (BG,  HU,  SK  and 
RO)  the  rate  of  poverty  for  Roma  is  estimated  to 
be  between  three  to  more  than  six  times  higher 
than for the general population (FRA, 2016) (22). 

Housing  exclusion  and  homelessness  are 
an emerging problem, particularly among lower 
income groups, despite general positive poverty 
indicators.  The  absence  of  a  quality  framework 
for  social  services  and  the  lack  of  affordable 
quality rental housing pose a growing challenge. In 
2015,  the housing  cost  overburden  (23)  of  people 
below  the poverty  line  reached  48 %  compared  to 
an  EU  average  of  40 %.  Rental  costs  reached  an 
average  of  47.7 %  of  the  income  of  the  poor, 
compared  to  an  EU  average  of  37.6 %.  Between 
100 000  and  120 000  households  are  estimated  to 
have  been  in  housing  need  in  2013.  Between 
50 000  and  55 000  of  them  lived  in  rented 
dwellings, where the living costs exceeded 65 % of 
disposable 
income.  The  number  of  socially-
excluded  localities  (24),  inhabited  mainly  by  the 
Roma  population,  nearly  doubled  in  recent  years 
(from  around  330  to  around  606)  and  the  number 
of  inhabitants  increased  by  a  third  (reaching 
approx.  95 000  to  115 000)  between  2006  and 
2015. The total number of homeless people and at 
risk  of  losing  housing  was  estimated  at  around 
187 000  in  2015  and  the  estimated  need  for 
homeless  shelters  is  double  the  current  available 
capacity.  

Some  initial  steps  have  been  taken  in  2015  to 
address housing exclusion, homelessness and to 

(21)  Based  on  Fundamental  Rights  Agency  (FRA)  survey 
results  for  2016,  only  around  38 %  of  Roma  aged  20-64 
reported  to  have  been  in  ‘paid  work’  at  the  time  of  the 
survey  or  in  the  four  weeks  before,  while  5 %  of  the 
population reported to be unemployed. 

(22)  The  2016  survey  by  the  FRA  improved  the  sampling  and 
weighting  methods  developed  for  the  2011  survey,  thus 
the results  are  a  more  accurate 
representation  of 
the situation  of  Roma  in  the  countries  covered.  Indicators 
used are a close approximation to those applied in standard 
full 
European  surveys 
comparability was not intended. See FRA 2016. 

(EU  SILC,  EU  LFS)  but 

(23)  The  percentage  of  the population  living  in  households 
where the total housing costs ('net' of housing allowances) 
represent  more  than  40 %  of  disposable  income  ('net'  of 
housing allowances). 

(24)  Socially  excluded  locality  is  defined  as  a  space  (house, 
street,  part  of  the  city)  where  people  presenting  common 
socially excluded features are concentrated. 

regions. It covers commuting costs to a new job in 
another  region  for  job  seekers  who  have  been 
registered  as  unemployed  for  over  five months.  A 
state  scheme  attracting  labour  force  from  Ukraine 
was introduced in 2016. 

Social policy (poverty, social aspects of social 
security systems) 

in 

the 

lowest 

target  on 

The  Czech  Republic  scores  very  well  on 
indicators of poverty and social exclusion which 
remain  among 
the  EU 
the 
(Graph 3.2.3).  The EU 2020 
reduction  of  the population  at  risk  of  poverty  or 
social  exclusion  was  upgraded  in  2015.  The 
revised target foresees a reduction of this segment 
of  the  population  by  100 000  by  2020.  The  target 
has, in fact, already been reached, with the number 
of  people  at  risk  of  poverty  or  social  exclusion 
having  fallen  by  122 000  since  2008,  reaching 
1 444 000 in 2015. 

Graph 3.2.3:  People at risk of poverty or social exclusion  

(% of population), 2015 

Source: Eurostat 

Some  challenges  remain  regarding  the  social 
exclusion  of  certain  disadvantaged  groups, 
notably  disabled  people  and  members  of 
the Roma  community.  Persons  with  disabilities 
remain  significantly  disadvantaged  on  the  labour 
market and, for that reason are at much greater risk 
of poverty or social exclusion: 12.4 pps. more than 
for  the  overall  population.  Members  of  the  Roma 
community  are  largely  under-represented  on  the 

20 

051015202530354045CZSENLFIDKFRATSKLUSIDEBEMTPLUKEEPTIE*HUESITCYHRLTLVELROBG% 
 
                                                           
3.2. Labour market, education and social policies 

The  early  school  leaving  rate  remains  among 
the lowest in the EU (25), but regional disparities 
are significant and the rate has been increasing 
steadily since 2010. It currently exceeds the 5.5 % 
national  target  for  2020.  Regional  disparities  are 
significant,  ranging  from  2.7 %  to  14.5 %.  Of 
particular concern is the high estimated proportion 
of  Roma  children  who  leave  school  early,  which 
significantly  impacts  their  future  labour  market 
performance (FRA, 2016). 

aims 

increasing 

The implementation of reform measures aimed 
at  improving  the  inclusiveness  of  compulsory 
in  September  2016.  The 
education  started 
reform 
the 
at  gradually 
participation  of  children  with  special  needs 
(including  socially  disadvantaged  children)  in 
mainstream  education,  by  granting  them  a  legal 
right to individual support measures. According to 
the  latest  data  published  by  the European  Agency 
for  Fundamental  Rights  and  data  from  the  Czech 
School Inspectorate, the proportion of Roma pupils 
attending  special  (or 
'practical')  schools  has 
declined  in  recent  years.  Although  lower  than  in 
most neighbouring countries with high proportions 
of Roma in the population, school segregation still 
remains high (26). Only a limited number of pupils 
have benefited from the reform to date. Aside from 
the absence of a piloting period, this may be partly 
due 
is  being 
implemented gradually over a period of two years. 
The reform is largely co-financed by EU funds. Its 
long-term  success  will  depend  on  sustainable 
national  funding  for  the  support  measures  in 
mainstream schools, in order to ensure high quality 
standards  of  education  for  all  learners  as  well  as 
systematic 
initial  and  continuing  professional 
development  opportunities  for  teachers.  Ensuring 
a good  understanding  among  the  wider  public  on 
the  societal  benefits  of  inclusive  education  is  also 
essential. 

the  reform 

the  fact 

that 

to 

strengthen  the  social  services  framework.  In 
2015, the national social housing concept for 2015-
2025  was  adopted.  The  Act  on  social  housing  is 
currently being prepared with the aim of ensuring 
the  right  to  'decent  housing'  for  those  in  need, 
together  with  defining  disadvantaged  groups  and 
creating a register of social housing. Difficulties in 
the  financing  and  organisation  of  social  services 
have  been  exacerbated  by  the  de-centralisation 
process  that has  taken  place  in  the  last two  years. 
This has caused difficulties in linking the provision 
of services with clear quality standards. There are 
plans  to  start  to  address  this  issue  through 
the amendment  to  the  Act  on  social  services, 
which is currently under discussion. 

Education and skills 

the 

impact 

Basic  skills  levels  have  deteriorated  in  the 
Czech  Republic,  while 
of 
the socioeconomic  background  of  students  on 
performance  remains  strong.  The  proportion  of 
15-year-old  low  achievers  in  the  2015  OECD 
Programme  for  International  Student  Assessment 
(PISA)  (OECD,  2016a)  is  around  the  EU  average 
in  science  (21 %)  and  mathematics  (22 %)  and 
somewhat  higher  in  reading (22  %).  Compared  to 
2012,  the  proportion  of  low  achievers  increased 
significantly  in  science  (+6.9  pps.  compared  to 
the EU average of +4 pps. in the EU) and reading 
(+5.1%  compared  to  the  EU  average  of  +1.9  pps. 
in  the  EU)  and  slightly in  mathematics  (+0.7 pps. 
compared  to  the  EU  average  of  +0.1  pps.). 
The performance 
level 
showed  one  of  the  strongest  deteriorations  among 
participating  countries, 
together  with  one  of 
the largest  differences  in  performance  between 
schools on the basis of socioeconomic status. This 
may be linked to the selective nature of the school 
system. 

in  science  at  national 

between 

relationship 

socioeconomic 
The 
background  and  student  performance  remains 
strong.  The  Czech  Republic  shows  one  of  the 
largest  gaps  in  the  proportion  of  low  achievers  in 
science  between  the  lower  and  upper  quarters  on 
the  socioeconomic  index  of  the  PISA  student 
population (30.5 pps. compared to an EU average 
gap of 26.2 pps.). At the same time, the rate of low 
achievers  among  students  from  the  higher  social 
quarter is very low. 

PISA  2015  results  confirm  the  negative  impact 
of 
in  early  childhood 
education  and  care  on  future  educational 

low  participation 

(25)  6.2 % in 2015 compared to an EU average of 11 %. 
(26)  The  2016  survey  of  the  Fundamental  Rights  Agency 
indicates that 5 % of Roma children in the Czech Republic 
attend  a  school  where  all  children  are  Roma  and  25 % 
attend a school where most of the pupils are Roma (FRA, 
2016). Using a different methodology, the Roma Inclusion 
Index  2015  estimated  that  40 %  of  Roma  children  receive 
education in segregated schools (Decade of Roma, 2015). 

21 

 
                                                           
3.2. Labour market, education and social policies 

Graph 3.2.4:  Salary of teachers, relative to earnings for full-
time, full-year workers with tertiary education 
(ISCED 5 to 8), 2014 

(1) Data for Finland, France and Sweden for 2013; 
secondary education refers to general programmes 
Source: OECD (2016b), Education at a Glance. 

tertiary 

education 

attainment 

The 
rate 
continued  its  rapid  rise,  reaching  30.1 %  in 
2015  compared  with  an  EU  average  of  38.7 %. 
It  is  likely  that  the  32 %  national  target  will  be 
attained  by  2020.  Czech  adults  with  tertiary 
education qualifications earn 92 % more than those 
who  did  not  continue  beyond  upper  secondary 
education.  The  Czech  Republic 
is  currently 
implementing the higher education reform adopted 
in  2016.  The   aim  of  the  reform  is  to  raise 
the standards  of  accreditation  and  internal  quality 
assurance and to give institutions more autonomy. 
A  new 
independent  National  Accreditation 
Authority has been set up and the government has 
adopted  new  standards  for  accreditation.  Another 
objective  is  to  support  the  diversification  of 
programmes  offered,  with  a  view  to  increasing 
profession-oriented 
to 
students in need will be increased, which is likely 
to  help  increase  the  social  diversity  of  tertiary 
education  graduates.  The  reform  is  also  likely  to 
increase  the  number  of  programmes  that  are 
professionally 
employers’ 
representatives  are  positive  about  closer  links 
between academia and employers. 

programmes.  Grants 

accredited 

and 

the 

this  background, 

outcomes.  Against 
low 
participation of Roma children (estimated at 34 %) 
is  problematic.  Legislation  was  amended  in  2016 
to extend compulsory education to the last year of 
pre-school education from September 2017 and to 
ensure that places are available for all the children 
concerned, 
to  boost  participation. 
The extension  of  compulsory  education  is  also 
likely to improve the inclusion of Roma children in 
mainstream  education  and 
if 
implemented in inclusive settings. 

their  outcomes 

in  order 

The  attractiveness  of  the  teaching  profession 
has 
improved  slightly  but  remains  weak. 
Teachers’ salaries have been low for a long period, 
both  in  comparison  to  other  countries  and  to 
the salaries  of  employees  with  similar  levels  of 
qualification  (Graph  3.2.4).  Teachers’  salaries 
increased by 8 % in September 2016. The Ministry 
of Education intends to bring teachers’ salaries up 
to  130 %  of  the national  average  wage  in  the 
coming years, in line with the request of teachers’ 
unions. A draft new career system for teachers and 
pedagogical  staff  has  been  adopted  by 
the 
government,  with  a  planned  implementation  from 
September  2017.  The  aim  is  to  link  professional 
development, career and remuneration. The OECD 
recommends  designing  highly  selective  entry 
pathways  to  teaching  in  order  to  raise  the  social 
status of the profession. 

the  Czech  School 

Low  labour  market  relevance  of  vocational 
education  and  training  (VET)  education  is 
criticised  by  some  employers.  The  evidence 
provided  by 
Inspection 
indicating  low  performance  in  mathematics  and 
reading by VET students (ISCED 3) also suggests 
room for improvement. However, in the context of 
full  employment  and  lack  of  evidence  of  skills 
mismatches,  the  employment  outcomes  of  VET 
students are good, so the macroeconomic impact of 
the  limitations  is  marginal.  The  current  plans  for 
further  involvement  of  employers  in  designing 
curricula 
of 
apprenticeships (supported by the European Social 
Fund) can help strengthen links between education 
and the labour market. 

increasing 

number 

and 

the 

22 

0%20%40%60%80%100%120%140%CZSKITNLHUATFRPLSEBE (Fr.)SIDKEEFIDEBE (Fl.)ELLUPrimaryLower secondaryUpper secondary 
 
3.3. INVESTMENT 

Investment in transport infrastructure 

The Czech Republic continues to perform below 
the  EU  averages 
in  respect  of  transport 
infrastructure.  This  is  particularly  apparent  in 
regard  to  the road  network,  with  a  motorway 
network  density  of  9.8 km  per  1 000 km2  in  2014 
compared  to  an  EU  average  of  16.8 km  (27).  User 
satisfaction  with  the  road  network  is  also  quite 
low,  standing  at  4.1  in  the  2016/17  World 
Economic  Forum’s  quality  of  road  infrastructure 
index,  compared  to  an  EU  average  of  4.8. 
improvement 
this  represents  an 
Nevertheless, 
compared  to  the  2013/14  score  of  3.6,  probably 
thanks  to  a  significant  increase  in  both  total 
investment  and  road  maintenance  expenditure  in 
2014 and 2015 (28). The density of the rail network 
is very high (120 km per 1 000 km2 compared with 
49 km in the EU in 2014) but the network requires 
substantial  modernisation,  with  just  34 %  of  lines 
electrified in 2014, compared with 52 % in the EU 
overall. There is also a lack of high-speed railway 
connections,  and  cross-border  connections  are 
poor. 

in 

years. 

Investment in transport infrastructure has been 
inadequate 
European 
recent 
Commission  (2014)  estimates  point  to  significant 
underinvestment  in  transport  infrastructure  during 
the  period  2010-2013  (see  2016  country  report), 
particularly  for  the  road  network.  While  overall 
investment  increased  in  2014  and  2015,  a  high 
investment  level  would  need  to  be  maintained  in 
the  future  to  address  the infrastructure  gap  in  the 
Czech  Republic.  The  rise  in  total  investment 
expenditures  in  transport  infrastructure from  CZK 
30  billion  in  2014  to  CZK  57  billion  in  2015 
(current prices) was largely a result of a substantial 
increase  in  EU  co-financed  public  investment  in 
that  year,  which  in  turn  was  a consequence  of 
closing  of  the  2007-2013  programming  period.  A 
similar  trend  can  be  observed  in  rail  transport 
infrastructure,  where  investment  and  maintenance 
expenditure  also  increased  in  2014  and  2015. 
The Transport  Policy  of 
the  Czech  Republic 
(2014-2020) estimates the total annual expenditure 
required  at  2.5 %  of  GDP  to  ensure  adequate 

(27)  While  these  figures  do  not  take  into  account  population 
density,  the  density  of  the  road  network  per  million 
habitants  is  also  very  low,  at  74  km  vs  an  EU  average  of 
148 km. 

(28)  Transport Yearbook Czech Republic 2015. 

funding  to  operate,  maintain  and  develop  the 
country’s transport infrastructure (29). 

including 

implementation  of 
is  due 

transport 
The  delayed 
infrastructure  projects 
to  wider 
structural  deficiencies  in  the  preparation  and 
implementation  of  such  projects 
including 
impact  assessments 
outdated  environmental 
(EIAs).  The  multiple  layers  of  administrative 
approval  required  for  these  projects  mean  that  it 
can take up to 15 years between the adoption of the 
initial  impact  assessments  and  the  completion  of 
the  project.  This  gives  rise  to  the  risk  that  these 
assessments, 
the  EIA,  can  become 
invalid in the meantime due to legislative changes 
or new societal priorities. Non-compliant EIAs (30) 
pose  in  particular  a  significant  risk  to  the  timely 
implementation of transport infrastructure projects 
to  be  co-financed  by  the  Operational  Programme 
'Transport' (31).  Furthermore,  the  lack  of  proper 
the 
strategic  planning 
Strategic  Environmental  Assessment  Directive 
leads 
in  completing  complex 
projects, such as the Prague ring road. Investment 
in transport infrastructure also suffers from general 
problems 
procurement 
transparency  and  corruption  (see  Section  3.5). 
Road construction is especially problematic in this 
regard,  with  many  projects  exceeding  the  initial 
budget  specified 
tender,  experiencing 
the 
significant  delays  in  completion  or  being  of 
questionable  quality  and  safety.  Indeed,  deadline 
extensions  for  motorway  and  other  infrastructure 
projects often reach up to seven years, and projects 
are often changed to include additional works after 

the  application  of 

to  difficulties 

related 

public 

in 

to 

in 

(29)  It  stood  at  1.4 %  and  2.1 %  of  GDP  in  2014  and  2015 

respectively. 

(30)  Over  the  last  10  years,  Czech  legislation  has  been  the 
subject  of  infringement  procedures  on  a  number  of 
occasions  due  to  incorrect  transposition  of  the  EIA 
Directive.  This  calls  into  question  the  legality  of  some 
ongoing 
the  EIA 
Directive.  An  amendment  to  the  EIA  Act  came  into  force 
in April 2015. 

transport  projects 

that  fall  under 

EIA 

procedure 

(31)  Nine  of  these  projects,  which  are  considered  strategic  and 
have a total budget of around EUR 2.1 bn and an estimated 
EU  contribution  of  EUR 1.3 bn,  will  be  subject  to  an 
timely 
accelerated 
implementation. To this end, an ad hoc amendment of the 
EIA Act was adopted in a fast-track procedure and entered 
into  force  in  August  2016.  These  projects  are  expected  to 
be  submitted  for  EU  co-financing  as  from  the  second 
quarter  of  2017.  A  further  90  projects  will  undergo 
an updated EIA in accordance with the 2015 amendment of 
the relevant national law. 

ensure 

to 

23 

 
 
                                                           
                                                           
3.3. Investment 

the  contracts  are  signed,  resulting  in  considerable 
extra costs. 

programmes.  Further  details  on  EU  co-financed 
investment are provided in Box 2.1. 

permits, 

building 

To  simplify  and  accelerate  the  procedure  for 
granting 
the  Czech 
government  approved  an  amendment  to  the 
Construction  Act  and  related  legislation  in 
September  2016.  The  Construction  Act  is  the 
main legal regulation in the construction sector. It 
deals  with  the  duties  and  responsibilities  of  the 
participants  in  the  construction  process,  territorial 
planning, construction permits and other necessary 
rules and actions needed to carry out construction 
works.  The  aim  of  the  proposed  amendment  is  to 
simplify  existing  procedures  to  grant  permits, 
while limiting the construction of illegal structures. 
Moreover,  the  new  draft  integrates  the  EIA  into 
the current  permit  procedure.  However,  the  draft 
amendment 
from  criticism. 
Stakeholders 
the  Confederation  of 
Industry consider the reform to be less far-reaching 
than expected, particularly as there will be no one-
stop-shop  for  construction  permits.  Although  the 
amendment allows for expropriation under certain 
circumstances,  lengthy  procedures  are  still  very 
likely.  Moreover,  the  amendment  is  currently 
being  discussed  in  the  parliament  and  there  are 
risks that it will be further weakened. 

is  not  exempt 
including 

EU funds 

There was a significant decrease in investments 
co-financed  from  EU  funds  in  2016  due  to  the 
closure  of  the  2007-2013  programming  period 
in  2015  and  the  slow  launch  of  the  2014-2020 
programming period. Concerning the 2007-2013 
programming  period,  the  overall  rate  of  payment 
of  EU  funds  increased  from  85 %  in  December 
2015 to the threshold of 95 % set for pre-financing 
and  interim  payments  by  August  2016.  However, 
the  amount  of 
the  project 
funds  paid 
beneficiaries  remains  below  100  %  for  several 
interrupted 
operational  programmes  due 
payments 
The 
by 
caused 
implementation  of  the  2014-2020  programming 
period has been slow to date, although it is picking 
up. The factors driving the delay are, in particular, 
the  late  adoption  of  operational  programmes,  the 
lengthy  preparation  of  selection  criteria  and  the 
adaptation  to  the  new  implementation  framework. 
The total amount of contracted assistance from ESI 
funds  reached,  by  the  31  December  2016,  only 
12 %  of  the  overall  allocation  for  the  operational 

to 
irregularities. 

to 

authorities, 

Irregularities  in  managing  EU  funds  are  still 
financial 
substantial 
common  and  cause 
corrections 
the  EU. 
to  be  applied  by 
Shortcomings  remain  in  controls  performed  by 
by 
managing 
implementation  error  rates  above  the  acceptable 
rate  of  2 %  for  several  of 
the  operational 
programmes.  The  insertion  of  upfront  conditions 
on  the  use  of  EU  funds  in  the  area  of  public 
improve 
procurement  should,  however,  help 
matters.  

illustrated 

as 

Investment in housing 

While  demand  for  housing  has  risen  in  recent 
years,  supply  has  been  lagging  behind.  Rising 
demand  reflects  a  number  of  factors.  Firstly, 
mortgage  interest  rates  fell  to  a  historical  low  in 
2016 with, for example, the average rate for a five-
to-ten-year  loan  standing  at  2.1 %  (32),  compared 
to 5.1 % in 2010. Secondly, household income has 
increased,  with  the  nominal  median  net  income 
rising by 22.3 % between 2008 and 2015. Thirdly, 
the number of households has increased by a total 
of 19.7 % between 2000 and 2015, well in excess 
of  the population  growth  rate  of  2.6 %  over  the 
same period. Consequently, the average household 
size  has  decreased  from  2.7  members  in  2000  to 
2.3  in  2015.  However,  the  overcrowding  rate 
remains  above  the  EU  average  (19.9  in  2014  vs 
16.9 for the EU), At the same time, the number of 
building  permits  granted  annually  for  residential 
buildings  fell  by  41.7 %  between  2008  and  2015 
(40.3 % for one-dwelling buildings and 43.9 % for 
two and more dwelling buildings). This downward 
trend  seemed  to  have  reached  a  turning  point  in 
2014, however, and the number of permits granted 
started 
in  2015  (annual  growth 
of 2.7 %). 

to  recover 

Business environment 

in 

the  Czech 
The  business  environment 
Republic is characterised by a heavy regulatory 
burden  and  numerous  administrative  barriers, 
which  act  as  an  impediment  to  both  private- 
investment.  The  Small 
and  public-sector 
Business  Act  factsheet  (European  Commission, 

(32)  ECB interest rates statistics for households. 

24 

 
                                                           
3.3. Investment 

requirements 

through  an  online  system.  Furthermore,  minimum 
capital 
limited  partnership 
for 
companies  have  been  reduced.  In  its  Doing 
Business  Report,  the  World  Bank  estimates  that 
the  time  needed  to  start  a  business  has  fallen  by 
around 40 % since 2015, and the Czech Republic’s 
ranking in this area has improved in 2016. Overall, 
stakeholders agree that this process helps to reduce 
the  administrative  burden.  However,  they  cite  the 
digitalisation  of  public  services  as  a  critical  area 
where  improvement  is  needed.  Many  administra-
tive actions are not available online or still require 
physical contact. Furthermore, authorities often do 
not communicate among themselves, which results 
in  the  need  to  resubmit  documents  several  times 
(see Section 3.5). 

Graph 3.3.2:  Small Business Act factsheet (2016) 

(1) Variation from the EU average, as measured in standard 
deviations (EU average =0) (2) Data bars pointing to 
the right show better performance than the EU average. 
Source: European Commission (2016d) 

While  the  costs  associated  with  insolvency 
remain  high  compared  to  the  EU  average  (33), 
the  Czech  authorities  have  made  considerable 
efforts  to  reduce  them  in  recent  years.  In 
particular,  the  time  needed  to  resolve  insolvency 
fell  from  6.5  years  in  2008  to  2.1  years  in  2016, 
according  to  the  Doing  Business  Report,  and 
recovery 
significantly 
(McCormack, G. et al., 2016). The insolvency law 
has  been  amended  to  make  it  possible  for  smaller 
businesses to use the legal possibility of corporate 
reorganisation.  However,  even  the  new  enterprise 
size  threshold  excludes  the  majority  of  firms,  so 
most insolvency is still settled through bankruptcy. 
Moreover, 
focused  on 
preserving  creditor  claims,  making  it  difficult  for 

the  system 

rates  have 

improved 

remains 

(33)  According to the 2016 SBA factsheet, the cost of recovery 
is 17 % of the debtor’s estate; the EU average is 10.3 %. 

faced  by 

legislation.  In 

2016c)  highlights  a  number  of  administrative 
hurdles 
small  and  medium-sized 
enterprises (SMEs). SMEs are particularly affected 
by  the  burden  of  regulations,  the  complexity  of 
administrative  procedures  and  the  impact  of  a 
rapidly  changing 
the  area  of 
‘responsive administration’, the performance of the 
Czech  Republic  deteriorated  slightly  compared  to 
the  year  before.  In  the  2017  Doing  Business 
Report,  the  World  Bank  highlights  dealing  with 
construction permits (130th place) as significantly 
inefficiencies 
contributing 
the  business 
3.3.1).  Moreover, 
(Graph 
environment 
inefficiencies  in  government  bureaucracy  and  tax 
regulations  were  flagged  in  the  World  Economic 
Forum  Executive  Survey  as  most  problematic 
for  doing  business.  The  European 
areas 
Commission’s  Consumer  Conditions  Scoreboard 
data  also  show  difficulties  complying  with 
consumer 
(European  Commission, 
2017b). 

legislation 

in 

to 

Graph 3.3.1:  Indicators of ease of doing business (2016) 

(1) For each indicator, the Czech Republic is ranked against 
other EU Member States (0 = best performer; 1 = worst 
performer). 
Source: World Bank (2016a) and Commission calculations 

The  Czech  authorities  are  making  an  effort  to 
reduce the administrative burden on businesses, 
and further progress was achieved in 2016. The 
Ministry of Industry and Trade conducts an annual 
consultation  with  stakeholders  to  identify  key 
administrative barriers and prepares an action plan 
to address these concerns. Under the most recently 
concluded  action  plan  (Ministry  of  Industry  and 
Trade,  2016a),  a  large  number  of  simplification 
measures (60) were implemented. Progress can be 
observed  in  a  number  of  areas.  For  example, 
measures have made it easier to start a business by 
reducing the cost and the time required to register 
a  company  in  commercial  courts,  in  particular  by 
allowing  notaries  to  directly  register  companies 

25 

00.20.40.60.81Starting a BusinessDealing withConstruction PermitsEnforcing ContractsRegistering PropertyPaying TaxesProtecting MinorityInvestorsTrading across BordersGetting CreditGetting ElectricityResolving Insolvency-2.0-1.5-1.0-0.50.00.51.0Cost of resolving insolvencyCost of enforcing contractsVenture capital investmentsTime to start a businessWillingness of banks toprovide a loan 
 
 
                                                           
3.3. Investment 

Graph 3.3.3:  Summary restrictiveness indicator for 

regulated professions (2015) 

entrepreneurs 
to  start  a  new  venture  after 
a business  failure.  However,  an  amendment  to 
the Insolvency  Act,  which  was  passed  by  the 
parliament  of  the  Czech  Republic,  is  aimed  at 
limiting the powers of creditors and strengthening 
the  protection  of  debtors  against  unjustified 
requests  to  open  insolvency  proceedings.  Another 
amendment that seeks to increase the possibility of 
a second chance by expanding accessibility to debt 
adjustment was approved by the government of the 
Czech Republic.  

Note: The higher the score, the higher the restrictiveness. 
Source: European Commission 

by 

the 

(2013/55/EU) 

the  context  of 

Regulatory  barriers  to  entry  remain  high  for 
a number  of  professions,  although  a  review  of 
professional qualifications has been carried out 
in 
transposition  of 
the Directive  on  the  recognition  of  professional 
(European 
qualifications 
to  a  new 
Commission,  2017c).  According 
indicator 
European 
the 
developed 
Commission (34),  the  level  of  restrictiveness  in 
the Czech  Republic  is  lower  than  the  EU  average 
only  for  patent  agents,  accountants,  real  estate 
agents  and  tourist  guides,  while  it  is  higher  than 
the  EU  average  for  civil  engineers,  architects  and 
lawyers  (Graph  3.3.3).  Simulations  suggest  that 
lowering  the  restrictiveness  indicator  for  lawyers 
to  the  EU  average  would  boost  the  number  of 
firms (+0.4 %) while lowering profitability (-1 %). 
Furthermore,  for  legal,  architectural  activities  and 
accountancy the business churn (or turnover) rates 
are  lower  than  the  overall  rate  for  the  Czech 
economy,  and  the  EU  average.  This  points  to 
relatively 
low 
competition  in  these  sectors.  However,  the  churn 
rate in the real estate and tourist guides profession 
is higher than in the EU as a whole. In its national 
action plan resulting from the mutual evaluation of 
regulated professions, no major reforms of existing 
professions  have  been  announced  by  the  Czech 
authorities.  On  the  other  hand,  in  the  case  of  real 
estate  agents  and  tourist  guides,  new  mandatory 
qualifications have been established. 

low  dynamism  and  possibly 

(34)  This  composite  indicator  on  restrictiveness  of  regulated 
professions is based on data collected from Member States, 
complemented  by  research  undertaken  by  European 
Commission  (2017c)  staff.  This  new  indicator  has  many 
similarities  with  the  Commission’s  indicator  assessing  the 
barriers  in  business  services  published  in  2015,  but  also 
differs from it in certain respects. More details are provided 
in the staff working document COM (2016) 820. 

26 

0.01.02.03.04.05.0AccountantArchitectCivil engineerLawyerPatent agentReal estate agentTourist guideEUCZ 
                                                           
 
 
3.3. Investment 

27 

 Box 3.3.1: Investment challenges and reforms in the Czech RepublicMacroeconomic perspective While remaining above the EU average as a percentage of GDP, total investment in the Czech Republic (measured as gross fixed capital formation) fell in the period following the onset of the financial crisis. This was mainly driven by lower public investment, which fell by nearly 30 % in nominal terms between 2009 and 2013 as the government undertook fiscal consolidation. Private investment grew by 3.4 % during this period, with a large fall in 2009 compensated by subsequent growth. Public investment increased in 2014-15, as the authorities accelerated drawdown of ESI funding, but is expected to have fallen significantly in 2016 (see Box 2.1). Lower drawdown of ESI funds also contributed to weak private-sector investment growth in 2016 (see Section 1). Assessment of barriers to investment and ongoing reforms   Barriers to investment in the Czech Republic are high, as confirmed by the European Commission assessment. Limited reforms have been adopted to reduce the administrative burden and improve the efficiency of the business environment. Similarly, limited efforts have been undertaken to address problems related to public procurement, governance of the R&D sector and implementation of transport infrastructure projects. Main barriers to investment and priority actions underway 1. Administrative and regulatory burdens remain a key barrier to public and private investment. Lengthy procedures to obtain land and building permits impede the rollout of transport infrastructure projects and hinder private sector investment. The absence of a one-stop shop for granting transport infrastructure permits lengthens procedures unnecessarily. Inefficiencies in public administration, including the complexity of the tax system and of administrative procedures, the impact of a rapidly-changing legislation and a low use of e-government services, weigh on private-sector investment, particularly for SMEs. The Czech authorities have made progress in this area, notably by significantly reducing costs associated with starting a business and by strengthening insolvency procedures. 2. Public investment is hampered by inefficient public procurement procedures (see Section 3.5). While the Czech authorities have adopted some reforms, progress is still lacking in areas such as centralised purchasing and the incidence of corruption in public tender procedures. 3. While total investment in R&D is at the EU average, this is largely driven by the public sector, EU funds and large, foreign-owned enterprises (see Section 3.4). Proposed reforms of the governance system remain unimplemented and efforts to boost cooperation between research centres and enterprises have not been sufficiently enforced. Regulatory/ administrative burdenCSREPL & framework for labour contracts Business services / Regulated professionsPublic administrationCSRWages & wage settingRetailPublic procurement /PPPsCSREducation ConstructionJudicial systemTaxationDigital Economy / TelecomInsolvency frameworkAccess to financeEnergyCSRCompetition and regulatory frameworkCooperation btw academia, research and businessCSRTransportCSRFinancing of R&D&INo barrier to investment identifiedNo progressSome progressCSRInvestment barriers that are also subject to a CSRLimited progressSubstantial progressFully addressedPublic administration/ Business environmentLabour market/ EducationSector specific regulationFinancial Sector / TaxationR&D&I 
 
 
 
 
 
 
 
3.3. Investment 

in 

finance 

sources 

collateral 

requirements 

While access to finance does not appear to pose 
a  problem  for  Czech  firms,  markets  for  non-
bank 
remain 
of 
underdeveloped.  According  to  the  ECB’s  most 
recent survey on the enterprises’ access to finance 
(European Central Bank, 2016), the success rate of 
applications  for  credit  lines  or  overdrafts  in 
the country  is  the  highest  of  all  Member  States. 
the  smallest  net 
Czech  SMEs  also  reported 
increase 
since 
the previous survey. However, based on the OECD 
Finance  Policy  Brief  (OECD,  2016c),  equity 
financing  is  less  relevant  in  the  Czech  Republic 
compared  to  the  EU  average  (2 %  vs  9 %). 
Furthermore,  private  equity  investment  remains 
weak,  even  compared  to  other  central  and  eastern 
European  countries,  with  venture  capital  playing 
a negligible  role  in  firms’  total  funding.  Total 
venture  capital  stood  at  only  0.001 %  of  GDP  in 
2015,  significantly  less  than  the  EU  average  of 
0.024 % (Invest Europe, 2016). Plans to boost the 
access  to  venture  capital  through  public-private 
seed  funds  have  so  far  failed.  However,  the 
government  has  established  a  National  Innovation 
the  Operational 
Fund,  with 
Programme  for  Enterprises  and  Innovation  for 
Competitiveness,  although  it  remains  to  be  seen 
how quickly the initiative will become operational. 
investment 
This  consists  of  a EUR 45 million 
seed  project 
to  SMEs, 
platform  dedicated 
financing 
private-sector 
mobilising 
and 
participation in equity financing. 

funding 

from 

there 

in  2013).  Furthermore, 

The  large  number  of  small  firms  and  their 
relatively  low  level  of  productivity  point  to 
weaknesses in allocative efficiency in the Czech 
Republic. Indicators of firm  dynamics are largely 
in  line  with  EU  averages.  However,  there  is 
a higher proportion of micro-enterprises (i.e. those 
with up to nine employees) than in the EU (96.1 % 
vs  92.8 % 
is 
a considerable  gap  between  the  productivity  of 
micro-enterprises and large firms (firms with 250+ 
the  former 
employees),  with  productivity  of 
standing  at  around  34 %  of 
in 
latter 
the industrial  sector  and  59 %  in  the  services 
sector.  Such  a  productivity  gap  points 
to 
weaknesses  in  allocative  efficiency  in  the  Czech 
Republic.  OECD 
this 
phenomenon  to  the  low  mobility  of  workers, 
cumbersome  bankruptcy  rules  and  difficulties 
faced by seed and start-up enterprises in accessing 
finance. 

attributes 

(2016d) 

the 

28 

 
 
3.4. SECTORAL POLICIES 

Research & development 

Graph 3.4.1:  R&D intensity by sector, Czech Republic 

R&D  intensity  has  increased  significantly  in 
recent  years,  reaching  1.95 %  of  GDP  in  2015, 
nearly  at  par  with  the  EU  average  of  2 %. 
Reaching  an R&D  intensity  of  2.5 %  of  GDP  in 
2020  will  only  be  possible  if  the  overall  trend 
observed over the 2007-2015 period is maintained. 
Yet the national target for public R&D expenditure 
(1 %  of  GDP  in  2020)  will  be  attained  (Office  of 
the Government of the Czech Republic, 2015a). As 
discussed  in  the  2016  country  report,  the increase 
in  R&D  intensity  since  2010  has  largely  been 
financed  by  ESI  funds  and  foreign-owned  firms, 
indicating a lack of dynamism in R&D expenditure 
of the domestic sector. Sustaining the current level 
of R&D intensity after the end of the programming 
period  for  ESI  funds  by  2020  would  require  a 
compensating  increase  in  business  R&D  (OECD, 
2016d).  In  particular  due  to  ESI  funds,  the 
government  sector  accounts  for  a relatively  high 
proportion  of  total  R&D  intensity  compared  to 
the EU average (20.5 % of total R&D expenditure 
in  2015  vs  an  EU  average  of  11.8 %,  see 
Graph 3.4.1). 

to 

investment 

significantly  below 

The strong increase in R&D intensity since 2005 
is  not  being  matched  by  corresponding 
improvements in the quality of outcomes. While 
progress  has  been  made,  the  Czech  Republic  still 
fares 
the  average  EU 
performance  in  terms  of  openness  and  excellence 
of  its  research  system  and  intellectual  assets 
the  2016  European  Innovation 
according 
Scoreboard  (European  Commission,  2016e).  The 
Czech  Republic  also  faces  challenges  in  venture 
capital 
(see  Section  3.3),  patent 
applications,  attracting  non-EU  doctorate  students 
and  undertaking  public-private  co-publications. 
Moreover,  the  innovation  output  indicators  of 
the scoreboard  that  capture  SME’s  product  and 
process  innovations,  as  well  as  marketing  and 
organisational  innovation,  are  below  or  close  to 
the EU  averages  and  have  declined  over  time.  In 
contrast, 
in 
the human  resources  available  to  the  R&D  sector, 
with  the  Eurostat  indicator  for  new  graduates  in 
science and engineering improving in recent years 
(from 10.7 per thousand of population aged 25-34 
in 2007 to 15.1 in 2014 vs the EU average of 17.6 
in 2014). 

there  has  been  an 

improvement 

Source: Eurostat 

the 

priorities 

implementation  of 

(2016-2020).  The 

The  Czech  authorities  have  set  out  a  list  of 
priorities  for  the  R&D  sector,  in  line  with 
the recently-adopted  European  Research  Area 
Roadmap 
of 
the domestic  R&D  agenda  are  the  streamlining  of 
the  new 
governance, 
evaluation  framework,  the  development  of  a  base 
for  applied  research  and  an  improvement  in 
the research  and  innovation  capabilities  of  the 
business  sector.  In  September  2016  the  updated 
National  Research  and  Innovation  Strategy  for 
the 
Smart  Specialisation  was  approved  by 
Commission. 
of 
a number 
operational  programmes  are  being  also  put  into 
place 
and 
to 
competitiveness. 

support  R&D, 

Furthermore, 

innovation 

to 

Proposed  reforms  to  the  governance  of  the 
R&D  system  are  being  pursued.  The  new 
evaluation  methodology  (Metodika  17+),  which 
intends  to  strengthen  the  steering  and  structure  of 
the  evaluation  and 
responsibilities  related 
allocation of research funding was approved by the 
government  in  February  2017.  To  create  a  bridge 
for  the  performance–based  funding  system  that 
existed  until  2010  (Good,  B.  et  al.,  2015),  an 
interim system was introduced to stabilise funding 
flows  and  to  allow  for  a  transition  to  the  new 
methodology in 2017. During the gradual phasing 
in  of  Metodika  17+,  the  information  system  for 
R&D  will  be  further  developed  to  improve  the 
contribution 
to 
of 
research 
the methodology. 

qualitative 

include 

aspects 

These 

29 

0.000.501.001.502.002.5020052006200720082009201020112012201320142015EU 2015R&D intensityPrivate non-Profit expenditure on R&DHigher education expenditure on R&DGovernment expenditure on R&DBusiness expenditure on R&D 
 
 
3.4. Sectoral policies 

excellence,  international  research  cooperation  and 
the relevance and impact of research with regards 
to society. 

the  2020  target,  whilst  the  current  final  energy 
consumption still remains below the 2020 target. 

A series of measures are being taken to improve 
cooperation  between  businesses  and  research 
institutes,  and  the  Czech  authorities  intend  to 
introduce  clear  rules  for  this  collaboration. 
The Technological  Agency  currently 
runs  a 
number  of  programmes  aimed  at  enhancing 
cooperation  between  businesses  and  public 
research institutes. These include the establishment 
of  competence  centres,  which  aim  to  support 
research, development and innovation in advanced 
the commercial 
fields  with  an  emphasis  on 
application 
these 
of 
programmes  have  not  yet  undergone  a  thorough 
international 
evaluation 
process. Two new measures to support research for 
industry  are  in  the  process  of  being  launched, 
namely the EPSILON and TRIO programmes. The 
former aims to support applied research, while the 
latter 
industrial  research. 
Finally, 
tax  credit  system  was  recently 
extended to include the purchase of R&D services 
from  research  organisations  (Srholec,  M.  et  al, 
2017  f.).  Whilst  predominately  used  by  large 
firms (35),  no  specific  support  instruments  for 
SMEs are currently in place. 

outputs.  However, 

targets  projects 

peer-reviewed 

and 

the 

in 

Energy and resource efficiency 

The  energy  and  carbon  intensity  of  the  Czech 
economy  is slowly  decreasing but remains  high 
compared  to  the  EU  average.  The  Czech 
Republic  used  2.1  times  more  energy  per  unit  of 
GDP and 1.2 times more energy per capita in 2014 
than the EU average (Graph  3.4.2). This is due to 
the relatively  large  role  that  industry  and,  in 
particular,  manufacturing 
the 
economy (36).  In  addition,  the  industrial  sector  is 
in  neighbouring 
more  energy-intensive 
countries.  However,  after  a  decrease  in  2014 
primary  and  final  energy  consumption  have  risen 
again in 2015. Primary energy consumption in the 
Czech  Republic  reached  39.9 Mtoe  and  final 
energy  consumption  24.1 Mtoe  in  2015.  The 
primary energy consumption increased thus above 

plays 

than 

in 

(35)  In  2013,  around  70 %  of  the total  allocation  was  used  by 
large  firms  (Office  of  the Government  of  the  Czech 
Republic, 2015a). 

(36)  Manufacturing  accounted  in  2014  for  some  25 %  of 
the total value added, compared to the EU average of 15 %. 

Graph 3.4.2:  Energy intensity                                             

(gross inland consumption divided by GDP) 

Source: European Commission calculations based on 
Eurostat 

energy 

consumption, 

In  contrast  to  the  generally  positive  trend  in 
energy 
efficiency 
measures appear, as yet, not to have progressed 
in  line  with  the  National  Energy  Efficiency 
Action Plan of the Czech Republic. Indeed, these 
measures  are  unlikely  to  deliver  the  intended 
energy savings in the absence of a faster rollout of 
projects  aimed  at  encouraging  further  investment 
in  energy  efficiency.  In  particular,  the  absence  of 
financial 
rollout 
a harmonised 
instruments  hinders 
energy 
efficiency measures in medium and long-term. The 
national arrangements for congestion management 
and  bidding  zone  definition  in  central  Europe  do 
not  necessarily  reflect  actual  congestion,  reducing 
possibilities  to  trade  electricity  across  borders.  A 
joint  regional  solution  would  help  all  affected 
neighbours. 

the support  of 

flexible 

of 

The  Czech  Republic  has  already  met  its  2020 
targets  for  renewable  energy,  primarily  due  to 
large  investments  in  this  area  in  recent  years, 
but also because of the low level of the targets. 
Renewable  energy  accounted  for  13.4 %  of  final 
energy consumption in 2014, above the 2020 target 
of  13 %.  Although  the  renewable  energy  share 
continues  to  grow,  changes  to  renewables  support 

30 

0501001502002503003504004502002200320042005200620072008200920102011201220132014EU28CZHUSKPL 
                                                           
 
3.4. Sectoral policies 

from 

2015,  regional  waste  management  plans  were 
adopted  in  2016.  Though  also  the  latter  include 
policy  measures 
the  Waste 
arising 
Framework  Directive  that  should  help  achieve 
recycling targets (41), these plans, in contrast to the 
national  one,  are  less  elaborated  with  conditional 
waste infrastructure planning, thus not providing a 
full  and  clear  picture  on  capacity  planning  for 
energy recovery. 

(41)  By  2020,  the  preparation  for  re-use  and  the  recycling  of 
waste  materials  from  households  (such  as  paper,  metal, 
plastic  and  glass)  is  to  be  increased  to  a  minimum  of 
overall 50 % by weight.  

schemes  (37)  in  the  energy  sector  have  negatively 
impacted  their  potential.  The  Czech  Republic  is 
well  on  track  to  deliver  on  the  greenhouse  gas 
emissions  target  in  sectors  outside  the  emission 
trading system (ETS). Taking into account existing 
measures,  emissions  are  expected  to  decrease  by 
8 % between 2005 and 2020. 

The  Czech  Republic  still  faces  significant 
environmental  challenges,  particularly  in  the 
landfilling  and  air  pollution (38). 
areas  of 
Landfilling  remains  the  predominant  option  for 
treating  municipal  waste,  accounting  for  52 %  of 
its  treatment  in  2015,  twice  the  EU  average  of 
25 %.  Air  quality  does  not  meet  the  requirements 
of national and European legislation, with negative 
effects on the population’s health outcomes and on 
the  environment  in  the  long  term.  In  2014, 
breaches  of  EU  air  quality  standards  were 
registered  for  particle  pollution  and  for  nitrogen 
dioxide in densely populated areas. 

The  recycling  rate  has  slowly  increased  in 
recent  years  but  remains  substantially  below 
the  EU  average.  The  recycling  rate  stood  at 
29.7 %  in  2015,  representing  an  increase  from 
the 2014 rate, but still well below the EU average 
of  45 %.  A  more  rapid  increase  in  the recycling 
rate  is  hampered  by  the  current  system  of  waste 
management,  which  is  not  fully  in  line  with  the 
principles  of  circular  economy  and  with  the EU’s 
waste  hierarchy  (39).  The  revised  Waste  Act  (No. 
of 
229/2014) 
biodegradable waste and a ban on the landfilling of 
recyclable  waste  from  2024.  These  changes  are 
expected  to  give  rise  to  a  shift  away  from 
landfilling  and  towards  treatments  that  are  higher 
in  the  waste  hierarchy (40).  Next  to  the  national 
waste management plan adopted at the very end of 

collection 

separate 

requires 

(37)  The  guaranteed  support  in  the  form  of  renewable  energy 

payments was reduced in late 2013. 

(38)  A  full  assessment  of  the  challenges  and  opportunities  of 
environmental policies in the Czech Republic can be found 
in  the  European  Commission  (2017d),  Environmental 
Implementation  Review  2016,  Country  report  Czech 
Republic, forthcoming. 

(39)  The Waste Framework Directive provides for the following 
priorities: prevention, re-use, recycling, other recovery (e.g. 
energy recovery) and disposal. 

(40)  An  objective  assessment  of  progress  in  the  area  of 
municipal  waste  management  is  hampered  by  significant 
differences  in  statistics  for  municipal  waste  generation 
between  the  Ministry  of  Environment  and  the  Czech 
Statistical  Office. The  institutions  have  agreed  to  work  on 
reducing these discrepancies. 

31 

 
                                                           
                                                           
3.5. PUBLIC ADMINISTRATION 

Corruption 

Graph 3.5.1:  Control of corruption — global percentile rank 

(2015) 

International’s 

in  recent  years.  According 

Corruption  continues 
to  be  perceived  by 
citizens  and  enterprises  as  a  major  ongoing 
improvement  has  been 
problem  but  an 
observed 
to 
Transparency 
Corruption 
Perception  Index,  the  Czech  Republic’s  score 
improved by 15 points between 2013 and 2016 but 
remains below the EU average (55 vs 65 in the EU 
in  2016).  Furthermore,  according  to  the  World 
Economic  Forum  2016/2017 (42),  corruption  is 
seen as the third most problematic factor for doing 
business  in  the  Czech  Republic  after  inefficient 
government  bureaucracy  and  tax  regulations  (see 
Section 3.1). The 2016/17 Global Competitiveness 
Index  flags  up  the  low  ranking  of  the  Czech 
Republic  in  relation  to  the  diversion  of  public 
funds (105th rank of 138 countries surveyed). The 
World  Bank’s  World  Governance  Indicators  also 
the  Czech  Republic’s  weak 
underscore 
performance  as  regards  corruption  (Graph 3.5.1), 
although  it  scores  above  most  of  its  peers  in 
the region. 

in 

control 

corruption 

and 
Challenges 
transparency  are  evident,  particularly 
in 
relation  to  prosecution  and  public  tendering. 
Survey evidence shows that 41 % of managers (vs. 
34 %  in  the  EU)  considered  corruption  to  have 
prevented  them  from  winning  a  public  tender  or 
contract  in  the  Czech  Republic  in  the  three 
preceding  years  (European  Commission,  2015b) 
(see subsection on public procurement below). The 
prosecution  of 
in  public 
procurement and of bribery cases is rare (European 
Commission,  2016g).  Although  cases  that  reach 
the  courts  generally  lead  to  conviction  and  a 
suspended  prison  sentence,  the  number  of  cases 
was  relatively  low  at  less  than  100  per  year  (43) 
between 2011 and 2013. There are indications that 
European  structural  funds  and  other  public  funds 
have been channelled to private companies whose 
ultimate  beneficiary  was  not  known  (Centrum  of 
Excellence for Good Governance, 2016). 

illegal  practices 

(42)  World  Economic  Forum  (2016b),  Global  Competitiveness 

Report 2016-17, p. 160. 

(43)  Statistics  for  passive  and  active  bribery,  and  all  foreign 
bribery  cases  combined;  number  of  convictions  in  2011, 
2012 and 2013 are 64, 87 and 91. 

Note: The score indicates the perceived level of public 
sector corruption on a scale of 0 (highly corrupt) to 100 (very 
clean). 
Source: World Bank (2016b), World Governance Indicators 

(Office  of 

in  particular 

representatives’  appointments 

Progress has been achieved in implementing the 
2016  anti-corruption  plan 
the 
Government of the Czech Republic, 2015b) but 
several  reforms  are  still  pending.  The  Czech 
parliament adopted various pieces of legislation to 
tackle  corruption  in  2016 (44).  Nevertheless,  other 
important measures in the anti-corruption plan still 
have  not  been  addressed, 
the 
protection of whistleblowers,  and  the draft law  on 
state 
to  state-
controlled  trading  companies.  The newly-adopted 
rules on political party financing still do not cover 
some areas, in particular a full disclosure of party 
the 
and  electoral  campaign  expenditure,  and 
establishment 
impartial 
supervision has not yet been achieved. Meanwhile, 
the  implementation  of  relevant  legislation  is  still 
pending.  This  legislation  includes  the  Internal 
Management  and  Financial  Control  in  Public 
Administration  Act  and  the  Act  broadening  the 
powers of the Supreme Audit Office. 

effective 

and 

of 

Public procurement 

in 
Sufficient  transparency  and  competition 
public procurement have not yet been achieved. 
In  2016,  Czech  contracting  authorities  awarded 
an average of 16 % of contracts without publishing 
a call  for  tender,  the  second  highest  proportion  in 
the  EU  (5 %  median  value  in  the  EU,  see 

(44)  These  include  the  Act  on  Political  Party  Financing, 
the Conflict  of  Interest  Law,  the Act  on  Declaring  the 
Origin  of  Property,  and  the  Public  Procurement  Act.  The 
government  also  adopted  a  Bill  on  Public  Prosecution. 
Furthermore,  an  electronic  library  of  legislative  proposals 
will  gives  users  access  to  all  legal  proposals  prior  to  their 
adoption by government. 

32 

67.378.20102030405060708090100BGELITROHUSKHRCZLVESLTPLSIEU-28MTPTCYEEFRATBEIEDEUKNLLUDKSEFI 
 
                                                           
 
                                                           
3.5. Public administration 

procedures  have  been  shortened 
to 
the increased  efforts  of  the  Public  Procurement 
Review  Body 
of 
Competition). 

for  Protection 

(Office 

thanks 

The  digitisation  of  public  procurement 
is 
making  progress.  The  Public  Procurement 
Digitisation  Strategy  for  2016-2020  (45)  foresees 
the national  electronic  tool  (NET)  to  become 
compulsory  by  2018,  potentially  making  public 
procurement  more  efficient  and 
transparent. 
Concerns  have  been  raised  by  the  review  body 
regarding  contracts  that  were  used  for  updating 
the NET  system  but  which  were  not  in  line  with 
legislative  requirements  and  contained  undue 
amendments of delivery terms. Decisions on fines 
were issued and appeals are pending. 

but 

and 

persist 

challenges 

The  Czech  authorities  have  made  progress  in 
centralising  purchasing 
joining  up 
in 
activities, 
the healthcare  sector.  Progress  can  be  seen  in 
some  ministries 
that  already  act  as  central 
purchasing  bodies.  Centralised  procurement, 
amounting to some 4 % in the Czech Republic, is 
well  below  the  EU  average  of  9 %.  At  local 
government  level,  the  Association  of  Towns  and 
Municipalities  announced  the  establishment  of 
competence  centres  to  assist  municipalities  with 
public 
demanding 
technically 
procurement 
procedures.  A  push 
introduce  centralised 
to 
procurement practices in the healthcare sector was 
met with scepticism on the part of hospitals due to 
concerns  about  losing  autonomy  in  procurement 
processes.  The  relevant  authorities  appear  to  have 
addressed the major shortcomings of the past, such 
as the bundling of procedures to limit competition. 
However,  the  use  of  the  lowest  price  criterion 
(85 % in 2015) and single-bid procedures (55 % in 
2015)  remains  high  in  health  sector  procurement 
(see Section 3.1 on healthcare). 

e-government services 

The  use  of  e-government  services  in  Czech 
Republic is one of the lowest in the EU, but has 
increased from the previous year. In 2016, 35 % 
of  internet  users  who  needed  to  submit  official 
forms  to  authorities  sent  forms  online,  up  from 
24 %  in  2015.  The  figure  is  however  still  low, 

(45)  Ministry  of  Regional  Development  (2016),  Digitisation 

Strategy of Public Procurement for 2016-2020. 

Graph 3.5.2).  Furthermore,  the  Czech  Republic 
was  among  the  lowest-ranked  Member  States  for 
contracts  awarded  with  only  a  single  bidder 
(41 %),  highlighting  a  lack  of  competition  in 
public procurement procedures. 

Graph 3.5.2:  Negotiated contracts without prior publication 

(2016) 

Note: EU-28 refers to median of the listed countries. 
Source: European Commission based on Tenders Electronic 
Daily (TED)/OJ 

specialised 

Public  procurement  falls  short  of  EU  best 
practices due to low levels of professionalisation 
among procurement officers. In 2016, the Czech 
Republic  made  use  of  the  ‘most  economically 
advantageous  tender’  (MEAT)  principle  in  only 
18 % of contracts compared to 45 % in the EU as a 
whole.  In  response  to  this,  the  authorities  have 
launched 
programmes, 
including  those  focused  on  relevant  elements  in 
the new  Public  Procurement  Act.  The  main  areas 
of improvement concern the use of quality criteria 
(e.g.  MEAT)  instead of  the  lowest price  criterion. 
Another  area  where  shortcomings  were  identified 
concerns 
technical 
formulation 
specifications  which,  if  broadened,  could  open  up 
competition  across  various 
technologies  and 
suppliers. 

training 

the 

of 

The  Public  Procurement  and  Concession 
Directives were transposed with a minor delay. 
The  revised  Public  Procurement  Act  entered  into 
force  on  1 October  2016. While  its  impact  can  be 
ascertained  only 
actual 
implementation,  the  law  aims  to  address  previous 
shortcomings,  including  by  increasing  the  use  of 
quality  criteria,  cutting  down  on  negotiated 
the  degree  of 
procedures 
enhancing 
review 
competition. 

procurement 

light  of 

Public 

and 

the 

in 

33 

0%5%10%15%20%25%30%35%40%CYCZROBGSISKLVESHRHUITDKEEFIEU-28LTPLDEATFRNLUKBEGRPTSEIELUMT 
 
                                                           
3.5. Public administration 

are  not  yet  initiated  and  most  are  still  'work  in 
progress'.  For  example,  work  is  ongoing  on  fully 
electronic  submission  of  forms  to  the  public 
administration  and  on  a  Citizen  Portal  where  all 
the services would be available. The national e-ID, 
which  should  serve  as  key  enabler  for  e-
government  services,  is  planned  to  be  introduced 
in January 2018.  

Responsibility  for  the  roll-out  of  e-government 
services  lies  with  three  Ministries  (Ministry  of 
the  Interior,  Ministry  of  Finance  and  Ministry 
of  Industry  and  Trade)  and  since  2015  a 
Government Council for Information Society is 
in  place  to  improve  coordination.  Stakeholders, 
including  the  Confederation  of  Industry  and  the 
Association  of  Towns  and  Municipalities,  have 
however signalled that formats and procedures can 
vary  across  different  services  and  there  is  limited 
use  of  forms  'pre-filled'  with  information  already 
supplied  by  users  to  other  government  services. 
This  indicates  that  cross-sector  cooperation  is 
limited. 

the 

security 

While  a  significant  amount  of  ESIF  funding 
(EUR  300  million)  has  been  allocated  for  the 
development  of  e-government  services  and 
cyber 
2014-2020 
during 
programming period, the rollout of projects has 
so  far  been  slow.  The  Czech  authorities  have 
launched  several  tenders  for  new  projects  since 
late 2015. However, the number of projects ready 
to be implemented is currently quite low. Although 
important  steps  have  been  taken  to  speed  up  the 
implementation  of  the  available  funds,  it  is  likely 
that  the  impact  of  these  measures  will  mostly  be 
felt  only  in  the  medium  term  (Section  3.3  on  EU 
funds). 

compared  with  an EU  average  of  56 %  (46) 
(Graph 3.5.3).  The above  data  suggests  a  positive 
impact of measures taken to improve supply of e-
government  services:  the  availability  of  pre-filled 
forms  and  the level  of  online  service  completion 
have  also  increased  from  2015,  although  they  are 
still below the EU average. 

Graph 3.5.3:  Selected indicators of digital skills (2016) 

Note: The indicator of individuals submitting forms is 
calculated as the % of individuals who need to submit 
official forms to public authorities. 
Source: European Commission (2017e), Digital Scoreboard 

The Czech authorities have adopted an updated 
action  plan  for  the  development  of  the  digital 
market,  which  includes  details  on  the  launch  of 
the 'Initiative 202020'. The aim of this initiative — 
jointly  run  by  the  private  sector  and  the  Czech 
authorities  —  is  to  make  the  Czech  Republic  one 
of  the  top  20  countries  in  Europe  for  the  use  of 
e-government  services  by  2020.  The  initiative 
focuses on the promotion of existing e-government 
services,  including  a  mapping  of  the 750  services 
that  are  currently  available,  and  support  for 
the development  of  new  services.  The  platform 
also  allows  users  to  propose  new  services  and  to 
services. 
suggest 
Increased  availability  of  e-government  services  is 
also  one  of 
the  Strategic 
the  objectives  of 
Framework 
the  Development  of  Public 
Administration  for  2014-2020.  The  evaluation 
report (47) indicated that some individual measures 

improvements 

to  existing 

for 

(46)  An  alternative  indicator  compares  individually  submitted 
forms to public authorities as a % of internet users. Based 
on  this,  15 %  of  internet  users  sent  forms  to  the  public 
administration  online  in  2016,  compared  with  an EU 
average of 34 %. 

(47)  Ministry of the Interior, June 2016. 

34 

0102030405060708090Individualssubmittingcompleted formsto publicauthorities (%)Pre-filled forms(Score: 0-100)Online ServiceCompletion(Score: 0 - 100)EUCzech Republic 
 
                                                           
ANNEX A 

Overview Table 

2016 Country-specific recommendations (CSRs) 

Commitments                                                         Summary assessment (48) 

CSR 1: 

  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. 

The  Czech  Republic  has  made  some  progress  in 
addressing CSR 1: 

Limited  progress  has  been  made  in  ensuring  the 
long-term  sustainability  of  public  finance.  Some 
measures  in  the  healthcare  sector  are  at  various 
stages  of  adoption,  including  a  draft  law  on  using 
Pharmacy Cost-Based Groups to provide for a more 
equitable  distribution  of  funds  among  health 
insurance  companies.  On  the  other  hand,  the 
government  has  approved  a proposal  to  cap  the 
retirement  age  at  65  after  around  2030,  which  is 
likely  to  worsen  the  long-term  sustainability  of 
pensions.  

Substantial  progress  has  been  made  on  the 
adoption  of  the  legislation  to  strengthen  the  fiscal 
framework.  The  proposed  fiscal  legislation  to 
implement  Directive  2011/85/EU  on  budgetary 
frameworks  was  approved  by  the parliament  in 
January 2017. 

(48)  The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 
No  progress:  The  Member State  has  not  credibly  announced  nor adopted  any  measures  to  address  the  CSR.  Below  a  number  of 
non-exhaustive typical situations that could be covered under this, to be interpreted on a case by case basis taking into account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government’s website); 
• no non-legislative acts have been presented by the governing or legislator body; 
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures but these only address the CSR to a limited extent; 
and/or 
• presented legislative acts in the governing or legislator body but  these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented; 

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some  progress:  The  Member  State  has  adopted  measures  that  partly  address  the  CSR  and/or  the  Member  State  has  adopted 
measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as only a few of the adopted 
measures have been implemented. For instance: adopted by national parliament; by ministerial decision; but no implementing 
decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

35 

 
 
 
 
 
 
 
                                                           
 
 
A. Overview Table 

CSR 2: 

The Czech Republic has made limited progress in 
addressing CSR 2: 

  Reduce 
regulatory 
barriers 
to 
transport and energy, 

investment, 

and 

administrative 
in 

in  particular 

and 

barriers 

administrative 

Limited  progress  has  been  achieved  in  reducing 
regulatory 
to 
investment.  With  regards  to  energy  investment, 
the use  of  EU  funds  for  energy  efficiency  projects 
has been delayed. The administration of the related 
Operational  Programmes 
fragmented.  To 
simplify  and  accelerate  the  permit  procedure, 
the government has presented a draft amendment of 
the Construction  Act,  which  is  currently  under 
discussion in the parliament.  

is 

  and 

increase 
the 
e-government services. 

availability 

of 

the 

Limited  progress  has  been  achieved  towards 
increasing 
e-government 
availability  of 
services.  The  measures  taken  are  showing  some 
results  but  most  are  still  at  an  early  stage  of 
implementation  or  not  yet  initiated.  Responsibility 
for  the  rollout  of  e-government  services  is  spread 
over  several  ministries.  Stakeholders  perceive 
limited cross-sector cooperation. 

  Adopt 

the  outstanding 

anti-corruption 

reforms 

  and improve public procurement practices. 

CSR 3:  

  Strengthen  governance  in  the  R&D  system 
and  facilitate  the  links  between  academia 
and enterprises. 

outstanding 

anti-corruption 

Some  progress  has  been  made  towards  adopting 
reforms. 
the 
The parliament  adopted  several  laws,  in  particular 
the Act on Political Party Financing, the Conflict of 
Interest  Law,  the  Act  on  Declaring  the  Origin  of 
Property and the Public Procurement Act. However, 
several important measures from the anti-corruption 
plan for 2016 remain unimplemented. 

Limited  progress  has  been  made  in  improving 
public  procurement  practices.  Despite  the  slightly 
delayed  transposition  of  the  modernised  public 
procurement  directives,  no  specific  measures  were 
announced to cope with the systemic shortcomings 
in  the  application  of  the  public  procurement 
legislation,  in  particular  low  use  of  quality  criteria 
in 
tender 
specifications, 
excessive  use  of  negotiated 
procedures without prior publication and low use of 
aggregated procurement.  

tenders,  unprofessionally  prepared 

The  Czech  Republic  has  made  some  progress  in 
addressing CSR 3: 

Limited  progress  has  been  made  in  strengthening 
governance in the R&D system and facilitating the 
links  between  academia  and  enterprises.  While 
progress has been observed in terms of developing 
funding  methodology, 
a  more  comprehensive 

36 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  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, in particular women. 

A. Overview Table 

governance in the sense of a separate function to be 
provided by the government to all R&D bodies has 
not  yet  been  sufficiently  addressed.  Further, 
cooperation  between  academia  and  enterprises  has 
not  yet  been  incorporated  into  the  funding  and 
evaluation framework. 

the 

Substantial progress has been made in raising the 
attractiveness  of 
teaching  profession  by 
increasing  teachers’  salary  by  8 %  in  September 
2016.  The  government  also  adopted  a new  draft 
career  system  for  teachers  and  pedagogical  staff, 
link  professional 
is 
the  aim  of  which 
development, career and remuneration.  

to 

Some  progress  has  been  made  towards  increasing 
the inclusion of disadvantaged children. The reform 
on  inclusive  education got underway  in  September 
2016 which makes it too early to assess the impact. 
It  aims  to  gradually  increase  the  participation  of 
pupils  with  special  needs  —  including  socially 
disadvantaged  pupils  —  in  mainstream  education 
by granting them a legal right to individual support 
measures.  Only  a  limited  number  of  pupils  have 
benefited  from  the reform  to  date.  Aside  from  the 
absence of a piloting period, this may be partly due 
to  the fact  that  the  reform  is  being  implemented 
gradually over a period of two years 

to 

up 

the 

climbing 

flexibility  of 

Some  progress  has  been  made 
in  removing 
obstacles  to  greater  labour  market  participation  by 
under-represented  groups,  in  particular  women. 
Labour market participation of women improved in 
2015, 
66.4 %.  Proposed 
amendments  to  the  Labour  Code  are  aimed  at 
strengthening  both 
labour 
arrangements  and  the  protection  of  employees.  A 
proposed  amendment  to  the  law  on  social  support 
makes  the  drawing  of  parental  allowance  more 
flexible.  The  implementation  of  ESF-supported 
projects  creating  new  places  in  childcare  facilities 
continues  —  almost  10 000  places  have  been 
created  to  date,  while  new  'micro-nurseries'  are 
being piloted. A pilot project supporting job-related 
mobility  of  the  long-term  unemployed  is  being 
implemented. 

Europe 2020 (national targets and progress) 

Employment: 

The  employment  rate  has  risen  steadily  over 
the past  five  years,  reaching  [76.8 %]  in  the  third 

37 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

75 % 

R&D: 

1 % (only public expenditure) 

Greenhouse gas emissions: 

+ 9 % 
emissions trading target). 

(compared  with  2005 

emissions, 

Renewable energy target: 

13 %  

Energy efficiency: 

The  Czech  Republic’s  2020  energy  efficiency 
target is 39.6 Mtoe expressed in primary energy 
consumption  (25.3 Mtoe  expressed 
in  final 
energy consumption). 

Early school leaving: 

5.5 % 

Tertiary education: 

32 % 

Poverty/social exclusion: 

Reduction  of  100 000  persons  between  2008 
and 2020. 

quarter of 2016 (Eurostat). 

Public  R&D  investment  has  increased  in  recent 
years, reaching 0.88 % of GDP in 2015 (Eurostat). 

According  to  the  latest  national  projections  and 
taking  into  account  existing  measures,  greenhouse 
gas  emissions  from  sectors  not  included  in the  EU 
ETS are expected to decrease by 8 % between 2005 
and  2020.  Therefore,  the  target  is  expected  to  be 
achieved with a margin of 17 pps. 

With  a  renewable  energy  share  of  13.6 %  in 
2015 (1), the Czech Republic is on track to meet its 
target for 2020. 

increased 

Czech  Republic 
its  primary  energy 
consumption  by  2%  from  39.29  Mtoe  in  2014  to 
39.93  Mtoe  in  2015.  Final  energy  consumption 
increased  by  3 %  from  23.49  Mtoe  in  2014  to 
24.13 Mtoe in 2015.  

leaving 

remains  among 
While  early  school 
the lowest  in  the  EU  —  it  was  6.2 %  in  2015 
(Eurostat)  —  it  has  increased  over  the  past  years 
and  is  particularly  high  among  Roma.  Regional 
disparities  are  significant,  ranging  between  2.7 % 
and 14.5 %. 

The tertiary attainment rate rose to 30.1 % in 2015 
(Eurostat),  reflecting  a  sharp  increase  in  recent 
years. 

The  number  of  people  at  risk  of  poverty  or  social 
exclusion  has  fallen  by  122 000  since  2008 
(Eurostat), reaching 1 444 000 in 2015. 

(1)  Renewable  energy  shares  for  2015  are  approximations  and  not  official  data,  reflecting  the  available  data 
(04.10.2016).  See  the  Öko-Institut  Report:  Study  on  Technical  Assistance  in  Realisation  of  the  2016  Report  on 
Renewable Energy, http://ec.europa.eu/energy/en/studies.  

38 

 
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP scoreboard for the Czech Republic 

(1) House price index e = NSI estimates 
Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for real effective 
exchange rate), and International Monetary Fund. 

39 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%-2.6-2.7-2.4-1.4-0.60.2-35%-46.1-45.2-45.9-41.4-36.6-30.7Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% 12.0-0.60.4-3.1-10.0-8.0Export market share - % of world exports5 years % change-6%11.77.9-3.8-9.1-5.70.1Nominal unit labour cost index (2010=100)3 years % change9% & 12% 6.23.23.54.24.00.56%-2.3-1.3-3.5-0.81.83.9p14%2.72.12.94.41.70.9133%68.168.370.773.771.568.660%38.239.844.544.942.240.3Unemployment rate3 year average10%6.16.97.06.96.76.116.5%3.13.55.211.45.27.7-0.2%0.30.8b1.52.73.02.40.5%0.20.51.00.00.0-0.62%7.68.22.90.6-2.2-6.9Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsFlags: b: break in time series. e: estimated. p: provisional. Net international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

1) Latest data Q2 2016. 
2) Quarterly values are not annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

40 

201120122013201420152016Total assets of the banking sector (% of GDP)110.0118.7121.0124.8123.8133.2Share of assets of the five largest banks (% of total assets)61.861.562.861.363.3-Foreign ownership of banking system (% of total assets)92.386.394.187.888.4-Financial soundness indicators:1)              - non-performing loans (% of total loans)-----4.2              - capital adequacy ratio (%)15.015.616.617.016.716.3              - return on equity (%)2)13.013.711.411.410.36.5Bank loans to the private sector (year-on-year % change)5.93.43.84.57.19.4Lending for house purchase (year-on-year % change)7.65.65.75.78.29.4Loan to deposit ratio75.473.872.672.071.873.4Central Bank liquidity as % of liabilities0.10.00.00.00.00.0Private debt (% of GDP)68.370.773.771.568.6-Gross external debt (% of GDP)1) - public11.213.514.413.315.717.3    - private21.924.134.436.933.532.3Long-term interest rate spread versus Bund (basis points)*109.9128.754.241.37.934.3Credit default swap spreads for sovereign securities (5-year)*97.9103.855.747.244.938.7 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators 

1) The unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within 2 weeks.       
2) Long-term unemployed are those who have been unemployed for at least 12 months.       
3) Not in education employment or training.       
4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted.       
Source: European Commission (EU Labour Force Survey). 

41 

Table II. Labour market and social indicators201120122013201420152016 4Employment rate(% of population aged 20-64)70.971.572.573.574.876.4Employment growth (% change from previous year)-0.30.40.30.61.41.7Employment rate of women(% of female population aged 20-64)61.762.563.864.766.468.2Employment rate of men (% of male population aged 20-64)79.980.281.082.283.084.4Employment rate of older workers (% of population aged 55-64)47.749.351.654.055.557.9Part-time employment (% of total employment, aged 15-64)4.75.05.85.55.35.6Fixed-term employment (% of employees with a fixed term contract, aged 15-64)8.08.39.19.710.09.7Transitions from temporary to permanent employment38.432.633.134.937.3:Unemployment rate1 (% active population, age group 15-74)6.77.07.06.15.14.1Long-term unemployment rate2 (% of labour force)2.73.03.02.72.41.8Youth unemployment rate (% active population aged 15-24)18.119.518.915.912.610.6Youth NEET3 rate (% of population aged 15-24)8.38.99.18.17.5:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)4.95.55.45.56.2:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)23.725.626.728.230.1:Formal childcare (30 hours or over; % of population aged less than 3 years)1.01.01.02.0:: 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators (continued) 

1) People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.       
2) At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the national equivalised 
median income.        
3) Proportion of people who experience at least four of the following forms of deprivation: not being able to 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: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes). 
Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 

42 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare6,06,06,06,06,0:Disability1,51,41,41,31,3:Old age and survivors8,89,29,59,39,0:Family/children2,01,81,81,81,7:Unemployment0,80,70,60,70,6:Housing0,10,10,20,30,3:Social exclusion n.e.c.0,20,30,30,30,3:Total19,519,519,819,619,1:of which: means-tested benefits0,40,40,40,50,5:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)14,415,315,414,614,814,0Children at risk of poverty or social exclusion  (% of people aged 0-17)18,920,018,816,419,518,5At-risk-of-poverty  rate2 (% of total population)9,09,89,68,69,79,7Severe material deprivation rate3  (% of total population)6,26,16,66,66,75,6Proportion of people living in low work intensity households4 (% of people aged 0-59)6,46,66,86,97,66,8In-work at-risk-of-poverty rate (% of persons employed)3,74,04,54,03,64,0Impact of social transfers (excluding pensions) on reducing poverty50,345,645,548,243,642,3Poverty thresholds, expressed in national currency at constant prices51017981015651011009856199553102238Gross disposable income (households; growth %)0,70,11,00,13,53,3Inequality of income distribution (S80/S20 income quintile share ratio)3,53,53,53,43,53,5GINI coefficient before taxes and transfers45,245,846,346,046,9:GINI coefficient after taxes and transfers24,925,224,924,625,1: 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

1) The methodologies, including the assumptions, for this indicator are shown in detail at : 
http://www.doingbusiness.org/methodology.        
2) Average of the answer to question Q7B_a. '[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?'. Answers were scored as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known.       
3) Percentage population aged 15-64 having completed tertiary education.       
4) Percentage population aged 20-24 having attained at least upper secondary education.       
5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at:  http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
6) Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

43 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry5.823.45-2.77-4.093.381.94Labour productivity in construction2.19-2.580.174.785.116.46Labour productivity in market services3.042.381.111.392.084.79Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-5.920.395.705.25-0.641.63ULC in construction-3.963.430.06-8.68-4.42-2.01ULC in market services0.63-0.342.83-0.880.01-0.30Business environment201020112012201320142015Time needed to enforce contracts1 (days)611.0611.0611.0611.0611.0611.0Time needed to start a business1 (days)17.015.515.515.515.515.0Outcome of applications by SMEs for bank loans2na0.70na0.730.330.43Research and innovation201020112012201320142015R&D intensity1.341.561.781.901.971.95Total public expenditure on education as % of GDP, for all levels of education combined4.254.514.334.16nanaNumber of science & technology people employed as % of total employment383636373837Population having completed tertiary education3151617181920Young people with upper secondary education4929291919190Trade balance of high technology products as % of GDP-1.320.140.650.400.26-0.64Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna1.501.39OECD PMR5, retail1.031.231.56OECD PMR5, professional services2.772.482.36OECD PMR5, network industries62.962.452.01 
 
 
 
 
C. Standard Tables 

Table C.5:  Green Growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 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 material 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. 
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP. 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change). 
Real unit energy cost: real energy costs as a percentage of total value added for the economy. 
Environmental taxes over labour taxes and GDP: from European Commission'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). 
Real unit energy costs for manufacturing industry excluding refining: real costs as a percentage of value added for  
manufacturing sectors. 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP. 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste. 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP 
Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas 
emissions (excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency. 
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR). 
Transport carbon intensity: GHG 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. consumption of 
international bunker fuels. 
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk. 
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels. 
* European Commission and European Environment Agency. 
Source: European Commission (Eurostat) unless indicated otherwise. 

44 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0,290,270,270,280,260,25Carbon intensity kg / €1,121,081,061,030,97-Resource intensity (reciprocal of resource productivity)kg / €1,361,411,261,251,251,24Waste intensity kg / €0,19-0,19-0,18-Energy balance of trade % GDP-3,3-3,9-4,1-4,1-3,7-Weighting of energy in HICP%13,4014,0414,2214,0614,3614,42Difference between energy price change and inflation %-1,93,75,0-0,1-5,70,8Real unit of energy cost% of value added18,920,120,720,119,4-Ratio of environmental taxes to labour taxesratio0,140,140,130,120,12-Environmental taxes% GDP2,32,32,22,12,1-Sectoral Industry energy intensity kgoe / € 0,200,190,190,200,18-Real unit energy cost for manufacturing industry excl. refining% of value added19,119,019,018,617,4-Share of energy-intensive industries in the economy% GDP14,4414,2314,0013,6414,06-Electricity prices for medium-sized industrial users€ / kWh0,110,110,100,100,080,08Gas prices for medium-sized industrial users€ / kWh0,030,030,030,030,030,03Public R&D for energy % GDP0,020,020,020,020,030,02Public R&D for environmental protection% GDP0,020,010,010,010,010,01Municipal waste recycling rate%15,817,023,224,225,429,7Share of GHG emissions covered by ETS*%56,055,553,651,853,054,1Transport energy intensitykgoe / €1,001,071,081,081,16-Transport carbon intensitykg / €2,782,942,982,993,20-Security of energy supplyEnergy import dependency%25,528,825,427,730,331,9Aggregated supplier concentration indexHHI25,131,529,134,427,3-Diversification of energy mixHHI0,270,280,270,260,26- 
 
 
 
 
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