Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Poland and delivering a Council opinion on the 2017 Convergence Programme of Poland
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Poland, budget deficit, economic policy, economic reform, employment policy, investment, pension scheme, public finance, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 520 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Poland  and delivering a Council opinion on the 2017 Convergence Programme of Poland  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of Poland 

and delivering a Council opinion on the 2017 Convergence Programme of Poland 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies,1 and in particular Article 9(2) thereof, 
Having regard to the recommendation of the European Commission,2 
Having regard to the resolutions of the European Parliament,3 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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On  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,4 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,5  in  which  it 
did  not  identify  Poland  as  one  of  the  Member  States  for  which  an  in-depth  review 
would be carried out.  
The 2017 country report for Poland6 was published on 22 February 2017. It assessed 
Poland’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 
the Council on 12 July 2016, the follow-up given to the recommendations adopted in 
previous years and Poland’s progress towards its national Europe 2020 targets. 

OJ L 209, 2.8.1997, p. 1. 
COM(2017) 520 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 
SWD(2017) 86 final. 

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(3) 

(4) 

(5) 

(6) 

(7) 

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On  28  April  2017,  Poland  submitted  its  2017 National  Reform  Programme  and  its 
2017  Convergence  Programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

The relevant country-specific recommendations have been taken into account in the 
Member States' programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,7 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.8 

Poland  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact.  In  its 
2017 Convergence Programme, the government plans a gradual improvement of the 
headline balance  from a deficit  of 2.4%  of GDP in  2016 to  1.2%  of  GDP in  2020. 
The medium-term budgetary objective, a deficit of 1% of GDP in structural terms, is 
not expected to be reached by 2020, i.e. in the programme horizon. According to the 
Convergence Programme,  the general  government  debt-to-GDP ratio is expected to 
increase  from  54.4%  of  GDP  in  2016  to  55.3%  of  GDP  in  2017  and  to  decline  to 
52.1%  by  2020.  The  macroeconomic  scenario  underpinning  these  budgetary 
projections is favourable.  

On 12 July 2016, for 2017, the Council recommended Poland to achieve an annual 
fiscal  adjustment  of  0.5%  of  GDP  towards  the  medium-term  budgetary  objective. 
Based  on  the  Commission  2017  spring  forecast,  there  is  a  risk  of  some  deviation 
from that requirement in 2017.  

In 2018, in light of its fiscal situation, Poland is expected to further adjust towards its 
medium-term budgetary objective of a structural deficit of 1% of GDP. According to 
the  commonly  agreed  adjustment  matrix  under  the  Stability  and  Growth  Pact,  that 
adjustment  translates  into  a  requirement  of  a  nominal  growth  rate  of  net  primary 
government expenditure9  that does not exceed 3.7% in 2018. It would correspond to 
a structural adjustment of 0.5% of GDP. Under unchanged policies, there is a risk of 
a significant deviation from that requirement in 2018. Overall, the Council is of the 
opinion that  Poland  needs  to  stand ready to  take  further  measures  in  2017  and that 
further  measures  will  be  needed  in  2018  to  comply  with  the  provisions  of  the 
Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the 
assessment of the budgetary plans and outcomes should take account of the Member 
State’s  budgetary  balance  in  light  of  the  cyclical  conditions.  As  recalled  in  the 
country-specific 
Commission 

Communication 

accompanying 

these 

Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 
Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(8) 

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(10) 

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(12) 

recommendations,  the  assessment  of  2018  budget  outcomes  will  need  to  take  due 
account of the goal to achieve a fiscal stance that contributes to both strengthening  
the ongoing recovery and ensuring the sustainability of Poland’s public finances. In 
that  context,  the  Commission  intends  to  make  use  of  the  applicable  margin  of 
appreciation in light of the cyclical situation of Poland.  

The  2017  country  report  finds  that  some  progress  was  made  in  improving  tax 
collection,  as  Poland  undertook  a  number  of  reforms  aimed  at  tightening  the  tax 
system. Their full impact on tax collection and the costs of tax compliance should be 
closely monitored. In contrast, Poland made no progress in limiting the extensive use 
of reduced VAT rates, which have an adverse impact on VAT revenue and are not an 
effective social policy instrument. 

Poland  faces  expenditure  pressures  in  various  areas,  in  particular  those  related  to 
population ageing. This makes it necessary to put mechanisms in place to assess the 
efficiency  and  effectiveness  of  public  spending  to  enable  the  re-allocation  of 
resources. With this in mind, the government has announced plans to strengthen the 
budgetary  process,  in  particular  with  regard  to  the  medium-term  budgetary 
framework  and  incorporating  spending  reviews  into  the  budgetary  process.  The 
public finance framework lacks an independent fiscal council. 

A  decrease  in  the  working-age  population  in  Poland  is  expected  to  limit  growth 
potential  in the decades to  come. The performance  of the Polish labour  market has 
been  strong  in  recent  years.  Employment  rates  have  continued  to  increase,  but 
several recent policy measures may reduce labour force participation, especially that 
of  women,  low-skilled  and  older  people.  Lowering  the  statutory  retirement  age  in 
late 2017 is expected to encourage some older workers to exit the labour force. The 
Polish social protection system provides only limited incentives to take up work. The 
new child benefit is expected to reduce poverty and inequality, but it may also have a 
negative  effect  on  the  labour  market  participation  of  parents,  mostly  women.  The 
size  of  the  child  allowance  and  limited  means-testing  offsets  work  incentives  built 
into other social benefits. The obligation to attend pre-school for five-year-olds was 
removed as of September 2016 and formal childcare enrolment for children under the 
age  of  three  remains  among  the  lowest  in  the  EU.  Despite  measures  taken,  labour 
market segmentation continues to be high, with negative effects on productivity and 
the  accumulation  of  human  capital.  Obstacles  to  wider  use  of  permanent  contracts 
remain. The codification committee is preparing new draft individual and collective 
labour codes. This is an opportunity to address these obstacles. 

The  average  effective  retirement  age  has  increased  in  recent  years,  but  it  remains 
significantly below the statutory retirement age. A higher effective retirement age is 
crucial  for  economic  growth,  the  adequacy  of  future  pensions  and  the  fiscal 
sustainability  of  the  pension  system.  However,  the  recent  decision  to  lower  the 
statutory  retirement  age  to  60  for  women  and  65  for  men  goes  in  the  opposite 
direction. The costly special social insurance system for farmers (KRUS) is another 
reason for low labour mobility and hidden unemployment in agriculture. 

The education system has significantly improved over the last two decades, with the 
basic skills of 15-year-olds  well  above the EU average and one of the lowest  early 
school leaving rates in the EU. Nevertheless, there is still room to improve the way 
pupils  are  equipped  with  skills  that  are  adequate  for  the  rapidly  changing  labour 
market. The forthcoming changes concerning primary and secondary education give 
rise to major organisational challenges and shorten the period of general education, 

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which  may  have  a  negative  impact  on  educational  equality.  Additional  changes  to 
adapt  vocational  education  and  training  to  labour  market  needs  have  also  been 
announced, but  their potential to  address existing shortcomings  remains to  be  seen. 
The  government  has  launched  consultations  on  the  higher  education  reform  to 
improve  the  performance  of  the  sector  and  its  labour  market  relevance.  Poland 
features  insufficient  participation  in  adult  learning  and  the  average  level  of  older 
adults’ basic skills is low, hampering their employability.  

(13)  Weaknesses in spatial planning increase the administrative burden related to the need 
for  construction  permits.  Land-use  plans  cover  a  limited  part  of  Poland’s  territory 
and are often of low quality. In areas without them, construction permits are granted 
on the basis of one-off  administrative decisions on land development, which  create 
risk and uncertainty for investors. The draft construction code aims at consolidating 
spatial  planning  processes  and  easing  the  administrative  burden  for  investors.  The 
reform  offers  the  chance  to  improve  matters,  depending  on  the  final  version  of  the 
law and its implementation. 

(14) 

(15) 

(16) 

In  2016,  investment  activity  declined  significantly  due  to  less  use  of  the  EU 
structural  funds,  resulting  from  the  transition  between  programming  periods  and 
increased  uncertainty  among  private  investors.  The  business  environment  is 
generally favourable. However, business confidence was affected by the increase in 
the  number  of  regulatory  changes  and  limited  public  consultations  on  a  number  of 
key laws. Legal certainty, trust in the quality and predictability of regulatory, tax and 
other  policies  and  institutions  are  important  factors  that  could  allow  an  increase  in 
the investment rate. The rule of law and an independent judiciary are also essential in 
this context. The current systemic threat to the rule of law creates legal uncertainty. 
With  the  government  aiming  to  increase  its  role  in  the  economy,  ensuring  the 
economic viability of investment decisions will be important. There continues to be a 
significant regulatory burden in several areas. 

The road network has developed rapidly thanks to EU funding, but the road fatality 
rate is  still among the highest  in the EU, resulting in  high social costs. Despite the 
availability  of  significant  EU  funds,  the  railway  sector  continues  to  face  major 
bottlenecks in project implementation. There also remains the challenge of ensuring 
the  long  lifetime  of  railway  assets,  given  a  missing  multi-annual  railway 
infrastructure maintenance programme. 

Around  60 %  of  Poland's  installed  fossil  fuels  capacity  is  older  than  30  years.  It 
therefore requires significant investment in the coming years. In 2016, the electricity 
interconnection  level  was  among  the  lowest  in  the  EU.  Together  with  a  significant 
amount  of  capacities  to  be  decommissioned  and  increasing  electricity  demand,  this 
contributes  to  the  poor  outlook  in  terms  of  ensuring  power  generation  adequacy. 
Achievement  of  the  binding  national  2020  target  for  renewable  energy  is  at  risk. 
Following the launch of the liquefied natural gas  terminal, Poland  has significantly 
improved  the  security  of  its  gas  supply.  It  has  also  developed  its  national  gas 
transmission  and  distribution  network.  However,  the  work  on  regionally  important 
gas interconnectors has not advanced according to schedule.  

(17) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Poland’s  economic  policy  and  published  it  in  the  2017 
country  report.  It  has  also  assessed  the  Convergence  Programme  and  the  National 
Reform  Programme  and  the  follow-up  given  to  the  recommendations  addressed  to 
Poland  in  previous  years.  It  has  taken  into  account  not  only  their  relevance  for 

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sustainable fiscal and socioeconomic policy in Poland, but also their compliance with 
EU  rules  and  guidance,  given  the  need  to  strengthen  the  EU’s  overall  economic 
governance by providing EU-level input into future national decisions.  

(18) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  Convergence 
Programme and its opinion10 is reflected in particular in recommendation 1 below, 

HEREBY RECOMMENDS that Poland take action in 2017 and 2018 to: 

1. 

2. 

Pursue  its  fiscal  policy  in  line  with  the  requirements  of  the  preventive  arm  of  the 
Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. 
When taking policy action, consideration should be given to achieving a fiscal stance 
that  contributes  to  both  strengthening  the  ongoing  recovery  and  ensuring  the 
sustainability  of  Poland’s  public  finances.  Take  steps  to  improve  the  efficiency  of 
public spending and limit the use of reduced VAT rates. 

Take  steps  to  increase  labour  market  participation,  in  particular  for  women,  low-
qualified  and  older  people,  including  by  fostering  adequate  skills  and  removing 
obstacles  to  more  permanent  types  of  employment.  Ensure  the  sustainability  and 
adequacy  of  the  pension  system  by  taking  measures  to  increase  the  effective 
retirement age and by starting to reform the preferential pension arrangements. 

3. 

Take measures to remove barriers to investment, particularly in the transport sector. 

Done at Brussels, 

For the Council 
The President 

10 

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

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