COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Czechia, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 202 final  COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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(2018) 120 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.  Financial sector 

3.3.  Labour market, education and social policies 

3.4.   Investment 

3.5.   Sectoral policies 

Annex A: Overview table 

Annex B: Macroeconomic Imbalance Procedure Scoreboard 

Annex C: Standard tables 

References 

LIST OF TABLES 

Table 1.1: 

Key economic, financial and social indicators - Czech Republic 

Table 2.1: 

Annual assessment of the 2017 CSRs 

Table 3.1.1:  New 2018 ageing projections (% of GDP) 

Table B.1: 

The MIP Scoreboard for the Czech Republic 

Table C.1: 

Financial market indicators 

Table C.2: 

Labour market and social indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1: 

Real GDP growth and breakdown 

Graph 1.2:  GNI per person (PPS) as a percentage of EU-28 

1 

3 

10 

13 

13 

17 

22 

30 

36 

40 

44 

45 

52 

9 

11 

16 

44 

45 

46 

47 

48 

49 

50 

3 

3 

 
 
 
 
 
Graph 1.3: 

Potential GDP growth and drivers 

Graph 1.4: 

Investment by category (Czech Republic and EU) 

Graph 1.5: 

Labour shortages (% of respondents) 

Graph 1.6: 

Nominal unit labour cost (breakdown) 

Graph 1.7: 

Current and capital accounts 

Graph 2.1:  Overall multiannual implementation of 2011 – 2017 CSRs to date 

Graph 3.1.1:  VAT gap  (2011-2015) 

Graph 3.1.2: 

Tax wedge for families with and without children (2016) 

Graph 3.1.3:  Number of primary self-employed 

Graph 3.1.4: 

Time to comply with tax requirements (2016, in hours) 

Graph 3.2.1:  Overvaluation gap 

Graph 3.2.2:  House prices and loans for house purchase 

Graph 3.2.3:  Building permits and dwellings statistics 

Graph 3.2.4:  Mortgage loans: stock and new loans 

Graph 3.2.5:  HH and NFC Indebtedness 

Graph 3.3.1:  Labour market developments 

Graph 3.3.2:  Parenthood impact on employment 

Graph 3.3.3:  Net childcare costs for a lone mother with earnings (2015) 

Graph 3.3.4:  Employment rate by age & education level 

Graph 3.3.5:  At-risk-of-poverty or social exclusion rate, age groups 

Graph 3.3.6:  Percentage of variation in science performance explained by students' socio-

economic status (2015) 

Graph 3.3.7:  Early school leaving by region (2016) 

Graph 3.4.1:  Share of export value in top quality category 

Graph 3.5.1:  Value added in high- and medium-high-tech manufacturing and KIS as % of value 

added 

Graph 3.5.2: 

Investment in road infrastructure (% of GDP) 

LIST OF BOXES 

Box 1.1: Exchange rate developments and external position 

Box 2.1: Tangible results delivered through EU support to structural change in the Czech Republic 

Box 3.3. 1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.4.1: Investment challenges and reforms in the Czech Republic 

Box 3.5.1: Policy highlights - European Semester process 

4 

5 

6 

7 

7 

10 

13 

14 

14 

15 

18 

19 

19 

20 

20 

22 

22 

24 

25 

26 

27 

28 

31 

36 

38 

8 

12 

23 

35 

39 

 
 
 
 
 
EXECUTIVE SUMMARY 

As economic growth accelerated significantly in 
2017,  the  Czech  Republic  is  in  a  good  position 
to  address  remaining  structural  challenges. 
Economic  convergence  has  resumed  and  is  likely 
to  continue,  while  the  current  unemployment  rate 
is  the  lowest  recorded  in  any  EU  Member  State 
since  2002.  However, 
labour  supply 
shortages, long-term fiscal sustainability pressures, 
regulatory  and  administrative  burdens,  and  low 
knowledge-intensive 
public 
in 
activities  pose 
the 
economy.  Given  the  country's  highly  favourable 
economic  situation,  appropriate  policies  could 
sustainably  raise  the  Czech  economy's  growth 
potential and make growth more inclusive. (1) 

long-term  challenges 

investment 

rising 

to 

labour  market  will  continue  to  spur  wage  growth 
acceleration in 2018 and 2019, albeit more slowly, 
allowing private consumption to remain robust.  

Inflation  has  moved  above  the  central  bank’s 
2.0 %  target.  The  inflation  rate  reached  2.4 %  in 
2017,  rising  significantly  from  0.6 %  in  2016. 
the  koruna 
the  appreciation  of 
Meanwhile, 
following the decision of the Czech National Bank 
(CNB)  to  remove  the  exchange  rate  floor  against 
the  euro 
inflationary  pressures, 
especially  for  imported  goods  and  services.  In 
2018  and  2019  the  inflation  rate  is  expected  to 
moderate and stabilise around the 2 % target. 

tempering 

is 

the 

2017 

improving 

The Czech Republic has made some progress in 
country-specific 
addressing 
recommendations  (CSRs).  It  has  made  limited 
progress in addressing the long-term sustainability 
of  public  finances.  Some  progress  has  been  made 
the  anti-corruption  and  public 
in 
procurement  frameworks  and 
in  streamlining 
procedures  for  granting  building  permits.  The 
range of  e-government  services  has  expanded  and 
the  quality  of  R&D  has  slightly  improved.  Some 
progress  has  also  been  observed  in  fostering 
employment of under-represented groups.  

The Czech Republic has either reached, or is on 
track to  reach,  its  Europe 2020 targets  in  most 
areas.  These  include  poverty  or  social  exclusion, 
employment,  renewable  energy,  greenhouse  gas 
emissions  and  tertiary  education.  More  action  is 
needed  to  reduce  the  increasing  early  school 
leaving  rate,  improve  energy  efficiency  and  reach 
the R&D target.  

indicators  of 

The Czech Republic performs relatively well on 
the 
the  Social  Scoreboard 
supporting the European Pillar of Social Rights, 
while  challenges  remain.  The  labour  market  is 
strong, yet the low participation in employment of 
women  with  small  children  and  of  vulnerable 
groups remains a challenge. At the same time, the 
Czech  Republic  has  very  low  income  inequality 
and a very low share of people at risk of poverty or 
social exclusion. 

Key structural issues analysed in this report, which 
point  to  particular  challenges  for  the  Czech 
Republic’s economy, are the following: 

The  Czech  Republic  is  enjoying  an  economic 
upswing. Real GDP is expected to have increased 
by  4.5 %  in  2017  and  to  grow  by  around  3 %  in 
both 2018 and 2019, according to the Commission 
Winter  2018  forecast.  Boosted  by  consumer 
confidence, increasing wages and low credit costs, 
private  consumption  growth  remained  high.  After 
plunging  in  2016,  investment  is  expected  to  have 
bounced  back  in  2017,  supported  by  the  private 
sector  and  the  renewed  drawdown  of  EU  funds. 
Foreign  direct 
is  highly 
productive, supporting over a quarter of all private 
sector  jobs  and  more  than  three  quarters  of  all 
exports.  On 
in 
the  other  hand, 
infrastructure  continues  to  remain  below  the  EU 
average.  

investment 

investment 

(FDI) 

an 

level  of 

increasing 

Labour  market  indicators  set  new  records  but 
at the same time signal limits to future growth. 
With 
employment 
approaching  80 %  and  an  unemployment  rate  of 
2.5 % in the fourth quarter of 2017, the country is 
facing  a  tightened  labour  market  and  increased 
labour  shortages.  Consequently,  due  to  limited 
scope for a further increase in labour participation 
and  demographic  constraints,  employment  gains 
are likely to stall from 2018 onwards. Due to a low 
ratio  of  jobseekers  per  vacancy,  the  tightened 

(1)  This report assesses the Czech Republic’s economy in the 
light  of  the  European  Commission’s  Annual  Growth 
Survey published on 22 November 2017. In the survey, the 
Commission  calls  on  EU  Member  States  to  implement 
reforms  to  make  the  European  economy  more  productive, 
resilient and inclusive. In so doing, Member States should 
focus  their  efforts  on  the  three  elements  of  the  virtuous 
triangle  of  economic  policy  —  boosting  investment, 
pursuing structural reforms and ensuring responsible fiscal 
policies. 

1 

 
 
                                                           
Executive summary 

aimed to improve procurement practices. While 
setting  up 
joint  procurement  procedures 
remains  a  major  challenge,  corruption  is  an 
ongoing concern that has a negative impact on 
the  business  environment.  Various  reforms 
have  been  adopted,  but  the  anti-corruption 
agenda has not been fully completed yet. 

  Despite  high  demand  for  labour,  certain 
groups  continue  to  be  under-represented  in 
the  labour  market.  Gender  inequalities  in 
terms  of  pay  and  employment  remain  high 
that  have  made 
despite  recent  measures 
parental  leave  more  flexible  and  increased  the 
number  of  childcare  facilities.  Labour  market 
participation  for 
low-skilled  and  disabled 
people remains low. Despite having one of the 
lowest proportions of people at risk of poverty 
overall,  a  number  of 
face  an 
increasing number of socially excluded people, 
growing indebtedness and housing exclusion. 

localities 

low 

  The attractiveness of the teaching profession 
remains 
in  spite  of  recent  salary 
increases. Education performance continues to 
be  strongly  affected  by  the  socioeconomic 
background  of  students.  Inclusive  education 
measures still need to be fully implemented, in 
particular  for  Roma  children.  The  low  early 
school  leaving  rate  has  risen,  contrary  to  the 
EU  trend.  On  the  other  hand,  the  tertiary 
education attainment continues to increase. 

  Whilst the Czech economy continues its shift 
towards more knowledge-intensive activities, 
several  bottlenecks  still  hamper  the  R&D 
system.  These  include  emerging  shortages  of 
skilled  human  resources,  the  low  level  of 
public-private  cooperation  and  the  relatively 
low  performance  of  the  public  science  base. 
While  foreign  R&D  funding 
trending 
upwards,  domestic  firms  reduced  their  R&D 
spending. 

is 

  E-government  services  are  being  enhanced, 
but  remain  below  EU  average.  Several 
initiatives  adopted  aimed  to  enable  secure 
access  to  e-government  services.  A  national 
electronic 
identity  card  and  other  digital 
initiatives are planned to be introduced in 2018. 

frequency  of 

  The increasing complexity of the tax system 
is a concern. Tax collection has improved, but 
the 
and  higher 
compliance costs are worrisome for businesses. 
Reform  of  income  tax  legislation  is  still 
ongoing.  The  tax-wedge  on  labour  remains 
high for low-income single earners. 

changes 

  Long-term  fiscal  sustainability  worsened 
and  age-related  expenditures  are  causes  for 
concern.  While  the  short-  and  medium-term 
fiscal outlook appears sound, the expected raise 
in  pension  expenditures  and  the  limited  cost-
effectiveness of the healthcare sector are long-
term  risks.  The  independent  fiscal  council  is 
not  yet  operational  and  the  coordination  of 
fiscal and budgetary policies among the various 
government bodies remains a weakness. 

  Housing  prices  are 

increasing  rapidly 
against  a  backdrop  of  high  demand, 
constrained supply and regulatory obstacles. 
Since  2013  housing  prices  have  increased 
faster  than  nominal  income,  especially  in 
Prague.  Although  the  government  tries  to 
streamline the procedures, building regulations 
continue to put pressure on the housing supply, 
contributing  to  the  price  rises.  The  market  has 
become  one  of  the  fastest-growing  in  the  EU, 
keeping credit growth strong. The central bank 
has  limited  tools  for  ensuring  stability,  but 
there  are  ongoing  discussions  about  imposing 
binding lending limits. 

  Certain 

the 

amendment  of 

for  households  were 

regulatory  and  administrative 
burdens  are  deterring  further  investment. 
Pending  issues  related  to  building  permit 
in  part 
procedures 
addressed  by 
the 
Construction Act. Payment  practices worsened 
in 2017 and the costs of resolving insolvencies 
remain above the EU average. A slower start of 
the 2014-2020 ESI Funds programming period 
and  certain  implementation  problems  resulted 
in  a  low  absorption  of  EU  funds,  notably  in 
areas  such  as  energy  efficiency  or  broadband 
infrastructure. 

  Steps  were  taken  to  improve  the  public 
the  anti-
procurement 
corruption agenda. Tailored training schemes 
and  initiatives  to  increase  transparency  have 

framework  and 

2 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Economic growth 

The  Czech  Republic  is  enjoying  an  economic 
upswing.  Following  a  shallow  recession  in  2012 
and  2013,  real  GDP  grew  by  3.5 %  per  year  on 
average between 2014 and 2016. According to the 
Commission  Winter  2018  forecast,  real  GDP 
growth is expected to have accelerated to 4.5 % in 
2017,  supported  by  strong  domestic  and  external 
demand,  after  growth  of  2.6 %  in  2016  (Graph 
1.1).  Rapidly  increasing  wages  are  projected  to 
have  supported  solid  household  consumption 
growth  in  2017.  Following  a  strong  decline  in 
2016,  a  new  wave  of  investment  also  appears  to 
have set in, helping to propel economic growth to 
the unusually high rate seen in 2017. While public 
sector investment has yet to show signs of revival 
since  its  2016  low,  private  sector  investment  is 
estimated to have rebounded strongly. Net exports 
are  also  projected  to  have  provided  a  positive 
contribution to GDP in 2017, against a backdrop of 
strong  external  demand  and  only  gradually  rising 
import  levels.  This  is  particularly  noteworthy 
given  the  strong  investment  rebound  and  the  high 
import  intensity  of  investment  and  exports  in  the 
Czech Republic. 

Graph 1.1: 

Real GDP growth and breakdown 

ahead. Investment is expected to increase strongly 
as  companies  —  especially  in  manufacturing 
industries — ramp up investment in  machinery to 
compensate  for  a  growing  scarcity  of  labour.  The 
Czech  Republic’s  considerable  trade  surplus  is 
expected  to  decline  slightly  over  the  forecast 
horizon,  as  imports  are  likely  to  grow  somewhat 
faster than exports in 2018 and 2019. 

their 

initial 

The  Czech  Republic  witnessed  considerable 
catch-up  growth  relative  to  the  EU  average. 
Between  2003  and  2008,  income  per  person  and 
wages  converged  steadily  in  line  with  what  could 
be  expected  based  on 
level  of 
development  (Arpaia,  A.  and  Thirion,  G.,  2017).  
to  have 
the  global  crisis  appears 
However, 
temporarily  stalled  this  process.  In  2015,  the 
convergence  resumed  as  both  real  wages  and 
productivity  started  to  increase.  Sound  economic 
policies that encouraged both foreign and domestic 
investment and significant financial support in the 
form  of  EU  structural  funds  underpinned  the 
convergence process.  

Graph 1.2:  GNI per person (PPS) as a percentage of EU-28 

Source: AMECO, European Commission 

Between  2000  and  2016,  Czech  gross  national 
income  (GNI) (2)  per  person  (adjusted  for 
purchasing  power  parity)  rose  from  72.0 %  to 

(2)  GNI  provides  a  more  accurate  picture  of  national  income 
available  for  domestic  economic  activities  than  GDP  in 
countries  with  a  significant  stock  of  foreign  direct 
investment  (FDI),  such  as  the  Czech  Republic,  in  which 
FDI-related  dividend  payments  abroad  and  other  earnings 
outflows can drive a wedge between GDP and GNI. 

Source: AMECO, Commission Winter 2018 forecast 

In  2018  and  2019  GDP  growth  is  forecast  to 
stabilise at around 3 %. Labour shortages are the 
main  constraint  for  the  lower  GDP  and  private 
consumption  growth  rates  expected  in  the  years 

3 

-8-6-4-202468020304050607080910111213141516171819%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growthForecast40%50%60%70%80%90%1995199619971998199920002001200220032004200520062007200820092010201120122013201420152016Czech RepublicSlovakiaPolandHungary 
 
 
 
                                                           
1. Economic situation and outlook 

82.6 %  of  the  EU-28  average,  an  increase  of 
10.6 pps 
(Graph  1.2).  The  main  driver  of 
convergence  was  the  Czech  Republic’s  faster 
growth  in  nominal  GNI  compared  to  the  EU 
average. By contrast, a more rapid increase in the 
price level in the Czech Republic than in the rest of 
the EU slowed down its economic convergence. 

owing 
limited 
to  adverse  demographics  and 
productivity  increases.  The  real  GDP  growth  rate 
in  2018  and  2019  is  forecast  to  be  slightly  above 
the  estimated  potential  growth  rate,  widening  the 
already  positive  output  gap.  This  suggests  that 
continued  economic  expansion  at  that  rate  would 
likely be inflationary. 

High inflows of foreign direct investment (FDI) 
have  been  a  significant  driver  of  convergence. 
However, as in other countries in the region, they 
have  come  down  from  the  levels  observed  in  the 
early  2000s.  Not  only  did  the  corresponding  FDI 
inflows  lead  to  major  productive  investment,  they 
are also likely to have boosted productivity growth 
by  making  rapid  technology  and  skills  transfer  in 
the  manufacturing  sector  possible.  FDI  inflows 
were  facilitated  by  the  relatively  low  level  of 
Czech  wages  and  the  country’s  proximity  to  the 
developed  European  markets.  This 
most 
to  both 
favourable  environment  gave 
significant  brown-field  investment  and  export-
oriented green-field investment.  

rise 

Graph 1.3: 

Potential GDP growth and drivers 

Source: European Commission 

Potential  GDP  growth  risks  being  constrained 
by  unfavourable  demographics  (Graph  1.3).  It 
dipped  in  2016  but is estimated  to  have  increased 
to around 3 % in 2017, supported by an increase in 
potential 
factor 
productivity gains. From 2018, potential growth is 
forecast  to  decline  steadily  towards  2 %  in  2022, 

hours  worked 

total 

and 

to 

linked 

Risks  to  the  growth  outlook  are  tilted  to  the 
downside.  Wage  pressure 
labour 
shortages might reduce the cost-competitiveness of 
exports 
if  wage  growth  continually  outpaces 
productivity  growth.  The  appreciation  of  the 
koruna  since  April  2017  could  reinforce  this 
development  though  the potential negative  impact 
on  Czech  exports  is  deemed  to  be  milder  due  to 
their  high  content  of  foreign  value  added.  The 
exchange  rate  appreciation  is  also  having  an  anti-
inflationary  effect  on  import  prices,  preventing 
stronger  consumer  price  growth.  A  potential 
slowdown in global trade is yet another persistent 
risk,  since  the  Czech  Republic  is  exposed  to 
external  demand  swings  from  its  main  trading 
partners  due  to  its  high  openness.  Finally,  house 
prices  rose  faster  than  wages  in  2016  and  2017, 
harming housing affordability (see Section 3.2). In 
this context, the interest rate hikes since the second 
half  of  2017 
inflationary 
macro-prudential 
pressures; 
recommendations aim to cool the bank lending and 
housing market (see Section 3.2).   

intend 
while 

to  address 

Inflation and monetary policy 

After  three  subdued  years,  inflation  moved 
above  the  central  bank’s  target  of  2.0 %  in 
2017.  Harmonised  Index  of  Consumer  Prices 
inflation reached 2.4 % in 2017, a marked increase 
from 0.6 % in 2016. It was mainly driven by strong 
increases in food and services prices. According to 
the Commission Winter 2018 forecast, inflation is 
expected  to  remain  higher  than  in  the  euro  area. 
Continued  rises  in  food  and  services  prices  are 
supposed to keep annual inflation at 2.4 % in 2018. 
In  2019,  inflation  is  forecast  to  stabilise  at  the 
CNB inflation target of 2 %, potentially supported 
by further monetary policy tightening. 

The  Czech  National  Bank 
(CNB)  has 
discontinued  the  use  of  the  exchange  rate 
commitment  as  an  additional  monetary  policy 
instrument.  In  April  2017,  the  CNB  abandoned 
the  exchange  rate  commitment  in  place  since 

4 

-1.00.01.02.03.04.05.0050607080910111213141516171819202122Rate of change y-o-y (%)Capital Accumulation ContributionTotal Factor Productivity ContributionTotal Labour (Hours) ContributionPotential Growth (Production Function)Forecast 
 
1. Economic situation and outlook 

this  decision 

November 2013 (see Box 1.1). The appreciation of 
the  koruna  which  followed 
is 
tempering  inflationary  pressures,  particularly  for 
imported goods and services. In August 2017, the 
CNB was the first central bank in the EU to raise 
interest rates since 2012. Two more hikes followed 
afterwards,  setting 
the  base  rate  at  0.75 % 
(February  2018).  The  real  effective  exchange  rate 
deflated  by  unit  labour  costs  is  projected  to  have 
in  2017  (Commission 
appreciated  by  5.5 % 
Autumn  2017 
forecast).  A  slightly  smaller 
appreciation is forecast in 2018 (4.7 %).  

Investment 

The  Czech  Republic’s  investment  outlook  is 
buoyant. Recent data show large and broad-based 
investment  growth,  which  remains  above  the  EU 
average  as  a  share  of  GDP  (Graph  1.4).  This 
outlook  is  supported  by  positive  expectations  for 
economic  growth,  the  new  cycle  of  European 
Structural and Investment (ESI) Funds, very cheap 
financing  conditions,  labour  market  shortages  and 
a  strong  demand  for  dwellings  in  the  context  of 
constrained  housing  supply  (see  Box  3.4.1). 
Relatively low investment in housing over the past 
decade,  compared  to  the  EU  average,  may  also 
indicate  an  additional  supply  backlog.  The 
existence  of  this  backlog  would  be  confirmed  by 
the accelerating house prices (see Section 3.2). 

Graph 1.4: 

Investment by category (Czech Republic and 
EU) 

Household spending 

Private  consumption  increased  above  3.5 %  in 
2015  and  2016  and  is  expected  to  remain  the 
main driver of real GDP growth in the coming 
years,  boosted  by  the  strength  of  the  labour 
market  and  low  credit  costs.  According  to  the 
Commission  Autumn  2017  forecast,  household 
spending  is  projected  to  have  grown  by  3.5 %  in 
2017 and to ease slightly over the next two years, 
owing  to  the  slowdown  in  employment  growth. 
The record-low unemployment rate and increasing 
labour shortages are expected to drive up salaries. 
Nominal  wage  is  projected  to  increase  by  an 
average  of  6.4 %  per  year  in  2017-2019,  far 
exceeding consumer price inflation. In this context, 
real  household  disposable  income  is  forecast  to 
grow  by  2.8 %  in  2017  and  2018,  then  to  slow 
down a bit in 2019, to 2.4 %. 

support  households’ 

Consumer  confidence  and  cheap  borrowing 
costs  also 
spending 
activity. In Q4-2017 consumer confidence reached 
an all-time high, having consistently outperformed 
its long-term average since 2014. Strong consumer 
confidence  combined  with  low  credit  costs  have 
contributed 
indebtedness, 
to  rising  household 
which  increased  faster  than  disposable  income  in 
2016  (see  Section  3.2  on  private  indebtedness). 
The saving rate of households declined slightly in 
2016 to 11.2 % and is expected to moderate further 
from  2017  to  2019,  while  remaining  above  10 % 
(Commission Autumn 2017 forecast).  

Social developments 

The Czech Republic has one of the lowest levels 
of income inequality in the EU, but poverty risk 
and educational outcomes depend very much on 
parental background. The incomes of the richest 
20 %  of  the  population  were  around  3.5  times 
higher  than  the  incomes  of  the  poorest  20 %  in 
2016. This ratio has remained stable since 2005 (3). 
Stability in the degree of inequality reflects the fact 
that  real  disposable  household  income  has  grown 
relatively evenly across the income distribution in 
recent  years.  Together  with  low  and  decreasing 

(3)  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 

Source: Ameco, Commission Autumn 2017 Forecast 

5 

024681012140369121518212427303304050607080910111213141516171819% GDP% of GDPCZ Total (lhs)EU28 Total (lhs)CZ equipment (rhs)EU28 equipment (rhs)CZ dwellings (rhs)EU28 dwellings (rhs)forecast 
                                                           
 
1. Economic situation and outlook 

unemployment  and  share  of  people  at  risk  of 
poverty or social exclusion, this suggests relatively 
inclusive  economic  growth. 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 
inequality  and  disposable  income  inequality  (i.e. 
after  taxes  and  transfers)  is  similar  to  the  EU 
average,  suggesting  the  Czech  tax-benefit  system 
functions  in  line  with  the  EU  average  in  terms  of 
reducing inequality.  

hampered  by  the  lack  of  affordable  childcare 
(despite the recently increased number of childcare 
facilities).  The  gender  employment  gap  in  the 
Czech  Republic  is  particularly  high  for  middle 
aged  women.  Motherhood  has  a  major  impact  on 
labour  market  participation,  linked  to  the  low 
availability  of  affordable  childcare,  long  parental 
leave  entitlements,  low  use  of  flexible  working 
arrangements  and  the  lack  of  long-term  care 
facilities. In 2015, only 3 % of children under three 
were  in  formal  childcare.  This  share  has  slightly 
increased to 4.7 % in 2016. 

Graph 1.5: 

Labour shortages (% of respondents) 

However, there is still considerable inequality of 
opportunity between socioeconomic groups. The 
risk  of  poverty  for  the  children  of  low-skilled 
parents is among the highest in the EU, but among 
the  lowest  for  the  children  of  the  high-skilled. 
Educational  outcomes  also  vary  considerably.  In 
2015,  the  variation  in  science  PISA  scores  which 
could be attributed to parental background was one 
of the highest in the EU (see Section 3.3). 

Labour market 

rate 

The Czech labour market is a top performer in 
the EU, although growing labour shortages may 
limit  future  growth.  Over  the  past  six  years  the 
employment  rate  has  risen  steadily,  reaching 
78.9 % in Q3-2017. Overall employment growth is 
expected  to  slow  down  in  the  coming  quarters, 
given the reduced scope for further increases in the 
(see  Section  3.3).  The 
participation 
unemployment 
fallen  considerably, 
reaching  2.5 %  in  Q4-2017,  and  is  currently  the 
lowest in the EU. It is 2.9 % as annual average for 
2017 and is expected to stabilise at this level over 
the  next  two  years  (Commission  Autumn  2017 
forecast).  With  the  Czech  economy  near  full 
employment, 
labour  shortages  are  becoming 
apparent  and  spurring  wage  increases.  43 %  of 
manufacturers  cited  labour  shortages  as  a  factor 
limiting production in Q1-2018 (Graph 1.5).  

rate  has 

Despite its outstanding performance, the labour 
market  outcomes  remain  significantly  weaker 
for low-skilled workers and women with young 
children.  Unemployment 
disproportionately 
affects  those  with  primary  and  lower  secondary 
education, who represent only 9 % of the working-
age  population.  Against  the  backdrop  of  labour 
shortages,  there  is  scope  for  increasing  female 
still 
labour  market  participation,  which 

is 

6 

Source: European Commission (Business Climate Indicator) 

Competitiveness 

Following  the  negative  growth  seen  in  2015, 
nominal  unit 
(ULC)  started 
labour  costs 
growing  in  2016  (3.3 %  year-on-year)  (see 
Graph 1.6). This was caused, on the one hand, by a 
productivity  growth  slowdown,  mostly  due  to  a 
slight  productivity  decline  in  market  services  and 
construction, while productivity continued to grow 
in  the  manufacturing  sector.  On  the  other  hand, 
nominal  compensation  per  employee  grew  by 
4.6 % in 2016, faster than in 2014 and 2015 (3 %). 

Real wages are forecast to increase significantly 
in 2017 and further push real wage convergence 
with the EU-28, due to a record low ratio of job 
seekers  per  vacancy.  Nominal  compensation  per 
employee  is  expected  to  have  risen  by  7.1 %  in 
2017, according to the Commission Autumn 2017 
forecast.  It  is  expected  to  slow  slightly  in  2018 

-505101520253035404550Q2-05Q1-06Q4-06Q3-07Q2-08Q1-09Q4-09Q3-10Q2-11Q1-12Q4-12Q3-13Q2-14Q1-15Q4-15Q3-16Q2-17Q1-18IndustryServices 
 
1. Economic situation and outlook 

(6.6 %) amid easing inflationary pressures and the 
potential  appreciation  of  the  exchange  rate.  As  a 
result,  nominal  ULC  are  expected  to  continue  to 
increase  by  around  3½ %  in  2017  and  2018  (see 
Graph 1.6). 

Graph 1.6:  Nominal unit labour cost (breakdown) 

Graph 1.7:  Current and capital accounts 

Source: Commission Autumn 2017 forecast 

External position  

The Czech Republic’s trade balance is firmly in 
positive territory (Graph 1.7). Its trade surplus of 
7.5 %  of  GDP,  recorded  in  2016,  helped  mitigate 
the  current  account  deficit.  According  to  the 
Commission  Autumn  2017  forecast,  the  trade 
balance  is  expected  to  have  declined  slightly  in 
2017  and  to  recede  further  in  the  two  subsequent 
years  (up  to  6.9 %  in  2019).  Export  growth  is 
expected to be steady in 2018 and 2019 thanks to 
revitalised  global  trade  and  a  positive  outlook  for 
trading  partners. 
the  Czech  economy’s  main 
Conversely,  given 
in  domestic 
investment  and  its  relatively  high  import  content, 
imports  are  likely  to  grow  slightly  faster  than 
exports over the forecast horizon.  

the  upswing 

The  primary  income  balance  is  persistently 
negative.  This is to a large degree due to dividend 
outflows of foreign investors. The primary income 
balance  is  forecast  to  remain  somewhat  flat, 
moving from -6.4 % of GDP in 2016 to -6.2 % in 
2019  (Commission  Autumn  2017  forecast).  The 
current  account  balance  is  forecast  to  worsen 
slightly  between  2017  (-0.2 % of  GDP)  and  2019 
(-0.6 %), driven by the decline in the trade surplus. 

Source:  Eurostat,  National  Accounts  data;  Commission 
Autumn 2017 forecast 

Public finances 

Public  finances  are  set  to  remain  in  surplus 
territory  over  the  forecast  period.  The  current 
fiscal  surplus  is  supported  by  tax-rich  growth.  In 
particular,  direct  taxation  receipts  are  boosted  by 
rising  wage  levels,  while  VAT  revenues  should 
continue  to  benefit  from  measures  to  prevent  tax 
evasion (see Section 3.1). On the expenditure side, 
public  wages  scales  increased  by  10 %  for  public 
employees  and  15 %  for  teachers  in  November 
2017.  In  2018,  public  expenditure  levels  are 
expected  to  reflect  the  full  impact  of  the  wage 
hike,  with  additional  outlays  for  higher  pensions 
and  social  benefit  levels.  Public  investment  in 
2018  is  forecast  to  increase  somewhat  given  the 
deadline  for  EU  funds  linked  to  2015  project 
commitments.  Savings  from  lower  debt  servicing 
costs were sizeable in previous years but are likely 
to dwindle from 2017 onwards. 

Despite  the  improved  outlook  for  the  headline 
balance,  the  structural  surplus  is  projected  to 
decline  slightly.  This  is  a  result  of  the  widening 
positive  output  gap.  Nevertheless,  the  structural 
balance  is  expected  to  stay  in  surplus  territory  of 
around 0.8 % of GDP in 2017. Over the next two 
years the structural surplus is expected to shrink to 
around  zero.  The  debt-to-GDP  ratio  is  set  to 
continue  on  a  downward  path,  reaching  around 
32.5 %  of  GDP  in  2019  (Commission  Autumn 
2017 forecast) 

7 

-8-6-4-20246810020304050607080910111213141516171819Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costForecast-20-15-10-50510990001020304050607080910111213141516171819% of GDPCapital accountSecondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balanceNet lending/borrowing (current + capital accounts)Forecast 
 
 
1. Economic situation and outlook 

Box 1.1: Exchange rate developments and external position 

On 6 April 2017 the Board of the Czech National Bank discontinued its exchange rate commitment 
and allowed the koruna (CZK) to fluctuate with market conditions. Since it started using the exchange 
rate as a monetary policy instrument in November 2013, the CNB’s external assets had more than tripled to 
around  70 %  of  GDP  by  the  end  of  March  2017,  as  a  result  of  foreign  exchange  market  interventions 
necessary  to  counter  speculative  purchases  of  CZK-denominated  assets.  Starting  from  CZK  27/EUR  in 
April  2017,  the  exchange  rate  has  followed  an  appreciating  trend,  averaging  25.4  in  January  2018.  If  the 
exchange  rate  were  to  remain  at  this  level  or  further  appreciate,  downward  pressure  on  inflation  would 
likely be exerted. The appreciation of the koruna might also be influencing the value of the CNB’s external 
assets, which had declined to 61 % of GDP in January 2018. Given the large stock of external assets in the 
balance sheet of the CNB, a sustained appreciation of the koruna could imply financial losses. 

The CNB’s exchange rate floor and related foreign exchange market interventions had a noticeable 
impact on the sectoral composition of the Czech Republic's international investment position (NIIP). 
While the NIIP of the CNB improved through the accumulation of external assets, the NIIP of the banking 
sector (excluding the CNB) and the general government sector deteriorated, although to a slightly smaller 
extent. Based on 2016 outturn data for the balance of payments, it would take more than 10 years for Czech 
exporters to fully convert their foreign exchange income by purchasing all CZK holdings accumulated by 
foreign investors since 2013.  

An  excessive  appreciation  of  the  koruna  against  the  euro  could  be  detrimental  to  the  cost-
competitiveness of Czech exports. Since the Czech Republic is a small open economy, its exporting firms 
tend to be price takers in their dealings with importers, predominantly located in the euro area. This would 
result  in  lower  profit  margins  from  foreign  sales  once  converted  into  korunas.  The  high  share  of  foreign 
value added in Czech exports should however partly offset this effect. Despite the strong appreciation of the 
real effective exchange rate in Q3-2017 (+3.5 % on the previous quarter), the terms of trade improved by 
0.8 % quarter-on-quarter during the same period.  

8 

 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators - Czech Republic 

(1) NIIP excluding direct investment and portfolio equity shares.   
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise)  

9 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)6.00.21.15.32.64.53.22.9Potential growth (y-o-y)4.51.71.32.82.73.12.92.8Private consumption (y-o-y)3.70.51.23.73.6...Public consumption (y-o-y)0.1-0.21.81.92.0...Gross fixed capital formation (y-o-y)7.4-1.80.710.2-2.3...Exports of goods and services (y-o-y)18.14.24.36.04.5...Imports of goods and services (y-o-y) 15.72.94.96.83.4...Contribution to GDP growth:Domestic demand (y-o-y)3.9-0.31.14.71.5...Inventories (y-o-y)0.7-0.50.20.80.0...Net exports (y-o-y)1.41.0-0.2-0.21.2...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.5-0.10.20.90.91.10.70.5Capital accumulation (y-o-y)1.00.70.40.70.50.60.70.8Total factor productivity (y-o-y)3.01.10.71.21.21.41.41.5Output gap3.5-0.2-2.8-0.2-0.20.91.01.1Unemployment rate7.26.46.65.14.03.02.92.9GDP deflator (y-o-y)2.00.92.01.21.21.42.31.8Harmonised index of consumer prices (HICP, y-o-y)2.32.70.90.30.62.42.42.0Nominal compensation per employee (y-o-y)6.02.31.23.04.67.16.65.6Labour productivity (real, person employed, y-o-y)4.60.30.73.81.3...Unit labour costs (ULC, whole economy, y-o-y)1.32.00.5-0.83.33.53.62.6Real unit labour costs (y-o-y)-0.71.0-1.4-2.02.02.11.30.8Real effective exchange rate (ULC, y-o-y)3.71.7-4.3-2.53.65.76.60.7Real effective exchange rate (HICP, y-o-y)3.12.1-3.8-0.62.53.45.2.Savings rate of households (net saving as percentage of net disposable income)6.46.96.16.86.0...Private credit flow, consolidated (% of GDP)7.03.53.00.34.4...Private sector debt, consolidated (% of GDP)51.367.372.668.168.7...of which household debt, consolidated (% of GDP)18.228.831.130.331.3...of which non-financial corporate debt, consolidated (% of GDP)33.138.541.537.837.4...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)....3.4...Corporations, net lending (+) or net borrowing (-) (% of GDP)-3.1-1.20.2-0.1-1.5-2.6-2.4-2.4Corporations, gross operating surplus (% of GDP)29.128.929.631.130.530.130.430.6Households, net lending (+) or net borrowing (-) (% of GDP)1.62.32.22.01.41.61.61.4Deflated house price index (y-o-y)4.7-1.00.53.86.7...Residential investment (% of GDP)3.63.83.33.63.7...Current account balance (% of GDP), balance of payments-3.2-2.3-0.20.21.10.80.70.4Trade balance (% of GDP), balance of payments1.83.56.15.87.4...Terms of trade of goods and services (y-o-y)-0.5-0.71.30.41.1-1.20.50.1Capital account balance (% of GDP)0.30.91.42.21.1...Net international investment position (% of GDP)-27.9-43.8-39.0-32.9-24.6...Net marketable external debt (% of GDP) (1)17.98.717.020.727.3...Gross marketable external debt (% of GDP) (1)30.742.252.554.859.6...Export performance vs. advanced countries (% change over 5 years)77.230.7-1.1-0.40.0...Export market share, goods and services (y-o-y)10.0-0.81.6-1.04.6...Net FDI flows (% of GDP)-4.8-1.7-0.81.1-3.0...General government balance (% of GDP)-2.0-3.7-1.6-0.60.71.20.80.6Structural budget balance (% of GDP)..-0.2-0.60.90.80.40.1General government gross debt (% of GDP)27.936.743.540.036.834.633.332.5Tax-to-GDP ratio (%)34.433.234.434.134.935.435.535.4Tax rate for a single person earning the average wage (%)23.322.923.023.323.6...Tax rate for a single person earning 50% of the average wage (%)18.714.314.915.516.1...forecast 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

to 

with 

implementing 

the 
Progress 
recommendations  addressed 
the  Czech 
Republic in 2017 (4) has to be seen as part of a 
process  which  started  with  the  introduction  of 
the  European  Semester  in  2011.  Looking  at  the 
multiannual  assessment  of  the  implementation  of 
CSRs  since  these  were  first  adopted,  70 %  of  all 
the  CSRs  addressed  to  the  Czech  Republic  have 
recorded  at  least  'some  progress'.  30 %  of  these 
CSRs recorded 'limited' or 'no progress' (see Graph 
'full 
2.1). 
implementation'  have  been  achieved  in  several 
areas.  For  instance,  the  fiscal  framework  was 
strengthened by approving the fiscal responsibility 
law in January 2017. 'Substantial progress' has also 
been observed in the fight against tax evasion. This 
was supported by the implementation of measures 
such  as  the  control  statements  and  electronic 
evidence of sales. 

'Substantial 

progress' 

and 

Graph 2.1:  Overall multiannual implementation of 2011 – 

2017 CSRs to date 

Improvements  were 

The  labour  market  participation  of  under-
represented  groups,  and 
in  particular  of 
women, has somewhat improved but challenges 
remain. 
supported  by 
increasing  the  number  of  childcare  facilities  and 
other  policy  measures.  The  reform  of  the  public 
employment services, which could further help the 
integration  of  other  underrepresented  groups  such 
as  the  low-skilled,  has  not  yet  brought  tangible 
results. Due to the lack of tailored measures, these 
groups  do  not  fully  benefit  from  the  favourable 
conditions of the labour market. The adopted laws 
on  public  procurement  and  anti-corruption  could 
the  efficiency  of 
improve 
to 
procurement  practices.  Although  measures 
improve  the  management  of  ESI  funds  have  been 
adopted, deficiencies in this area are still common. 

transparency  and 

to 

link 

The Czech Republic has made limited progress 
in  improving  the  long-term  sustainability  of 
health  and  pension  expenditure.  An  accelerated 
increase  of  the  statutory  retirement  age  and  an 
life  expectancy  has  been 
explicit 
recommended  several  times.  Instead,  measures 
have been adopted which deteriorate the long-term 
budgetary outlook.  A number of reforms are in the 
pipeline  to  improve  the  efficiency  of  healthcare 
spending, but the result is still to be seen. Limited 
measures  have  been  pursued  to  simplify  the  tax 
system  or  to  reduce  the  costs  associated  with 
paying taxes. 

(1) The overall assessment of the CSRs related to fiscal policy 
excludes compliance with the Stability and Growth Pact. 
(2) 2011-2012: Different CSR assessment categories. 
(3) The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2018 Country Report.  
Source: European Commission 

The  Czech  Republic  has  secured  a  timely  and 
durable correction of its excessive deficit. Due to 
the  measures  taken  in  2014  it  achieved  full 
implementation  in  this  area.  Since  then  it  has 
maintained  a  sound  fiscal  position,  ensuring 
the  medium-term  budgetary 
compliance  with 
objective. 

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

past, see in particular section 3. 

The Czech Republic has made some progress (5) 
in  addressing 
country-specific 
the  2017 
recommendations.    Limited  progress  has  been 
achieved in improving the long-term sustainability 
of  public  finances.  The  government  adopted  new 
measures  which,  on  the  one  hand,  improve  the 
adequacy of the pension system, but, on the other 
hand,  worsen  sustainability.  A  number  of  major 
anti-corruption reforms were adopted as part of the 
government’s  anti-corruption  strategy,  but  some 
challenges  remain.  To  reduce  obstacles  to  growth 
and  administrative  burden  on  businesses,  the 
government amended the Construction Act. There 

(5)  Information  on  the  level  of  progress  and  actions  taken  to 
address the policy advice in each respective subpart of the 
CSRs  is  presented  in  the  Overview  Table  in  the  Annex. 
This overall assessment does not include an assessment of 
compliance with the Stability and Growth Pact. 

10 

4%26%48%15%7%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Annual assessment of the 2017 CSRs 

(1) The overall assessment does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 

towards 

was  some  progress 
the 
availability  of  e-government  services,  enhancing 
the  public  procurement  framework  as  well  as 
improving the quality of R&D.  

increasing 

can 

from 

request 

Member  States 
the 
Commission  technical  support  to  prepare, 
implement  growth-enhancing 
design,  and 
structural  reforms.  The  Structural  Reform 
Support  Service  (SRSS)  provides,  in  cooperation 
with  the  relevant  Commission  services,  tailor-
made technical support, which does not require co-
financing  and  is  provided  at  a  Member  State’s 
request. The support provided under the Structural 
Reform  Support  Programme  addresses  priorities 
identified  in  the  context  of  the  EU  economic 
governance  process 
implementation  of 
(i.e., 
country-specific  recommendations),  but  the  scope 
of  the  SRSS  support  is  wider  as  it  can  also  cover 
reforms  linked  to  other  Commission  priorities,  or 
reforms  undertaken  at  the  initiative  of  Member 
States.  

growth  and  the  business  environment,  and  the 
financial  sector. In  particular,  the  SRSS provides 
support to Czech Republic for the implementation 
of  digitalisation  in  the  national  health  system  and 
for  measures  enhancing  sectoral  expertise  in  the 
area of energy and transport.  

technology 

ESI Funds have been pivotal in addressing key 
challenges to inclusive growth and convergence 
in  the  Czech  Republic,  notably  by  investing  in 
infrastructure,  enhancing 
transfers 
increasing 
between  academia  and  business, 
effective cooperation within public administration, 
improving  the  public procurement  framework  and 
reducing  corruption.  As  described  in  Box  2.1 
which  introduces  the  ESI  Funds,  the  financial 
support 
supporting 
vulnerable  groups  in  the  education  system  and 
reinforcing  the  participation  of  under-represented 
groups,  particularly  mothers  with  young  children, 
in the labour market. 

instrumental 

is  also 

in 

The  Czech  Republic  has  requested  technical 
support  from  the  SRSS  to  help  implement 
reforms  in  various  areas  such  as  healthcare, 

11 

The Czech Republic Overall assessment of progress with the 2017 CSRs: some progress CSR 1: Ensure the long-term sustainability of public finances, in view of the ageing population. Increase the effectiveness of public spending, in particular by fighting corruption and inefficient practices in public procurement. Some progress  Limited progress in addressing the long-term sustainability of public finances.  Some progress in strengthening the effectiveness of public spending, in particular by fighting corruption.  Some progress in addressing inefficient practices in public procurement. CSR 2: Remove obstacles to growth, in particular by streamlining procedures for granting building permits and further reducing the administrative burden on businesses, by rolling out key e-government services, by improving the quality of R&D and by fostering employment of underrepresented groups. Some progress  Some progress in streamlining procedures for granting building permits.  Some progress on rolling out e-government services.  Some progress in improving the quality of R&D.  Some progress in fostering employment of underrepresented groups.   
 
 
 
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support to structural change in the Czech 
Republic 

The  Czech  Republic  is  a  beneficiary  of  significant European  Structural  and  Investment  Funds  (ESI 
Funds)  support  and  can  receive  up  to  EUR  23.8  billion  until  2020.  This  represents  around  2 %  of  the 
annual  GDP  between  2014  and  2018  and  40 %  of  all  public  investment (1).  By  31  December  2017,  an 
estimated EUR 11 billion (46 % of the total) was allocated to projects on the ground which, among others, 
increased  the  support  of  inclusive  education  in  76 %  of  all  Czech  schools  and  helped  almost  1 700 
researchers  work  in  improved  research  infrastructure  facilities,  due  to  increased  private  investment  in 
innovation and R&D. At the same time, the projects financed the creation of 9 000 additional nursery places 
and 4 000 new places in the childcare infrastructure system. Around EUR 500 million is to be delivered via 
financial instruments over 2014-2020, a two-fold increase compared to the 2007-2013 period. 

Various  reforms  were  undertaken  already  as  a  precondition  for  ESI  Funds  support (2).  Legislative 
changes  were  introduced  to  enhance  the  efficiency  of  the  public  administration,  strengthen  public 
procurement,  launch  the  inclusive  education  reform,  introduce  the  compulsory  last  year  of  pre-school 
education  and  open  up  the  requirements  for  creating  pre-school  education  entities,  and  diversify  higher 
education study programmes. Smart Specialisation Strategies for research and innovation were developed to 
focus on product specialisation with strong market potential, improving cooperation between enterprises and 
public research institutions. Moreover, the national and regional transport plans, implemented with support 
from ESI Funds and other complementary funding, have allowed the timely preparation of projects.  

ESI  Funds  help  address 
implement  country-specific 
structural  policy  challenges  and 
recommendations.  The  financial  support  covers  a  broad  range  of  issues  such:  increasing  cooperation 
between  academia  and  businesses;  enhancing  infrastructure  investments;  improving  energy  efficiency; 
enhancing childcare facilities; supporting the long-term unemployed, low skilled and youth through tailored 
measures and training, including a more market-oriented vocational education; improving the inclusiveness 
of  the  education  system;  enhancing  the  attractiveness  of  the  teaching  profession;    improving  the 
effectiveness of the public administration.  

The  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI)  in  the  Czech  Republic  is 
advancing.  As  of  December  2017,  the  total  volume  of  financing  approved  under  the  EFSI  was  EUR  543 
million,  which  is  expected  to  trigger  a  total  private  and  public  investment  of  EUR  2.4  billion.  Within  the 
total,  7  projects  have  been  approved  so  far  under  the  Infrastructure  and  Innovation  Window  (including  6 
multi-country  projects),  amounting  to  EUR  99  million  in  European  Investment  Bank  financing  under  the 
EFSI.  This  is  expected  to  trigger  about  EUR  312  million  in  investments.  Under  the  SME  Window,  9 
agreements with financial intermediaries have been approved. European Investment Fund financing, enabled 
by the EFSI, amounts to EUR 445 million, which is expected to mobilise approximatively EUR 2.1 billion 
in total investment. Close to 13 500 smaller companies or start-ups are expected to benefit from this support.  

Allocations  under  Horizon  2020,  the  Connecting  Europe  Facility,  and  other  directly  managed  EU 
funds are additional to the ESI Funds. By the end of 2017, the Czech Republic had signed agreements for 
EUR 1.1 billion for projects under the Connecting Europe Facility.  

More 
https://cohesiondata.ec.europa.eu/countries/CZ 

of  ESI 

about 

data 

use 

the 

Funds 

in  Czech  Republic 

is 

available 

at 

(1)  Public investment = gross fixed 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 so-called ex-ante conditionalities, which aim 

at improving conditions for the majority of public investments areas. 

12 

 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

Taxation 

tax  revenues  continue 

Czech 
to  evolve 
favourably. Total tax revenues as a proportion of 
GDP stood at 34.9 % in 2016, above the 2007 peak 
levels.  The  Commission  Autumn  2017  forecast 
projects  a  further  increase  to  around  35.4 %  of 
GDP  in  2019.  Revenues  from  labour  taxes  have 
been increasing as a share of GDP in recent years, 
reaching 17.0 % in 2015, below the EU-28 average 
of  19.3 %  of  GDP.  Tax  intake  in  2015  from 
property (0.6 % of GDP) and environmental taxes 
(2.1 %  of  GDP)  continues  to  remain  low  in  EU 
comparison. 

Graph 3.1.1:  VAT gap  (2011-2015) 

(1) EU average changes according to data availability. 
Years 2011-2013 are without HR, CY and 2014 without CY.   
Source: Center for Social & Economic Research/CASE (2017) 

VAT evasion has decreased in recent years but 
still  remains  slightly  above  the  EU  average. 
Measures  tackling  tax  evasion  (see  2017  country 
report) have started to increase VAT revenues.  As 
a  result,  the  VAT  gap  (6)  is  likely  to  further 
converge  towards  the  unweighted  EU  average  of 
12.8 % 
the 
(CASE,  2017).  Compared 
neighbouring  Central  and  Eastern  European 
countries,  the  Czech  Republic  has  the  second 
lowest VAT gap after Hungary (Graph 3.1.1). The 
VAT actionable policy gap (7), which captures the 

to 

(6)  The  VAT  gap  is  the  difference  between  the  amount  of 
VAT revenue actually collected and the theoretical amount 
that is expected to be collected. 

(7)  CASE also calculates the VAT actionable policy gap. It is 
an indicator of the additional VAT revenue a Member State 

effects of applying multiple rates and exemptions, 
is  below  the  EU  average  (12.8 %  compared  to 
16.4 %). This suggests that tax evasion, rather than 
the way the system is designed, is the main factor 
determining the overall VAT gap. 

The  taxation  of  labour  remains  high  for  low-
income single earners. The tax wedge (8) for low-
income  earners  is  higher  than  the  EU  and  OECD 
average at 50 % and 67 % of the average wage and  
continued to rise in 2016. This may have partially 
contributed  to  the  lower  activity  rate  (54.8 %)  of 
low-skilled workers (9) (see Section 3.3). The high 
tax  wedge  is  primarily  due  to  high  employers’ 
social contributions, which represent two thirds of 
the  total  tax  burden  of  low-income  earners.  The 
gap  for  low-income  single  earners  between  the 
EU-28  and  the  Czech  Republic  has  increased  in 
recent years (see 2017 country report). 

Tax  relief  for  families  with  children  alleviates 
the  tax  burden  significantly,  but  might  reduce 
incentives for spouses to return to work. Overall 
family  policy  is  concentrated  on  tax-breaks  for 
families,  but  public  spending  on  services  to 
support  families  with  children,  at  0.6 %,  is  well 
below  the  EU  average  of  1 %  of  GDP  in  2013 
(OECD  Family  Database).  A  comparison  of 
families  with  and  without  children  shows  that  the 
difference in the tax wedge is around 5 pps (Graph 
3.1.2),  making  this  one  of  the  most  generous 
policy frameworks in the EU. Existing tax policies 
for  families  could  reduce  incentives  for  non-
working  spouses  (in  most  cases  women)  to  return 
to work (10). Specifically, a primary earner with a 

could  theoretically  generate  –  via  policy  decisions  -  if  it 
applied a uniform VAT rate without exceptions to all goods 
and services. 

(8)  The tax wedge on labour represents the difference between 
the  total  labour  cost  of  employing  a  worker  and  the 
worker’s net earnings. It is defined as personal income tax 
plus  employer  and  employee  social  security  contributions 
(net of family benefits) as a percentage of total labour costs 
(the wage and employer social security contributions). 
(9)  Education  levels  0-2,  age  range  20-64.  This  is  however 

only a small part of the work force. 

(10)  If the woman returns to work, she cannot make use of the 
tax  credits  intended  for  the  household,  since  they  are 
already used by the man. Moreover, the man loses out the 
tax credit for his non-working spouse. While the child tax 
credit  can  in  principle  benefit  any  of  the  parents,  they  are 
typically  used  by  the  primary  earner,  mostly  the  man 
(Šatava, 2016) 

13 

051015202530354020112012201320142015%Czech RepublicSlovakiaHungaryPolandEU averageCzechRepublic 
 
 
                                                           
                                                                                   
3.1. Public finances and taxation 

spouse  faces  an  average  effective  tax  rate  of 
23.4 %.  By  contrast,  if  the  spouse  decides  to  take 
up  a  job,  the  average  effective  tax  rate  (11)  is 
around 37.6 % (Kalíšková and Münich, 2015). An 
additional  increase  in  child  benefits  from  January 
2018  could  further  widen  this  gap  (see  Section 
3.3). 

reduce bogus self-employment. In particular, a cap 
on the use of lump-sum expenses has already been 
tightened  over  the  past  few  years.  The  cap  was 
further  reduced  since  January  2018 (14).  These 
changes  benefit  those  self-employed  people  with 
revenues  up  to  CZK  1  million  (around  EUR 
40 000),  while  making  it  less  attractive  for  high-
earning entrepreneurs to be self-employed. 

Graph 3.1.2:  Tax wedge for families with and without 

children (2016) 

Graph 3.1.3:  Number of primary self-employed 

(1) Data refer to two earners couples with each having an 
average wages. No data are available for CY.  
Source: European Commission, Tax Indicators database 

for 

base 

lower 

assessment 

The  tax  burden  on  the  self-employed  is  lower 
than for employed workers. This is mainly due to 
the 
social 
contributions (12).  This  could  have  contributed  to 
bogus  self-employment,  because  of  incentives  in 
the  form  of  lower  payable  social  and  healthcare 
contributions.  However,  the  number  of  primary 
self-employed  people  has  declined  somewhat, 
while  limited  liability  companies  are  on  the  rise 
(Graph  3.1.3).  Anecdotal  evidence  also  suggests 
that  primary  self-employed  people  have  shifted 
towards  limited  liability  companies  or  became 
secondary self-employed (13). Stricter tax rules for 
self-employed  people  are  also  likely  to  further 

(1) Self-employed without other sources of income. 
Source:  Bisnode  consultancy,  Czech  Social  Security 
Administration 

The complexity of the tax system has become a 
concern for businesses. While changes to the tax 
system have aimed to improve tax collection, their 
frequency  is  problematic  for  businesses.  Tax 
regulation and tax rates have moved up the list of 
concerns  as  problematic  areas  for  doing  business 
(World  Economic  Forum,  2017).  Similarly,  more 
thirds  of  small  and  medium-sized 
than 
two 
(SMEs)  would  expect 
enterprises 
the  new 
the  regulatory  burden 
to  reduce 
government 
(Czech  Chamber  of  Commerce,  2017).  The  new 
government  has  indicated  possible  changes  to  the 
tax  system.  There  is  also  ongoing  work  to 
modernise  the  income  tax  legislation  (see  2017 
country report).  

(11)  The average effective tax rate includes the change in taxes 
paid  by  other  family  members,  on  top  of  the  taxes  and 
contributions. 

(12)  The assessment base for social contributions is set at 50 % 
of profits, effectively lowering the overall contributions of 
self-employed people compared to employees. As a result, 
self-employed  people  will  receive  approximately  13 % 
lower pensions on average (Šatava, 2017). 

(13)  Their business activity is not the primary source of income 
for  secondary  self-employed  people,  i.e.  they  may  have 
multiple  employment  contracts,  pension  income  or  other 
sources of income. 

Compliance  costs  have  slightly  increased  and 
remain above the EU average. The VAT control 
statement,  albeit  bringing 
tax 
revenues (15),  has  increased  the  time  needed  to 

in  additional 

(14)  Self-employed  people  had  a  transitional  period  in  2017, 
during  which  they  could  continue  with  the  old  system,  or 
change to the new one. 

(15)  The  budgetary  impact  of  the  control  statement  surpassed 

the authorities’ forecasts in 2016. 

14 

202530354045505560BEDEHUFRITATFICZSESILVSKPTLTELEU-28ESROEEHRLUNLDKPLBGUKIEMT%Two earners two childrenTwo earners without childrenCZCZCZEU-280100200300400500600700ThousandsLimited liability companiesSelf-employed 
 
                                                           
 
                                                           
3.1. Public finances and taxation 

comply  with  tax  requirements.  This  monthly 
statement is fully electronical, but adds 14 hours to 
the  time  needed  to  comply with  tax  requirements, 
totalling 248 hours in 2016 (2018 Doing Business 
Report).  Despite  the  significant  reduction  in  the 
number  of  hours  recorded  in  the  last  decade,  the 
Czech  Republic  is  still  at  the  higher  end  of  the 
scale  (Graph  3.1.4).  Based  on  research  (OECD, 
2015) (16), new reduced VAT rates might also add 
to  complexity  of  the  VAT  system,  especially  for 
SMEs. 

Graph 3.1.4:  Time to comply with tax requirements (2016, in 

hours) 

(1) The unweighted EU average is 171 hours and the EU 
median 146. 
Source: World Bank/PwC Paying Taxes 2018 Report 

Fiscal framework 

the  Czech 

The  new  fiscal  responsibility  law in  place  since 
significantly 
the  beginning  of  2017  has 
strengthened 
framework. 
fiscal 
However,  the  effectiveness  of  the  new  measures 
will depend on their implementation. As part of the 
new  framework,  a  Budgetary  Strategy  setting  an 
expenditure  ceiling  for  general  government  units, 
published  for 
in  April  2017, 
constitutes  the  starting  point  for  the  budgetary 
process.  Based  on  a  cyclically  adjusted  revenue 
forecast, it aims to determine expenditure limits for 
the  state  budget  and  state  funds.  However,  the 
adequacy of this new expenditure rule can only be 
verified  in  periods  of  economic  downturn  or 
stagnation. 

the  first 

time 

fiscal 

independent 

institution — the 
The 
National  Budgetary  Council  — 
is  being 
currently  set up.  Albeit  with  a  yearly  delay  after 
the  law  entered  into  force,  the  members  of  the 
council  were  appointed  in  January  2018  and 
should  soon  become  operational.  It  will  mainly 
evaluate  compliance  with 
rules.  The 
Committee  on  Budgetary  Forecast  has  yet  to  be 
created.  It  should  assess 
the  robustness  of 
macroeconomic and fiscal forecasts underlying the 
budgetary  process,  prepared  by  the  Ministry  of 
Finance. 

fiscal 

Coordination of the fiscal and budgetary policy 
objectives  among  general  government  bodies 
remains  one  of  the  weaknesses  of  the  national 
fiscal  framework.  Much  of  general  government 
expenditure  is  autonomous,  with  the  directly 
managed  state  budget  (including  state  funds) 
representing only around two thirds of it (Ministry 
of  Finance,  2017).  Starting  from  2018,  local 
governments are subject to more stringent rules on 
debt  management  (17).  The  Ministry  of  Finance 
will assess compliance with numerical fiscal rules 
for municipalities and regions for the first time in 
spring 2018. 

The  Czech  Republic  has  not  yet 
fully 
implemented  Council  Directive  2011/85/EU  on 
the requirements for the budgetary framework. 
In  particular,  internal  checks  on  and  independent 
audits  of  some  public  accounting  systems  are 
lacking.  The  transposing  deadline  expired  at  the 
end of 2013. 

Sustainability of public finance  

short- 

and  medium-term 

fiscal 
The 
sustainability  outlook  appears  sound,  but  the 
long-term  sustainability  of  public  finances  is  a 
challenge (18).  The  long-term  fiscal  sustainability 
indicator  had  improved  in  recent  years  due  to  the 
fiscal  surplus,  but 
the  updated  age-related 
expenditure projections point to a higher projected 
increase  compared  with  the  2015  Ageing  Report 
(European  Commission,  2018a  forthcoming).  The 
legislated  changes  to  the  pension  system  over  the 
long-term  offset  the  improvement  of  the  fiscal 

(16)  Based  on  OECD  VAT  compliance  research,  a  single  rate 
system would reduce Swedish compliance costs on average 
by roughly 30 % compared to a multiple rate system. 

(17)  If  the  debt  level  goes  above  60 %  of  four-year  average 
revenues, it has to be decreased by 5 % of this excess. 
(18)  For  more  details  on  the  European  Commission’s  fiscal 
sustainability assessment see European Commission (2018 
forthcoming). 

15 

050100150200250300350EELUIEFILTUKNLSECYDKATBEFRMTESROLVSKELHRDEITPTSICZPLHUBGEUOECDEU average453 
 
                                                           
                                                           
3.1. Public finances and taxation 

the  EU  average  increase  of  1.6  pps  (European 
Commission, 2018a forthcoming).  

Efficiency  in  the  healthcare  system  presents  a 
mixed  picture.  In  terms  of  the  proportion  of 
healthcare spending, the Czech Republic seems to 
be less hospital-centred than the EU on average. In 
2015,  healthcare  expenditure  earmarked  for  in-
patient  care  was  26.3 %,  compared  to  the  EU 
average of 29.5 %. By contrast, the total number of 
hospital  beds  was  above  the  EU  average  in  2015, 
indicating untapped efficiency potential in hospital 
care. Unlike in the case of social care, there are no 
patient  fees  in  the  healthcare  system.  This  creates 
an incentive for patients to stay longer in hospital 
instead of being transferred to social care facilities. 
Overall, healthcare system financing is in surplus. 
This  is  partly  due  to  the  positive  economic  cycle, 
but existing financial cushions may not be enough 
if the economic situation worsens (Křeček, 2017).  

Out-patient  care  receives  a  bigger  share  of 
financing  in  the  Czech  Republic  than  the  EU 
average  (32.7 %  versus  29.8 %).  This  might  be 
due  to  general  overuse  of  resources,  as  suggested 
by 
the  high  number  of  out-patient  visits 
(OECD/European  Observatory  on  Health  Systems 
and Policies, 2017). The high number of avoidable 
hospital  admissions  also  indicates  room  for  more 
effective,  better  coordinated  treatment  of  patients 
with  chronic  conditions  at  the  out-patient  care 
level. 

to  hinder 

The lack of healthcare staff in certain areas and 
the  relatively  high  average  age  of  healthcare 
professionals  are 
the 
starting 
functioning  of  the  healthcare  system.  There  are 
shortages of certain specialists and staff in general 
in  rural  areas.  For  example,  the  proportion  of 
health  professionals  per  1 000 
in 
Prague is more than twice as large as in rural areas. 
The  number  of  health  professionals  in  the  Czech 
Republic is around  the  EU  average,  but ageing of 
staff may lead to future shortages: more than 30 % 
of general practitioners and 40 % of paediatricians 
are at least 60 years old. 

inhabitants 

position. According to the most recent calculations 
of  the  Commission,  all  three  components  — 
pensions,  healthcare  and  long-term  care  pose  a 
risk 
the  overall 
challenge,  with 
considered medium.  

long-term 

Pension  expenditure  is  expected  to  rise  from 
8.2 %  of  GDP  in  2016  to  10.9 %  of  GDP  in 
2070.  Compared  to  the  2015  projections,  the 
updated  2018  projections  have  a  more  favourable 
starting fiscal year. This is fully offset in the long 
run by the worsened trends in macroeconomic and 
demographic  assumptions (19)  (Table  3.1.1).  New 
pension  measures  also  worsen 
long-term 
budgetary  outlook  by  2 %  of  GDP  by  2070. 
Firstly,  the  retirement  age  has  been  capped  at  65, 
which  is  to  be  reviewed  every  five  years  as  of 
2019.  The  expected  gains  in  life  expectancy  are 
not  automatically  taken  into  account,  since  the 
government  has  to  approve  any  pension  system 
change.  Secondly,  the  pension  indexation  is  now 
more generous, taking into account one half of real 
wage  growth  instead  of  the  previously  used  one 
third.  

the 

Table 3.1.1:  New 2018 ageing projections (% of GDP) 

Source: Ageing Report 2015, Ministry of Finance 2017  

Healthcare 

Despite  spending  on  healthcare  below  the  EU 
average,  the  projected  increase  in  age-related 
public  expenditure  on  healthcare  threatens 
long-term  fiscal  sustainability.  Even  though  the 
Czech Republic spends less on healthcare than the 
EU average (7.2 % of GDP versus 9.9 % of GDP), 
it has the fourth highest share of public funding of 
healthcare services in the EU. Based on long-term 
ageing  projections,  public 
expenditure  on 
healthcare  is  projected  to  increase  by  1.1  pps  of 
GDP, above the average increase of 0.9 pps for the 
EU.  Taking  into  account  the  impact  of  non-
demographic  drivers  on  future  spending  growth, 
healthcare  expenditure  is  expected  to  increase  by 
1.9 pps of GDP from 2016 till 2070, compared to 

(19)  The  macroeconomic  assumptions  are  more  favourable  for 
the first half of the projection period, underpinned by better 
labour  market  performance.  In  the  decades  after  2040, 
worse demographic projections start to dominate. 

16 

20162020203020402050206020702015 Ageing Report8.99.09.09.09.69.7-Level-effect of better fiscal starting point-0.7-0.7-0.7-0.7-0.7-0.7-New macroeconomic and demographic assumptions0.0-0.3-0.20.20.50.7-Cap on pension age and higher indexation0.00.10.20.71.51.92.0New 2018 projections8.28.18.29.210.811.610.9 
 
 
 
                                                           
 
3.2.  FINANCIAL SECTOR 

Banking sector 

ratio 

loans 

the  non-performing 

The  Czech  financial  system  is  highly  bank-
centric.  Banks  hold  74 %  of  the  systemʼs  total 
assets  and  84 %  of  total  capital.  The  Czech 
banking  sector  generally  shows  high  levels  of 
capitalisation,  profitability  and  liquidity.  Banks' 
capital  adequacy  ratio  (20)  appears  to  provide 
sufficient  room  for  credit  financing  of  the  real 
economy.  According  to  the  European  Central 
(21) 
Bank, 
decreased  to  2.9 %  in  the  mid-2017  (4.6 %  EU). 
The  current  period  of  favourable  profitability 
developments  provides  an  opportunity  to  raise 
the capitalisation  of  the  banking  sector.  Banks 
were  operating  with  the  second-highest  return  on 
equity  of  the  EU-28  in  mid-2017.  Capitalisation 
ratios  have  increased  slightly  over  the  past  seven 
years,  but  because  they  improved  more  rapidly  in 
the rest of EU, capital levels in the Czech banking 
system  are  now  around  the  EU  average.  Despite 
low  interest  rates,  interest  income  remains  the 
banksʼ  main  source  of  profit,  partly  thanks  to 
increasing  volumes.  A downward 
in 
revenues  from  commission  and  fees  is  due  to 
growing  competition.  Nevertheless,  banks  are 
shoring  up  profit  levels  due  to  cuts  in  operating 
costs and lower asset impairment expenses (CNB, 
2017),  linked  to  the  favourable  business  cycle 
position. 

trend 

Total  credits  linked  to  housing  increased  by 
CZK  116  billion  in  2016  and  reached  to  CZK 
1 344 billion (by 2.4 pps to 28.2 % of GDP). This 
corresponds  to  58 %  of  the  loans  provided  to  the 
private non-financial sector. Although the housing 
market  is  still  in  an  upswing,  potential  adverse 
developments  in  the  real  estate  market  would 
increase  the  vulnerability  of  the  banking  sector. 
Given  mortgage  loans  are  a  big  part  of  banksʼ 
balance  sheets, 
the  main 
domestic  financial  stability  risk  for  the  banking 
sector according to the CNB (CNB, 2017, p. 12). 

they  are  currently 

The  banking sectorʼs  liquidity  position  is good, 
but banks lend only 56 % of available funds to 
their  customers  (World  Bank  and  European 
Commission,  2017,  p. 12).  Clientsʼ  deposits  and 

(20)  The  CNB  stress  tests  showed  that  the  banking  sector  is 
highly resilient to the adverse testsʼ scenarios, while having 
a large enough capital buffer. 

(21)  Gross non-performing  loans and advances as a percentage 

share of total gross loans and advances. 

loans  are  denominated  mostly  in  Czech  koruna. 
The  relatively  low  loan-to-deposit  ratio  of  banks 
(the  eleventh-lowest  in  the  EU  in  mid-2017) 
indicates  that  they  rely  on  their  own  deposits  to 
lend  to  their  customers,  without  any  outside 
borrowing. Banks use the excess funds, to the tune 
of  22 %  of  GDP  (2015),  to  purchase  government 
securities (15 %), deposit funds in the CNB (10 %) 
or lend to other banks (11 %). They invest the rest 
in  non-government  securities.  The  net  debtor 
position  of  the banking  sector  in  relation  to  non-
residents  increased  further  in  the  first  quarter  of 
2017.  This  was  mostly  due  to  growth  in  deposits 
made by non-residents in domestic banks linked to 
expectations of an appreciation of the koruna after 
the  exit  from  the  exchange  rate  commitment. 
Domestic banks placed these deposits mainly with 
the  CNB  and  did  not  increase  the  money  supply. 
Non-residents also held almost 45 % of CZK state 
bonds in November 2017. 

The  Czech  insurance  sector  remains  stable,  as 
confirmed  by  stress  tests  carried  out  by  the 
CNB.  The  share  of  investment  fund  assets  on  the 
households’  balance  sheets  increased  in  2016, 
partly  reflecting  attractive  investment  returns.  At 
2.4 %, the average rate of return on investments in 
collective investment funds was much higher than 
for  bank  deposits  in  2016,  and  investment  funds 
were  the  fastest-growing  segment  in  the  financial 
that  year.  Despite  strong  growth, 
sector 
in 
investment 
small 
remain  a relatively 
segment  compared  to  other  countries.  Meanwhile, 
average  contributions  from  plan  holders  and 
employers 
funds  are 
trending  upwards,  but  they  remain  low  compared 
with  average  contributions  to  the  first  (i.e.  state) 
pillar. 

third-pillar  pension 

funds 

to 

The  Czech  capital  market  is  thin  compared  to 
similar-sized  economies.  The  overall  trade  value 
of  shares,  debt  securities,  structured  products  and 
investment  funds  was  16.2 %  of  GDP  in  2016. 
Despite  the  household  saving  rate  being  the  third 
highest  in  the  EU  and  annual  saving  in  the 
economy  exceeding  the  market  capitalisation  of 
the Prague  Stock  Exchange,  the  ability  to  turn 
these  into  equity  and  long-term  debt  financing  is 
limited.  The potential  of  the capital  market  is  not 
fully  exploited,  although  there  are  1 640  large 

17 

 
 
                                                           
companies and 6 794 medium-sized companies (22) 
(World  Bank  and  European  Commission,  2017). 
The  challenge  remains  to  make  it  attractive  for 
them to use the domestic capital market. 

Housing market 

Residential property prices are rising swiftly. In 
the last quarter of 2016 and the first half of 2017, 
the house price index (HPI) for the Czech Republic 
rose  at  an  average  rate  of  13 %  year-on-year, 
making it one of the fastest-increasing rates in the 
EU. This is an acceleration of a booming trend in 
the housing market that began in 2014, following a 
five-year  downward  price  correction  of  the  pre-
crisis  housing  bubble  of  2006/2007.  Apartment 
prices  in  Prague,  significantly  higher  than  in  the 
rest  of  the  country,  increased  by  18.9 %,  slightly 
above the national average (23). 

Estimates of overvaluation of the Czech housing 
market  diverge.  Three  standard  metrics  of  the 
degree  of  imbalance,  based  on  historical  averages 
for  price-to-income  and  price-to-rent 
ratios, 
suggested little or no overvaluation of the housing 
market in 2016 (Graph 3.2.1) (24). By contrast, the 
CNB analysis suggests that in mid-2017 apartment 
prices  were  up  to  10 %  above  levels  consistent 
with  fundamental  factors.  Not  only  residential 
property,  but  also  commercial  property,  may  be 
somewhat  overvalued  (CNB,  2018,  p. 26).  Rapid 
house  price  increases  can  be  traced  back  to  both 
demand  and  supply  effects.  Demand  is  primarily 
driven by factors shaping householdsʼ current and 
future  disposable  income,  including  record-low 
unemployment  and  a  low  risk  of  job  loss  given  a 
strong economic growth outlook. Accelerating real 
wage  growth  and  low  real  interest  rates  further 
boost 
affordability. 
Mortgage  interest  rates  trended  down  from  2009 
onwards, to bottom out at 1.8 % at the end of 2016 
(Fincentrum Hypoindex). Following the turn of the 
Czech  monetary  policy  cycle  in  2017,  they  edged 
upwards to 2.2 % in December 2017. A legislative 

income  prospects 

and 

(22)  Large  company  has  average  assets  of  EUR  100 m  and 

medium-sized company of EUR 11 m. 

(23)  Indices of realised prices of second-hand flats (y-1 = 100) 
were 118.7 (CZE), 118.9 (Prague) and 118.0 (CZE without 
Prague)  in  the  2nd  quarter  of  2017.  The  index  of  realised 
prices  of  new  flats  in  Prague  was  114.3  at  the  same  time. 
The  average  real estateʼs  price  level  was  almost  300 %  of 
the Czech average for houses and more than 250 % for flats 
in Prague at the end of 2015. 

(24)  This estimate only provides information on the levels. 

3.2. Financial sector 

change  that  entered  into  force  in  2016  shifted  the 
tax  burden  linked  to  the  real  estate-transfer  tax 
from  sellers  to  buyers.  Although  the  tax  is  now  a 
liability  for  buyers,  asking  prices  did  not  drop  by 
the  full  tax  due  to  a  high  demand  overhang  and 
final prices kept on growing accordingly (25). 

Graph 3.2.1:  Overvaluation gap 

(1) Overall valuation gap is estimated as an average of the 
P/I, P/R and fundamental model gaps. Long-term values are 
computed over 1995-2016. 
Source: European Commission 

Affordability  is  deteriorating  as  housing  price 
growth outpaces nominal income growth (Graph 
3.2.2).  Price-to-income  ratios  rose  by  13.2 % 
between  the  start  of  2013  and  the  end  of  2016. 
Although  overall  affordability  appears  better  than 
at  the  previous  housing  market  peak  in  2008,  the 
affordability  of  owner-occupied  housing  in  large 
cities  is  of  particular  concern.  Average  new 
apartment prices in Prague imply loans that are too 
high  to  finance  on  an  average  income  when 
applying 
criteria. 
However,  the  fall  in  mortgage  interest  rates 
observed until recently has largely offset the effect 
of  higher  house  prices  (consequently,  higher  loan 
amounts)  onto  debt  service  costs,  with  the  debt 
service-to-income  ratio  (DSTI)  in  2016  having 
risen only slightly from its minimum in 2014. 

creditworthiness 

standard 

New  mortgage  lending  has  accelerated  and 
shows  few  signs  of  slowing  down.  Overall, 
households  borrowed  CZK  227  billion  in  2016  to 

(25)  On  an  efficient  market,  the  selling  prices  would  decrease 

by the tax amount after the change. 

18 

-20-15-10-50510152025302001200220032004200520062007200820092010201120122013201420152016%Overall valuation gapPrice to income vs. hist. avg.Price to rent vs. hist. avg. 
                                                           
 
                                                           
3.2. Financial sector 

purchase  dwellings,  a  rise  of  18 %  compared  to 
2015.  In  2017,  credit  growth  remained  strong, 
fuelled  by  continued  loan  applications  and  rising 
real  estate  prices  (Graphs  3.2.2  and  3.2.4).  The 
exceptionally  high  demand  for  mortgage  loans 
observed  in  the  previous  quarters  declined  in  the 
third quarter of 2017 for the first time since 2014. 

Graph 3.2.2:  House prices and loans for house purchase 

(Graph  3.2.3).  After  a  low  point  in  2013/2014, 
there  were  signs  in  2016  that  the  number  of 
building  permits 
issued  and  dwellings  under 
construction  was  picking  up,  but  from  a  very  low 
level  and  at  a  slow  pace.  During  the  first  half  of 
2017,  only  15 477  new  building  permits  for 
residential  buildings  were  issued.  Although  this 
was more than for the same period in the previous 
four  years,  it  remains  around  10 %  below  the  10-
year  average.  The 
total  number  of  started 
dwellings  in  the  first  three  quarters  of  2017 
(23 339)  was  the  highest  since  2010,  but  remains 
significantly  below  pre-crisis  levels.  Planning  and 
construction  law  rigidities  appear  to  be  severely 
limiting 
the  amount  of  new  construction, 
particularly  in  densely  populated  areas  such  as 
Prague (27) and areas with high wage growth rates. 

Graph 3.2.3:  Building permits and dwellings statistics 

(1) MFI = Monetary Financial Institutions 
Source: Eurostat, European Central Bank 

Housing  supply  remains  constrained  and  may 
contribute to house price inflation, particularly 
in the capital region. In view of sustained housing 
demand  growth,  commensurate  supply  could 
and 
mitigate  upward  pressures  on  prices 
affordability.  Demographic  pressures  on 
the 
housing  market  have  so  far  been  absorbed  by  an 
adequate  housing  supply  with  the  total  number  of 
completed  dwellings  over  the  past  15  years 
broadly  matching  the  increase  in  the  number  of 
households  during  that  period  (26).  However, 
regional  supply  shortages  persist,  notably 
in 
Prague,  where  the  number  of  new  apartments 
available  at  the  end  of  June  2017  was  around 
3 600, 25 % lower than in the previous year. 

The  rate  of  building  permits  issuance  remains 
regulatory 
below  historic  averages  and 
obstacles  to  new  construction  exacerbate  the 
pressure  on  house  prices.  At  all  stages  of  the 
housing  supply  chain  there  appears  to  be  an 
ongoing slump in the supply of new housing units 

(26)  There was a reduction of more than 1 pp of the population 
living in overcrowded dwellings between 2014 and 2015. 

Source: Czech Statistical Office 

In its supervisory capacity, the CNB can guide, 
but  not  directly  enforce  macro-prudential 
mortgage-lending limits. The CNB still lacks the 
formal power of setting limits for the loan-to-value 
ratio (LTV), the loan-to-income ratio (LTI) and the 
DSTI.  Instead  it  sets  recommendatory  limits  for 
the  LTV  to  protect  homeowners  and  mortgage 
lenders  against  negative  equity.  In  June  2016,  it 
tightened the recommendation in order to decrease 
the  share  of  new  loans  with  an  LTV  above  80 % 
(28).  Banks  adhered  to  the  limit  at  the aggregate 

(27)  Another structural factor is a rigid building plan in Prague. 
(28)  Loans  with  a  LTV  between  90-100 %  should  not  exceed 
10 %  of  the  total  retail  loans  secured  by  residential 
property provided in any quarter until 30 September 2016; 
As from 1 October 2016, this changes to a limit of 10% of 

19 

60708090100110120130-0.020.000.020.040.060.080.100.1204Q105Q106Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q12010=100Annual change (pps. of GDP)MFI loans for house purchase (% GDP, annual change)Real House Price Index (2010=100), right axisNominal House Price Index (2010=100), right axis2025303540455055ThousandsResidential building permitsStarted dwellingsCompleted dwellings 
 
                                                           
 
                                                           
3.2. Financial sector 

level in the first quarter of 2016, but they have not 
fully  adhered  (29)  to  the  limits  in  effect  since 
October  2016.  In  April  2017, 
the CNB  has 
decreased  the  maximum  recommended  LTV  by 
5 pps to 90 %. 

Graph 3.2.4:  Mortgage loans: stock and new loans 

the  Act  on  the CNB  did  not  receive  support  in 
Parliament  in  2017,  but  the  central  bank  already 
mentioned that it would promote its reintroduction 
(Lidové  noviny,  2018).  The  CNB  was  the  first 
non-Scandinavian 
introduce  a 
supervisor 
countercyclical  capital  buffer  above  0 %  (31), 
raising it to 0.5 % as of January 2017. Later, it was 
increased to 1 % as of mid-2018. 

to 

Private indebtedness 

The 
indebtedness  of  Czech  households  has 
increased  significantly  over  the  last  10  years  but 
not  enough  to  be  a  medium-term  challenge. 
Although  low  by  international  comparison  (7th 
lowest in the EU), household sector debt increased 
by  1.6  pps  to  58 %  of  gross  disposable  income  at 
the end of 2015. A buoyant housing market, strong 
economic  fundamentals  and  consumer  confidence 
resulted in debt growth that is estimated to outpace 
growth  in  disposable  income  in  2016,  driven  by 
mortgage  lending  as  the  largest  item  on  the 
household balance sheet. The actual level of debt, 
both  for  nonfinancial  corporations  (NFCs)  and 
households  (HH)  is  lower  than  the  value,  which 
would  signal  potential  risks  of  an  upcoming 
banking crisis episode (ʻprudential thresholdsʼ).  

Graph 3.2.5:  HH and NFC Indebtedness 

Source: European Commission 

Indebtedness  is  also  below  what  the  fundamental 
value  of  macroeconomic  drivers  would  suggest 
(ʻfundamental  benchmarksʼ) (32).  Overall, 
this 

(31)  The  capital  buffer  should  raise  resilience  of  banks  and 
the  real  economy. 

mitigate  shocks 
Moreover, it helps to tame rapid credit growth. 

transmission 

to 

(32)  The  prudential  approach  calculates  the  debt  threshold 
associated with a higher risk for a crisis. The fundamental 

Source: Czech National Bank 

Lenders  are  expected  to  take  into  account 
borrowersʼ  ability  to  repay  loans  using  their 
own resources in bad economic times. They use 
LTI  (30)  and  DSTI  indicators  in  assessing  credit 
applications. The CNB regards as risky mortgages 
those  that  sum  up  to  over  eight  times  the 
borrowerʼs  annual  income  and  costing  more  than 
40 % of income to debt service. This is especially 
true for loans with high LTVs, which are subject to 
a 15 %  aggregate  attribution  limit.  CNB  analysis 
shows  that  a considerable  share  of  new  mortgage 
loans  falls  into  the  high  risk  category  in  terms  of 
income.  The  share  of  loans  with  a  DSTI  above 
40 %  and  a  LTI  above  8  was  less  than  9 %  in 
the second  half  of  2016.  The  CNB  supports  the 
introduction  of  legislative  lending  limits.  These 
limits would be likely to increase the compliance. 
This  may  help  to  ensure  financial  stability  and 
reduce risks for borrowers. The proposal to amend 

these loans with LTV of 85–95 % and as from 1 April 2017 
to  a  limit  of  15  %  of  these  loans  with  LTV  of  80–90  %. 
The  upper  LTV  limit  of  100%  recommended  up  to  30 
September  2016  was  reduced  to  95  %  as  from  1  October 
2016 and to 90 % as from 1 April 2017.. 

(29)  In  the  fourth  quarter  of  2016,  banks  provided  5 %  of  the 
mortgages with a LTV above 95 % and 20 % of those with 
a LTV between 85 and 95 %. 

(30)  Indicator reflects clientʼs ability to repay a loan during his 

economic activity. 

20 

01020304050607001002003004005006007008009001000New loans (Thousands)Stock of loans (Thousands)M. loans -dw. (lhs)M. loans -Other (lhs)M. loans -dw. (rhs)M. loans -Total (rhs)-70-60-50-40-30-20-1002001200220032004200520062007200820092010201120122013201420152016% of GDPPrudential threshold - HHFundamental benchmark - HHPrudential threshold - NFCFundamental benchmark - NFC 
 
                                                                                   
                                                           
 
3.2. Financial sector 

suggests  that,  the  private  sector  does  not  face 
significant deleveraging needs (Graph 3.2.5). 

benchmark  is  based  on  an  analysis  of  the  macroeconomic 
drivers  of  private  debt.  It  corresponds  to  the  debt  which 
would be predicted based on the driversʼ long-term values. 

21 

 
                                                                                   
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market 

The  Czech  Republic  enjoys  strong 
labour 
market  performance.  Strong  job  creation  has 
been the engine behind consistent improvement. In 
the  first  half  of  2017,  for  the  first  time,  total 
employment exceeded 5 million. The employment 
rate  has  reached  a  record  high  of  78.9 %  in  Q3-
2017.  The  job  finding  rate  increased  rapidly  to  a 
level well above the pre-crisis, while the separation 
rate  further  decreased  (European  Commission, 
2017a).  As  a  result,  unemployment  fell  to  the 
lowest level in the EU (2.5 % in Q4-2017) (Graph 
3.3.1). In addition, youth unemployment (5.8 % in 
Q4-2017)  and  long-term  unemployment  (0.9 %  in 
Q3-2017)  further  declined  to  reach  the  pre-crisis 
levels.  

Graph 3.3.1:  Labour market developments 

forecast,  nominal  wages  are  expected  to  have 
grown  by  7.1 %  in  2017  (see  Section  1  on 
competitiveness).  However,  there  is  scope  for 
tapping  the  remaining  labour  potential  of  mothers 
with young children, older workers, Roma and the 
low-skilled. 

Women’s labour market potential is underused, 
as reflected in the high employment and gender 
pay gap. Although the gap steadily declined in the 
past decade, the female employment rate (68.6 %) 
remained well below that of men (84.6 %) in 2016. 
The  employment  gap  is  particularly  wide  for 
women  under  the  age  of  40,  and  falls  sharply  for 
women  above that age.  The  impact  of  having  one 
child  under  6  on  the  employment  of  women  is 
among  the  highest  in  the  EU  (Graph  3.3.2) (34). 
More  than  three  out  of  four  women  between  the 
age  of  20  and  49  years  mention  care 
responsibilities  as  the  main  reason  for  inactivity 
and the gap is one of the highest in the EU.  

Graph 3.3.2:  Parenthood impact on employment 

Source: Eurostat 

There  is  evidence  of  growing  labour  shortages. 
An  increasing  number  of  employers  report  labour 
shortages  as  the  main  obstacle  to  expanding  their 
operations.  The  job  vacancy  rate,  which  reflects 
the  unmet  demand  for  labour,  reached  4.0 %  in 
the  EU (33). 
Q3-2017, 
According  to  the  Commission  Autumn  2017 

the  highest 

level 

in 

(1) Figures refer to the employment gap between an 
individual with at least one child younger than 6 and an 
individual without children. 
Source: Eurostat 

(33)  The  job  vacancy  rate  measures  the  percentage  of  vacant 
posts  compared  with  the  total  number  of  occupied  and 
unoccupied posts.  

(34)  The  employment  gap  between  women  with  a  child  below 
the  age  of  six  and  women  without  children  was  35  pps  in 
2016, more than four times the EU average.  

22 

6668707274767805101520252001200220032004200520062007200820092010201120122013201420152016%%Employment rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs)-40-2002040HUCZSKEEDEUKFIBGATFRLVMTEU28IEROEA19PLLTNLCYDKBESEELESITLUSIHRPTpps.MenWomen 
 
 
                                                           
 
                                                           
3.3. Labour market, education and social policies 

Box 3.3. 1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights  proclaimed  on  17  November  2017  by  the  European  Parliament,  the 
Council, and the European Commission, sets out 20 principles and rights to support citizens. In light of the 
legacy of the crisis and changes taking place in our societies driven by population ageing, digitalisation and 
new ways of working, the Pillar serves as a compass for a renewed process of convergence towards better 
working and living conditions.  

of 

the 

the 

indicators 

The Czech Republic performs relatively well 
on 
Social 
Scoreboard (35)  supporting  the  European 
Pillar  of  Social  Rights,  while  challenges 
remain. It has very low unemployment, 2.5 % 
in Q4-2017,  a very low share of people at risk 
of  poverty  or  social  exclusion  rate  (AROPE), 
and  very  low  income  inequality.  On  the  other 
hand,  the  socioeconomic  background  strongly 
impacting on students’ performance.  

The  Czech  Republic  combines  a 
low 
participation  in  early  childhood  education 
and  care  with  a  high  gender  employment 
gap.  Only  4.7 %  of  the  children  younger  than 
three years take part in formal education, while 
the gender employment gap amounts to 16 pps. 
In  the  context  of  a  labour  market  tightening 
and  significant  gender  inequality,  childcare 
provision  can  be  an  important  policy  lever  to 
tap the potential of female labour force. 

The  Czech  Republic  has  been  undertaking 
reforms  and  using  the  support  from  the 
European  Social  Fund  (ESF)  to  increase 
the  childcare  availability. 
substantially 
pre-school 
in 
participation 
Compulsory 
education  has  been  gradually  introduced,  and  working  arrangements  made  more  flexible.  Besides, 
approximately 14 000 new places in kindergartens and child groups were created with the ESF support over 
the  last  two  years  which  reduced  the  shortage  by  half.  Moreover,  an  ESF  pilot  was  started  for  micro-
nurseries for children from 6 months to 4 years of age. Further plans include legislation changes to make 
new types of childcare facilities sustainable and broadening the creation of places for children younger than 
three years. 

35 The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States performance. 
The indicators "participants in active labour market policies per 100 persons wanting to work" and "compensation of employees 
per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible alternatives will be discussed in 
the relevant Committees. GDHI: gross disposable household income. 

23 

Early leavers from education and training (% of population aged 18-24)Better than averageGender employment gapTo watchIncome quintile ratio (S80/S20)Best performersAt risk of poverty or social exclusion (in %)Best performersYouth NEET (% of total population aged 15-24)Better than averageEmployment rate (% population aged 20-64)Better than averageUnemployment rate (% population aged 15-74)Best performersGDHI per capita growth On averageImpact of social transfers (other than pensions) on poverty reductionBetter than averageChildren aged less than 3 years in formal childcareCritical situationsSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsTo watchEqual opportunities and access to the labour marketCZECH REPUBLICDynamic labour markets and fair working conditionsSocial protection and inclusionMembersStates'areclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaverages,andclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final. 
 
                                                           
3.3. Labour market, education and social policies 

While  women  in  general  return  to  the  labour 
market  after  the  age  of  40,  evidence  suggests 
that gender inequalities persist throughout their 
careers as the average hourly wage of a man is 
22.5 % higher than that of a woman. Part of this 
difference can be explained by segregation  — i.e. 
men  work  in  better  paid  sectors  than  women (36) 
— but more than two thirds remains unexplained, 
suggesting  a  potentially  important  gender  bias. 
Gender  inequalities  are  largely  linked  to  long 
parental  leave,  which  is  very  rarely  taken  up  by 
men (1.8 % of parental benefit recipients in 2015), 
a  shortage  of  affordable  childcare  and  long-term 
care  facilities  and  low  uptake  of  flexible  work 
arrangements. 

Graph 3.3.3:  Net childcare costs for a lone mother with 

earnings (2015) 

tax rate (37). This weakens the incentives to work, 
especially  for  lone  parents  with  low  earnings. 
Moreover, childcare tax credits introduced in 2015 
aimed at reducing the overall effective tax rate, but 
high-income  families  benefit  more  from 
this 
change which led to a substantial reduction in net 
costs  for  couples  with  median  earnings  (OECD, 
2017a).  This  ‘reverse  targeting’  may  enhance  the 
existing  inequalities,  as  childcare  can  have  a 
positive impact on child development, particularly 
for  children  from  disadvantaged  families.  Tax 
relief  for  families  also  includes  other  tax  credits 
(see Section 3.1).  

Improving  access  to  formal  childcare  services 
reduces one obstacle to female employment. The 
Czech  Republic  made  the  last  year  of  preschool 
education  compulsory  and  guaranteed  places  in 
kindergartens.  It  also  strengthened  support  for 
children  with  special  education  needs.  Around 
9 000  new  places  in  kindergartens  were  created 
with  European  Social  Fund  (ESF)  support  in  the 
last  two  years.  Projects  on  children's  groups  also 
provided around 5 500 places by 2017. Moreover, 
an  ESF  pilot  was  started  for  micro-nurseries  for 
children from 6 months to 4 years of age. 

Sufficient  and  coordinated  provision  of  formal 
accessible,  high-quality  and  sustainable  long-
term care services remains a challenge. (See also 
Section 3.1 on healthcare). A lack of care services 
can  be  another  major  impediment  to  keeping 
women  in  employment,  as  informal  care  is  often 
the only option for many families. It is most often 
women  who  care  for  dependent  and  elderly 
relatives. 
leave 
entitlement for carers — as the Czech Republic did 
in  July  2017  —  may  partially  enable  women  to 
reconcile caring and professional responsibilities. 

three  months’ 

Introducing 

for 

proportion 

In  the  light  of  the  booming  labour  market,  its 
low-skilled  and  disabled 
performance 
people  is  less  encouraging.  Although  they  are  a 
small 
the 
employment  rate  of  the  low-skilled  (43.7 %  in 
2016)  is  well  below  that  of  the  medium  and  high 
skilled  (respectively  77.9 %  and  83.4 %  in  2016) 
(Graph  3.3.4).  The  inactivity  rate  for  the  low-
skilled  is  also  more  than  twice  as  high  as  the 

population, 

the 

of 

(1) Low earnings are defined as earnings at the 20th 
percentile of the full-time earnings distribution. 
Source: OECD (2017a) 

The  lack  of  affordable  childcare  is  a  major 
constraint on female labour participation in the 
Czech  Republic.  In  2016  only  4.7 %  of  children 
younger than three years were in formal childcare. 
The net cost of childcare is high (Graph 3.3.3): in 
2015  a  lone  mother  with  low  (median)  earnings 
spent  21 %  (18 %)  of  her  disposable  income  on 
full-time  centre-based  childcare  for  two  children 
aged two and three. 

High  childcare  costs  are  found  to  have  a 
significant impact on the effective participation 

(36)  Eurostat  calculations  based  on  the  2014  Structure  of 
Earnings Survey presented in the EMCO Indicators Group 
of 17 October 2017. 

(37)  The  participation  tax  rate  measures  the  percentage  of 
earnings  that  are  lost  to  higher  taxes,  lower  benefits  or 
childcare costs when an individual enters work. 

24 

-100-80-60-40-20020406080100IEPLSKLVUKCZFISILTNLESHUBGEEHRATBEITELLUSEFRDKPTDEMT% of disposable income  Childcare fee  Childcare benefit/rebates  Tax reduction  Other benefitsNet costcost in cost in  
 
                                                           
                                                           
3.3. Labour market, education and social policies 

overall  inactivity  rate  (21.1 %).  Similarly,  the 
employment  rate  of  disabled  people  is  only  43 % 
(against  an  EU  average  of  47.4 %),  which  clearly 
contrasts with the high general employment rate. 

Graph 3.3.4:  Employment rate by age & education level 

‘Education through practice,’ offering jobseekers a 
choice of tailored modular training and a chance to 
obtain  new  qualifications  with  their  employer 
accompanied  by  a  mentor.  This  scheme  can  also 
help older workers adapt their obsolete skills to the 
new labour market needs.  

of 

the 

high 

proportion 

long-term 
A 
unemployed,  and  particularly  of  those  low-
skilled, is engaged in public works which rarely 
lead  to  employment  in  the  primary  labour 
market.  While  only  1  in  10  low-skilled  ALMP 
beneficiaries were in subsidised jobs in the private 
sector in 2017, more than one third were placed in 
public  work 
the  new 
community service  scheme  —  introduced in  2017 
— creates unequal conditions of access to different 
levels  of  the  minimum  income  allowance  for  its 
beneficiaries. While participation in this scheme is 
a precondition for a higher allowance, the number 
of  eligible  beneficiaries  (60 000  to  70 000)  far 
exceeds the number of available posts (11 000). 

schemes.  Moreover, 

The Labour Office of the Czech Republic (PES) 
was  reorganised  in  2012  but  no  fundamental 
changes  were  made  to  provide  better  support 
for vulnerable groups. This seems to be a missed 
opportunity  for  reform,  notably  in  the  current 
period  of  low  unemployment.  A  kind  of  single 
point  of  contact 
range  of  benefits, 
for  a 
employment  and  social  services,  has  been  set  up; 
this  is  a  significant  step  towards  more  consistent 
support.  However,  the  individual  action  plans  for 
the  disadvantaged  unemployed  became  purely 
administrative. The initial interview at registration 
is  not  followed  up  by  further  assessments  if 
unemployment  becomes  long-term  and  neither 
does  it  lead  to  a  tailored  support.  There  are  no 
specific measures for different categories of clients 
according  to  their  profile.  Too  little  staff  and 
training  is  allocated  to  the  low-skilled  and  long-
genuinely 
to 
term 
personalised 
approach.  A  higher  use  of 
partnerships  with  municipalities  and  NGO’s  (e.g. 
territorial  pacts)  in  providing  a  wider  range  of 
long-term 
personalised 
unemployed could help offset this weakness. 

unemployed 

services 

allow 

the 

for 

a 

The tightening labour market is also attracting 
workers  from  both  EU  and  non-EU  countries, 
which  could  help  offset  labour  shortages.  In 
2016  around  433 000  foreigners  lived  in  the 
country,  of  whom  almost  two  thirds  were  born  in 

25 

(1) Educational level refers the highest level of educational 
attainment achieved by the individual and a distinction is 
made between three categories based on the International 
Standard Classification of Education: low (ISCED 0-2); 
medium (ISCED 3-4) and high (ISCED 5-8). 
Source: Eurostat 

is 

low 

systematic 

labour  market 
The  effectiveness  of  active 
policies 
in  general  and 
(ALMP) 
particularly  so  for  the  low-skilled  (38).  On 
average, 1 in 5 people wanting to work participate 
in  such  schemes.  Overall,  Czech  investment  in 
ALMP  is  highly  dependent  on  ESF  funding.  A 
lack  of 
impact  assessment  and 
evaluation  of  ALMP  hampers  transparency;  the 
evaluation expected to be available in early 2018 is 
a  step  in  the  right  direction.  The  preliminary 
results  have  identified  some  shortcomings  in  the 
design and targeting of the measures implemented 
since  2013.  These  promoted  mostly  subsidised 
employment,  training  or  further  qualifications. 
Evidence shows that the measures targeted groups 
with fewer barriers, whereas those in greatest need 
of  support  (39)  were  underrepresented.  Efforts  are 
being undertaken to improve the design of training 
such  as 
several  planned  projects, 
through 

(38)  While  wage  levels  have  increased  from  2014  to  2016  for 
all skill groups (see section 1), the wages of the low-skilled 
grew  slightly  more  (the  median  gross  monthly  wage  rose 
from CZK 16 235 to CZK 18 252), which motivated some 
to seek work again. In this context,  the impact of ALMPs 
should not be overrated. 

(39)  People  with  multiple  disadvantages  in  the  labour  market, 
such  as  the  low-skilled,  jobseekers  with  health  problems, 
older people and the long-term or repeatedly unemployed. 

020406080100120LowMediumHigh% of population 
 
                                                           
non-EU  countries.  Under  the  new  systems  of  the 
‘State Integration Programme’ that came into force 
in  January  2016,  beneficiaries  of  international 
receive  assistance  with  housing, 
protection 
employment,  health  and  education,  including  help 
to  reinforce  language  skills.  The  new  mobility 
allowance —  recently piloted  in  a  few regions  — 
has  been  introduced  nationwide  with  the  view  to 
increasing  regional  labour  mobility.  It  covers 
commuting costs to a new job in another region for 
job  seekers  who  have  been 
registered  as 
unemployed for over five months. 

Social  partners  are  generally  involved  in  the 
governmental  legislative  process.  They  are  also 
well  involved  in  the  EU  Semester  through  a  long 
negotiation  process  (see  Box  3.5.1).  To  further 
promote  social  dialogue  and  capacity  building  of 
social  partners  (40), 
the  possibility  of  state 
contributions 
trade  unions  and  employer 
organisations has recently been incorporated in the 
Labour Code. 

to 

Social policy 

the 

The  Czech  Republic  regularly  features  among 
the  European  countries  with 
lowest 
proportion of people at risk of poverty or social 
exclusion  (13.3 %  in  2016)  (Graph  3.3.5).  This 
feature  is,  however,  less  positive  for  the  0-24  age 
group;  the  level  for  this  group  is  stuck  at  around 
16-18 %. There is also a rising trend of household 
poverty and social exclusion for disabled persons, 
as  well  as 
long-term  unemployed. 
Moreover,  the  gap  of  risk  of  poverty  between  the 
long  term  unemployed  and  the  shorter  term 
unemployed  is  among  the  highest  in  the  EU.  The 
CZ  is  below  the  EU  average  for  the  maximum 
duration  of  unemployment  benefits  (20  weeks  for 
someone with a 1 year work record) (41). 

the 

for 

3.3. Labour market, education and social policies 

Graph 3.3.5:  At-risk-of-poverty or social exclusion rate, age 

groups 

Source: Eurostat 

are 

there 

indicators, 

Despite  the  generally  positive  developments  in 
poverty 
growing 
challenges:  an  increasing  number  of  socially 
localities,  housing  exclusion  and 
excluded 
indebtedness.  The 
homelessness,  and  high 
number  of  individuals  affected  by  foreclosures 
increased by 14 % between 2015 and 2016 and the 
number  of  people  facing  multiple  foreclosures  is 
also on the rise. 49 % of debtors face four or more 
payment  orders,  and  so  may  fall  into  a  debt  trap. 
Geographically, 
largely  coincide  with 
socially  excluded  districts  and  regions  with  the 
highest unemployment.  

these 

There are plans to tackle the increasing number 
of  socially  excluded  districts  by  amending  the 
law on assistance to people in material poverty 
to 
of  July  2017.  However, 
discourage  more  people  from  moving  into  these 
districts 
of 
accommodation seekers who are already struggling 
in an overheated rental housing market. 

the  mobility 

law’s  aim 

limiting 

risks 

the 

(40)  Trade union density was estimated at 12 %, as compared to 
in  2015 

approximately  41 %  employer  density  rate 
(ICTWSS 2015). 

(41)  For  more  details,  refer  to  the  draft  Joint  Employment 
Report 2018 and the benchmarking exercise conducted by 
the Employment Committee. 

The legal framework for the social housing plan 
is  still  lacking.  Current  legislation  does  not 
address  the  lack  of  affordable  and  quality  social 
housing in the times of record price rises in rental 
housing  (see  Section  3.2  on  housing  market 
developments). Despite the promising initial action 
taken  to  address  housing  exclusion  through  the 
national  social  housing  plan 
for  2015-2025 
proposed in 2015, the law on social housing failed 

26 

05101520253035200520062007200820092010201120122013201420152016% of populationAll age groupsChildren (<18y)Working age (18-64)Elderly (65+) 
 
                                                           
 
3.3. Labour market, education and social policies 

EU  funds  are  used  to  support  teacher  training  to 
work  with  heterogeneous  groups  to  improve  the 
situation. 

Graph 3.3.6:  Percentage of variation in science 

performance explained by students' socio-
economic status (2015) 

Source: OECD (2016a) 

The reform introduced in September 2016 helps 
the  inclusion  of  pupils  with  special  needs 
(including 
socioeconomically  disadvantaged 
children)  in  mainstream  education  with  the 
support  of  the  ESF  (European  Commission, 
2017b).  The  long-term  success  of  the  reform  will 
partly  depend  on  the  availability  of  sufficient, 
sustainable  national  funding  and  sufficient  further 
teacher  and  assistant  teacher  training  to  teach 
heterogeneous  groups.  Appropriate  awareness  of 
the  potential  benefits  of  inclusive  education  and 
involvement of all stakeholders will also be crucial 
to successful implementation. 

to  promote 

disadvantaged 

the  participation  of 

Since September 2017, the last year of preschool 
education has been compulsory to include more 
disadvantaged  children.  The  ESF  supports 
the 
projects 
socioeconomically 
early 
childhood  education  and  care.  A  number  of  five-
year-olds  have  not  been  registered  so  far,  calling 
for 
further  awareness-raising  activities  with 
families  and  municipalities  on  the  benefits  of 
participation.  It  is  estimated  that  only  about  34 % 
of  Roma  participate  from  the  age  of  four  (FRA, 
2016). 

in 

to  be  adopted  in  2017.  This  act  would  have 
underpinned  the  currently  developing  coordinated 
approach 
inclusion  of 
disadvantaged groups, including the Roma, such as 
measures 
skills, 
supporting 
healthcare, security and employment. 

education 

towards 

social 

and 

the 

Housing  is  the  one  indicator  where  perceived 
discrimination  against  the  Roma  worsened 
between 2011 and 2016. The mid-term review of 
the  EU  framework  for  national  Roma  integration 
(2017)  points  to  a  fall  in  the  levels  of  perceived 
discrimination,  notably  in  education  and  in  the 
workplace.  However,  this  was  not  the  case  for 
access to housing, where perceived discrimination 
increased. 

Regional social disparities have been addressed 
in  the  Czech  Government’s  ‘Restart’  strategy 
for  the  Karlovarský,  Moravskoslezský  and 
Ústecký  Regions  of  July  2017.  This  coordinated 
approach proposes a number of actions to address 
indebtedness, provide more social housing, include 
children  from  poverty  stricken  families  into  the 
schooling  system,  make  public  employment 
efficient, 
services  more 
health 
improve 
infrastructure  and 
increase  crime  prevention. 
However,  its  success  in  the  long term  depends on 
continued budgetary support and ownership by the 
government. 

Education and skills 

is  affected  by 
Educational  performance 
students’ 
socioeconomic  background.  The 
proportion of low achievers in science and reading 
has  risen  significantly since  2012  (OECD 2016a). 
At  30.5  pps,  compared  to  an  EU  average  of  26.2 
pps, the country has one of the largest gaps in the 
proportion of low achievers in science between the 
bottom  and  top  quarters  of  the  socioeconomic 
index  in  the  PISA  student  population,  together 
with one of the largest differences between schools 
on  the  basis  of  socioeconomic  status  (Graph 
3.3.6) (42).That disparity is increasing. This may be 
linked  to  the  selectivity  of  the  school  system  and 
the  early  streaming  of  students  (OECD,  2016b). 

(42)  The  difference  in  science  performance  between  schools 
associated  with  a  one-unit  increase  in  the  mean  school’s 
PISA index of economic, social and cultural status is one of 
the  largest  among  participating  countries.  The  OECD 
average variance between schools is 30 % while it is 44 % 
in the Czech Republic. 

27 

0510152025HULUFRBECZBGSKATDEPTMTROSIESPLIEELNLSEHRLTUKDKFIITCYLVEE 
                                                           
 
3.3. Labour market, education and social policies 

been  completed.  A  systematic  ESF  support 
programme  for  all  new  teachers  is  being  planned. 
It  is  expected  to  improve  teaching  quality  and 
reduce  the  proportion  of  teachers  leaving  the 
profession quickly. 

The  tertiary  education  attainment  rate  was 
32.8 % in 2016. Annual expenditure per student is 
only two thirds of the EU average (OECD 2017b). 
Tertiary-educated  Czechs  earned  almost  twice  as 
much  on  average  as  those  with  only  upper 
secondary education, while those with a bachelor’s 
degree  earn  around  50 %  more.  The  completion 
rate  for  bachelor’s  or  equivalent  programmes 
remains  low  at  37 %.  A  new  funding  system  for 
higher  education  institutions  will  be  introduced  in 
their  funding  while  also 
2018, 
supporting diversification and quality. 

to  stabilise 

A  comprehensive  skills  strategy  supporting  the 
adaptation  of  the  labour  force  to  structural 
changes  expected  in  the  labour  market  has  not 
yet  been  designed.  Various 
initiatives  were 
developed  over  the  last  years  with  ESF  support, 
such as a new system of labour market forecasting, 
which  nonetheless  have  not  yet  evolved  into  a 
comprehensive  system  of  skills  intelligence  and 
anticipation. 
of 
The  National 
Qualifications  became  the  reference  point  for 
accrediting  Continuing  vocational  education  and 
training  (CVET)  programmes.  However,  a  single 
national  Skills,  Qualifications  and  Occupations 
classification  has  not  been  finalised.  Stakeholder 
engagement  and  local/regional  dialogue  between 
policymakers,  employers  and  education  and 
training providers is key to addressing this lack of 
formal and systematic skills anticipation. 

Register 

to 
training 

improve  vocational 
Several  measures 
education  and 
(VET)  and  adult 
learning  have  been  implemented  to  increase 
skills  supply  and  address  skills  shortages. 
Validation  of  previously  acquired  skills  and  a 
modular  approach  in  retraining  courses  are  being 
prepared.  This  is in  line  with  the  recent  EU  skills 
policies ‘Upskilling pathways’.  

All  initial  VET  programmes  in  the  Czech 
Republic  are  school-based,  but  mandatory 
practical training and work placement are also 
an integral part of the curricula. However, there 
is  still  substantial  scope  to  increase  work-based 
learning  as  a  proportion  of  VET  (8.8 %  in  2015). 

While  still  below  the  10.7 %  EU  average,  the 
early  school  leaving  rate  continued  to  rise,  to 
6.6 % in 2016, in contrast to recent falls in most 
EU  countries.  Regional  disparities  are  high, 
ranging from 3.2 % in Southeast region to 13.8 % 
in  Northwest  region  (Graph  3.3.7).  The  estimated 
proportion  of  Roma  children  who  leave  school 
remains  very  high  at  72 %,  which 
early 
significantly  impacts  their  future  job  prospects 
(FRA,  2016).  Close  monitoring  and  new 
preventive  measures,  such  as  teacher  training  to 
identify  pupils  at  risk  and  to  help  prevent  early 
leaving by adapting teaching methods and working 
with stakeholders, could improve these indicators. 

Graph 3.3.7:  Early school leaving by region (2016) 

Source: Eurostat 

Despite  recent 
increases,  teachers’  salaries 
remain comparatively low. They rank among the 
lowest  in  the  EU  compared  to  those  of  other 
workers with tertiary education; salary progression 
rates  are  low  (OECD,  2017b).  This  contributes  to 
the  profession’s  low  attractiveness  to  talented 
young  people  (European  Commission,  2017b). 
Shortages  of  qualified  teachers,  combined  with 
demographic  projections,  indicate  problems  in 
recruiting  and  keeping  new  teachers.  There  is  no 
systematic  ex-ante  assessment  of  the  expected 
number of teachers needed for the following years. 
The  government  increased  teacher  salaries  by 
15 %  from  November  2017  in  reaction  to  a  strike 
warning.  A  long-awaited  new  career  system  for 
professional 
teachers 
development,  career  and  salaries  was  due  to  be 
adopted  in  2017  but  the  legal  procedure  has  not 

continuing 

linking 

28 

0246810121416%EU average 
 
3.3. Labour market, education and social policies 

a 

single 

comprehensive 

The  challenge  to  get  small  businesses  more 
involved in work-based learning may be overcome 
through providing appropriate support or setting up 
regional training centres. The Czech Republic also 
lacks 
national 
qualifications  framework.  Attempts  to  introduce 
the  Higher  Education  Framework  into  national 
legislation  have  failed.  The  National  Register  of 
Qualifications  has  become  the  reference  point  for 
accrediting  continuous  VET  programmes  and  for 
recruitment of qualified employees in occupations 
that face skills shortages.  

29 

 
3.4. INVESTMENT 

Business environment 

in 

and 

the  EU 

contracts’ 

Challenges to the business environment remain, 
mainly  in  contract  enforcement,  construction 
permits and tax complexity. The Czech Republic 
ranks relatively high (30th out of 190 countries) in 
the World Bank’s Doing Business 2018 ratings. It 
ranks  first  in  ‘trading  across  borders’ (43).  In 
‘dealing  with 
‘enforcing 
construction permits’ (44), however, it ranks among 
the  worst 
(at  91st  and  127th 
respectively). These issues remain its key obstacles 
the 
to  doing  business.  Another  obstacle 
complexity of tax regulations, which has worsened 
recently 
Index 
2017/18) (see  Section  3.1).  For  example,  start-up 
founders  indicated  in  a  recent  survey  that  they 
need to devote one employee to meeting all the tax 
requirements.  Frequent  tax  inspections  and  the 
obligation  to  pay  VAT  on  unpaid  invoices  were 
also mentioned as a factor that impedes cash flow 
(Aspen Institute Prague, 2016). 

Competitiveness 

(Global 

is 

that 

the  permit  procedure,  an 
To  accelerate 
amendment 
to  the  Construction  Act  was 
adopted  in  mid-2017  and  is  effective  from 
January 2018. One of its main features — aimed 
at  simplifying  the  building  procedure  —  is  the 
option  of  including  the  environmental  impact 
assessment  in  the  zoning  decision  or  in  the  joint 
zoning  and  building  permit.  This  is  a  positive 
development,  as  it  reduces  extra  administrative 
steps.  However,  developers  doubt 
the 
amendment  will  make  a  difference  to  the  new 
construction projects, mainly because various other 
authorisations are not included in joint permitting. 
This  makes  the  simpler  procedure unworkable  for 
large  infrastructure  projects.  Also,  there  is  no 
integrated  permitting 
obligation 
the 
procedure.  A 
the 
further  concern 
amendment  will  limit  the  existing  rights  of  civil 
society to participate at various stages of a project. 
Moreover,  the  amendment  does  not  yet  fully 
exploit the scope for streamlining. The Ministry of 
Regional Development, which is responsible for it, 
has  already  presented  plans  for  completely  new 
construction  legislation  (Ministry  for  Regional 

to  use 

that 

is 

Development,  2017).  Another  major  barrier  to 
infrastructure investment is the regulation for land 
expropriation, which remains unaddressed. 

SMEs in the non-financial business economy (45) 
account  in  line  with  the  EU  average  for  two 
thirds  of  total  employment.  Czech  SMEs  are 
relatively  small,  employing  an  average  of  2.4 
people,  compared  to  an  EU  average  of  3.9.  Their 
share  of  total  value  added  (54.5 %)  is  slightly 
below  the  EU  average  (57.1 %).  The  main  sector 
for  Czech  SMEs 
is  manufacturing,  which 
generates  almost  30 %  of  SME  value  added  and 
employment,  nearly  10  pps  more 
the 
respective average EU share. 

than 

enterprises 

However, productivity growth in SMEs has not 
kept  pace  with  the  growth  observed  in  large 
non-financial  enterprises.  The  average  labour 
productivity growth of SMEs in the manufacturing 
sector  (3.1 %  in  2009-2014)  lags  behind  that  of 
large 
(OECD,  2017c). 
(5.6 %) 
Similarly,  average  SME  value  added  grew  by 
9.5 %  in  2012-2016,  against  16.4 %  for  large 
firms.  The  overall  underperformance  of  SMEs  in 
manufacturing compared to large firms  is in large 
part explained by growth in the car industry, which 
is  dominated  by  large  firms.  Another  explanatory 
factor is SMEs’ difficulty in competing for highly 
qualified  workers,  since  large  companies  are  able 
to  offer  more  competitive  wages  and  have  better 
access 
labour  markets (European 
foreign 
to 
Commission, 2017c). 

The  Czech  Republic  performs  below  the  EU 
average  on  entrepreneurship  and  new  business 
start-ups.  Despite  the  progress  achieved  since 
2008  on  business  start-ups  (such  as  introducing 
lower  fees  for  registering  simple  limited  liability 
companies)  the  percentage  of  total  early  stage 
entrepreneurial activity and the business ownership 
rate  remain  below  the  EU  average.  In  addition, 
entrepreneurs  do  not  enjoy  a  high  status  and 
entrepreneurship  education  is  lacking  at  both 
primary 
(European 
Commission, 2017c). 

secondary 

levels 

and 

(43)  This  indicators  measures  the  time  and  cost  to  export  the 
product of comparative advantage and import auto parts. 
(44)  This  ranking  is  largely  due  to  the  high  number  of 
procedures required to build a warehouse compared to the 
OECD average. Moreover, 247 days are needed to build a 
warehouse vis-à-vis the OECD average of 152 days. 

The financing environment for SMEs continues 
to  improve,  while  venture  capital  remains 
underdeveloped.  Czech  banks  are  more  eager  to 

(45)  The  non-financial  business  economy  includes  the  sectors: 
industry, construction, and distributive trades and services. 

30 

 
 
                                                           
                                                           
3.4. Investment 

gradually  moving  to  the  qualitative  phase  of 
internationalisation (TA CR, 2016), which requires 
policies that increase knowledge-based capital and 
support domestic drivers of growth.  

Foreign-owned  companies  have  a  strong  focus 
on  exports.  Despite  representing  only  around 
trading  firms,  foreign-owned  firms 
13 %  of 
account  for  more  than  80 %  of  total  exports  by 
value  (OECD,  2017c).  FDI  supports  over  one 
quarter  of  all  private  sector  jobs  and  42 %  of  the 
private  sector’s  value  added  (OECD,  2017d). 
Moreover, companies under foreign control report 
40 % higher labour productivity than the domestic 
sector.  While  Czech  firms  have  a  high  share  of 
medium-  and  high-quality  manufacturing  exports, 
the  top  quality  segment  is  rather  small  and  has 
declined since 2011 (Graph 3.4.1).  

Graph 3.4.1:  Share of export value in top quality category 

Source:  European  Commission  calculations’  based  on 
Comext (Eurostat) and ORBIS data. 

A  competitive  service  sector 
is  crucial  to 
boosting  value-added.  A  full  liberalisation  in 
market  services  could  increase  the productivity  of 
several manufacturing industries by more than 5 % 
(Curnis  et  al.,  2017).  The  services  content  of  the 
Czech  Republic’s  total  exports  of  goods  and 
services was 48 %, below the OECD median value 
of 57 % in 2014. A firm-level study found a strong 
positive 
relationship  between  services  sector 
reform  and  the  performance  of  manufacturing 
industries relying on services (Arnold et al., 2011). 
A  recent  study  (Münich  et  al.,  2014)  concluded 
that  cross-border  investment  in  the  service  sector 

provide loans to SMEs than they were in previous 
years.  Of  SMEs  that  applied  for  a  loan,  only  2 % 
of  their  applications  were  rejected  (EU:  5 %) 
(European  Commission,  2017d).  Little  public 
funding was devoted to support venture capital and 
revolving  funds  (Srholec  et  al.,  2017).  New  start-
up  funding  should  be  available  via  two  recent 
funds.  Firstly,  a  fund  of  funds  was  launched  in 
2017 and is currently at the stage of selecting fund 
managers  acting  as 
intermediaries. 
Secondly,  a  national  innovation  fund  dedicated  to 
financing  SMEs  and  seed  projects  is  in  the  final 
stage  of  implementation,  waiting  for  the  central 
bank's authorisation to start operations. 

financial 

invoices 

to  settle 

Payment  practices 
in  the  Czech  Republic 
worsened  in  2017.  The  average  time  taken  for 
customers 
in  B2B 
their 
transactions increased from 24 days in 2016 to 32 
days  in  2017,  exceeding  the  payment  terms  (27 
days). Indeed, 88 % of Czech companies surveyed 
have  been  asked  to  accept  longer  payment  terms 
than  they  could  comfortably  sustain,  compared  to 
the EU average of 61 % (Intrum Justitia, 2017). 

The  time  to  resolve  insolvency  remained  the 
same in 2014-2017 at 2.1 years, which is in line 
with  the  EU  average  of  2  years.  However,  the 
cost of resolving insolvency is the third highest in 
the  EU  at  17 %  of  the  debtor’s  estate  (European 
Commission,  2017c).  The  law  on  insolvency  and 
resolution  was  amended  in  July  2017  to  simplify 
the  discharge  procedure  and  strengthen  protection 
against 
framework 
amendment to improve a ‘second chance’ for non-
fraudulent bankrupt entrepreneurs was also drafted 
but not approved before the end of the legislature. 

abuses.  A 

legislative 

Czech Republic in the global value chain 

The  Czech  Republic’s  economy  relies  strongly 
on  the  automotive  sector.  With  a  share  of  5.6 % 
on  gross  value  added  in  2016,  manufacturing  of 
motor  vehicle  ranks  high  in  the  EU. When  taking 
into  account  also  supply  chains,  the  industry 
accounts  for  around  10%  of  the  economic  output 
(Sobíšek and Koršňák, 2017). Overall, the share of 
gross  value  added  of  all 
foreign-controlled 
companies has slightly declined to around 30 % in 
2015,  from  the  peak  of  33 %  in  2009.  The 
difference  in  labour  productivity  as  compared  to 
domestically  owned  firms  stopped  increasing  in 
2007, suggesting that the Czech Republic might be 

31 

0%10%20%30%40%50%PLESELHUPTCZBESILTSKROEEITATDEHRNLBGSEFRLVFIUKDKLUCYMTIE20162011 
 
3.4. Investment 

encourages 
investment in manufacturing.  

technological 

upgrading, 

unlike 

EU funds 

success  of  the  numerous  planned  e-government 
projects  will  depend  on 
the 
authorities  to  raise  awareness  and  provide  user-
friendly solutions.   

the  ability  of 

The  slow  mobilisation  of  resources  granted  for 
the 2014-2020 programming period led to a fall 
in  investments  co-financed  by  the  European 
Structural and Investment (ESI) Funds in 2016 
and  2017.  While  most  of 
the  operational 
programmes for 2007-2013 have nearly closed, the 
2014-2020  programme  has  been  slow  to  start, 
although  it  has  accelerated  recently.  The  factors 
behind  this  delay  include:  the  late  adoption  of 
operational  programmes;  lengthy  preparation  of 
calls  for  applications;  complex  implementation 
rules; staff turnover in the authorities managing the 
funds; and the lack of projects in a limited number 
(especially  energy  efficiency  and 
of  areas 
see  Section  3.5). 
infrastructure, 
broadband 
Operational 
employment, 
programmes 
technical  assistance  and  transport  are  performing 
better on contracted operations and payments made 
to 
than  other  operational 
programmes.  Further  details  on  EU  co-financed 
investment and funding from EFSI are provided in 
Box 2.1.  

the  beneficiaries 

on 

Efficiency of public administration 

E-government services 

The  performance  of  e-government  remains 
below  the  EU  average.  Although  in  2017  the 
availability  of  pre-filled  forms  and  the  number  of 
online  service  completion  increased,  the  use  of  e-
government services is well below the EU average. 
In particular, only 16 % of internet users submitted 
completed  forms  to  public  authorities  over  the 
internet, compared with an EU average of 35 %. 

they 

identity 

cards.  As 

In  2017  two  laws  on  secure  access  to  e-
government  services  have  been  adopted.  These 
are  the  laws  on  electronic  identification  and  on 
citizens’ 
enable 
digitalisation  of  individual  services  they  have  the 
potential  to  boost  e-government  services  and  help 
to  foster  digital  society  beyond 
the  public 
administration.  However,  their  impact  may  be 
limited  by  the  fact  that  e-identification  will  be 
obligatory  only  for  those  authorities  that  already 
use e-communication via data boxes or the public 
administration portal, while it will be voluntary for 
others.  The  impact  of  the  new  legislation  and  the 

to  be 

introduced 

National  e-ID,  which  should  serve  as  a  key 
enabler for the use of e-government services, is 
in  July  2018.  The 
set 
government  also  plans  to  launch  an  interactive 
citizen’s  portal,  acting  as  a  national  gateway  for 
personalised  e-government  services.  To  improve 
accessibility,  classification  of  the  available  public 
sector  digital  services  (around  700)  is  ongoing, 
with a view to cataloguing them. This should raise 
awareness  of  e-government  services  from  current 
low  levels,  which  is  one  of  the  barriers  to  their 
broader  usage.  Work  is  also  ongoing  to  improve 
interoperability of e-government infrastructure (46), 
which  should  help  address  the  fragmentation  of 
services and databases. 

Public procurement 

framework 

Steps  were  taken  in  2017  to  improve  the  legal 
for  public 
and  administrative 
procurement.  Following  the  transposition  of  the 
modernised  public  procurement  and  concession 
directives  in  2016,  the  conflict  of  interest  registry 
has  been  operational  since  September  2017  and  a 
new  law  on  identifying  beneficial  owners  was  to 
enter  into  force  in  January  2018.  These  measures 
should, in time, improve transparency and integrity 
in public procurement. The percentage of contracts 
awarded  without  a  call  for  tenders,  has  already 
decreased considerably from 21 % in 2016 to 10 % 
in 2017, although this still remains well above the 
EU  average 
(3 %).  Additionally,  price  has 
consistently been the only criterion in nearly 80 % 
of  procedures.  The  proportion  of  public 
procurement contracts awarded in a procedure that 
attracted only one bidder has been increasing year-
on-year  and reached 47 %  in  2017, up  from  19 % 
in  2014  (EU  Single  Market  Scoreboard,  2018). 
Survey  evidence  shows  that  35 %  of  business 
representatives  (slightly  above  the  EU  average  of 
31 %)  considered  corruption  to  have  prevented 
them  from  winning  a  public  tender  or  contract  in 
the  Czech  Republic 
three  preceding 
in 
years (European Commission, 2017e). 

the 

(46)  Such  as  the  base  registers,  data  boxes,  the  network  of 

CzechPOINTs and the public administration portal. 

32 

 
                                                           
3.4. Investment 

Several  targeted  initiatives  aim  to  improve 
the 
public  procurement  practices.  One 
is 
establishment  of  competence  centres  by 
the 
Association of Municipalities, acting as knowledge 
hubs  for  municipalities.  Another  initiative,  by  the 
Association  for  Infrastructure  Development,  aims 
the  use  of  ‘most 
to  provide  guidance  on 
(MEAT) 
economically  advantageous 
criteria in infrastructure projects. Furthermore, the 
IT  vendor  lock-in  issue  has  been  recognised  by 
national  case-law  as  an  illicit  practice  and  the 
government has drafted a strategy to deal with this 
issue.  Nevertheless,  aggregating  procurement 
practices  (used  only  in  5 %  of  the  cases  in  2017) 
and acquiring specialist expertise in selected areas 
remain  major  challenges  for  most  of  the  public 
sector. 

tender’ 

Public  procurement  is  being  professionalised 
via  a  multi-layered  training  framework  for 
procurers and suppliers. In the first half of 2017, 
30  training  events  reached  2 500  people.  These 
training  events  come  with  documented  methods 
and e-learning tools. This strategic approach could 
improve key public procurement indicators, e.g. by 
reducing  the  percentage  of  single  bid  procedures 
and  cutting  unnecessary  bureaucracy.  Overall, 
delivering  better  value  for  money  and  addressing 
challenges  —  for  example  in  the  health  sector, 
which  is  below  average  in  terms  of  procurement 
indicators (47) — could lead to improvements. 

The  government  made  the  national  electronic 
procurement  tool  NEN  compulsory  for  all 
central government authorities as of June 2018. 
These  authorities  must  either  adopt  the  national 
platform or request an exemption and demonstrate 
the  functional  and  financial  advantages  of  an 
alternative tool. Specialised training on the tool has 
been widely delivered. However, the obligation to 
use  the  NEN  has  raised  objections  from  certain 
government organisations and private platforms on 
grounds that it may reduce competition. 

The Competition Office issues review decisions, 
which  are  significantly  belated  in  case  of  most 
of  the  second  instances.  Although  the  review 
procedures by the Competition Office (ÚOHS) the 

first  instance  seem  to  have  improved  in  terms  of 
compliance  with  the  time  limits  (60  days),  the 
second instance decisions appear to be late in 92 % 
of  the  cases  (average  duration  of  232  days).  This 
affects 
the  efficiency  of  public  procurement 
projects. 

Corruption 

Corruption  and  bribery  are  ongoing  concerns 
for  businesses  and  the  public.  Corruption  is 
considered as one of the top five most problematic 
factors  for  doing  business  (World  Economic 
Forum,  2017).  Issues  include  the  diversion  of 
public funds (the Czech Republic ranks 99th out of 
137  countries),  favouritism  in  decision-making 
(95th)  and  payments  of  bribes  (46th).  This  is 
reflected in business perceptions: 74 % of business 
representatives  agreed  with  the  statement  that 
favouritism  and  corruption  hamper  business 
competition  (the  EU  average  is  68 %)  (European 
Commission,  2017e).  Some  80 %  of  company 
representatives  see  corruption  as  widespread  (the 
EU  average  is  71 %).  Bribery  cases  that  reach 
court  generally  lead  to  convictions,  but  relatively 
few  suspects  are  accused  of  accepting  or  offering 
bribes  (48)  and  the  overall  number  of  bribery 
investigations remains low. 

A  number  of  major  reforms  were  adopted  as 
part  of 
the  government’s  anti-corruption 
strategy.  Positive  examples  include  the  laws  on 
access  to  information,  on  the  origins  of  property, 
on political parties, on public procurement and on 
the  Central  Registry  of  Contracts.  New  public 
procurement 
the  winning 
legislation  requires 
supplier  to  disclose  information  on  its  ownership 
structure, right up to the ultimate beneficial owner, 
regardless  of  the  company’s  legal  form.  An 
amendment  to  the  law  on  conflicts  of  interest 
introduced  a  central  electronic  registry  of  interest 
declarations and required all public officials to file 
declarations  on 
taking  up  office.  However, 
penalties  are  mainly  financial.  An  amendment  to 
the  law  on  the  Central  Registry  of  Contracts 
introduced further exceptions in July 2017, so that 
the  law  no  longer  covers  a  large  part  of  contracts 
by  state  and  municipality-owned  enterprises.  This 

(47)  Healthcare  procurement  data  from  Tenders  Electronic 
Daily  show  that  single  bid  procedures  were  used  more 
frequently  in  the  Czech  Republic  (48 %,  against  the  EU 
average of 39 %), while aggregation was used only in 2 % 
of tenders (against an EU average of 9 %).  

(48)  Based  on  data  provided  by  the  Ministry  of  Justice,  18 
people  were  accused  of  accepting  a  bribe  in  2014,  76  in 
2015 and 46 in 2016. The figures for offering a bribe were 
156, 106 and 122 respectively. 

33 

 
                                                           
                                                           
3.4. Investment 

market, mean that a number of authorities struggle 
with  understaffing  (in  particular  of  high-skilled 
professionals). The Act limits the ability to attract 
experts from academia or the private sector and is 
itself limited in scope (i.e. it does not cover semi-
budgetary organisations). 

in 

introducing  exceptions 

The  June  2017  amendment  of  the  Act  has 
addressed  some  of  these  deficiencies,  but  there 
is  scope  for  improvements  both  within  the  Act 
and 
includes 
its  application.  Progress 
simplifying 
recruitment  procedures,  making 
salaries more attractive for  experienced applicants 
and 
the  education 
requirements  for  long-serving  officials.  However, 
the  adopted  amendment  did  not  fully  address  the 
systemic  challenges.  The  act  now  faces  a  major 
test  of  its  ability  to  withstand  pressures  and 
provide  the  necessary  stability.  In  particular,  the 
number  of 
senior  management  dismissals  
following  the  arrival  of  the  new  government 
suggests  that  depoliticisation  is  not  effectively 
guaranteed by the Act. 

to 

raises  further  concerns  about  transparency  in 
public procurement. 

Some  areas  still  remain  unaddressed  by  the 
anti-corruption strategy. In particular, extending 
the powers of the state audit office to the regional 
and  municipal  level,  the  lack  of  supervision  of 
state-owned  companies  (now  excluded  from  the 
scope  of  the  Central  Registry  of  Contracts),  and 
gaps  and  inefficiencies  in  the  conflict  of  interest 
registry remain challenges for the next action plan. 
Moreover, plans to revise lobbying legislation and 
to  introduce  specific  legislation  on  whistleblower 
protection failed  to  materialise  under  the previous 
term of the Parliament. 

Civil Service Act 

Two years after its full entry into force in July 
2015, 
the  Civil  Service  Act  has  been 
implemented,  but  deficiencies  persist.  In  terms 
of  efficiency,  the  Act  has  given  the  civil  service 
more  transparency  and  predictability,  but  it  has 
come  hand  in  hand  with  increased  administrative 
burdens  at  all  levels.  Cumbersome  recruitment 
procedures  combined  with  a  very  tight  labour 

34 

 
 
3.4. Investment 

Box 3.4.1: Investment challenges and reforms in the Czech Republic 

Macroeconomic perspective 

Since accession to the EU, both private and public investment in the Czech Republic has remained above the 
EU average. Since the downturn in 2009, investment exhibited strong cyclical behaviour. More recently, it 
dropped  again  in  2016  (-2.3 %)  due  to  the  slump  in  public  investment  (-34 %).  The  volatility  of  public 
investment  is  closely  connected  with  the  ESI  funds  cycle.  Total  investment  is  projected  to  have  risen  by 
4.9 % in 2017 (Commission Autumn 2017 forecast), supported by the new EU programming period. Over 
the period 2009-2016, the level of investment in dwellings in the Czech Republic was low (3.6 % of GDP) 
compared with the EU (4.7 %), while investment in equipment (11.3 %) was double the EU average (5.9 %).   

Assessment of barriers to investment and ongoing reforms  

Overall  barriers  to  investment  in  the  Czech  Republic  are  moderate,  as  confirmed  by  the  European 
Commission  assessment.  Some  reforms  have  been  adopted  to  reduce  the  administrative  burden  that 
constrains  the  business  environment  in  general  and  the  construction  sector  in  particular,  but  more  time  is 
needed  to  assess  the  outcome  of  their  effective  implementation.  There  is  a  certain  lack  of  stability  of 
legislation,  coupled  with  increasing  costs  of  tax  compliance.  Staff  turnover  in  public  administration  could 
affect  the  allocation  of  funds.  Some  efforts  have  been  made  to  address  problems  related  to  public 
procurement and digitalization of public administration. 

Main barriers to investment and priority actions underway 

1. Administrative and regulatory burdens continue hampering business environment in the Czech Republic. 
The  numerous  procedures  required  to  start  a  business,  increasing  time  needed  to  comply  with  tax 
requirements  and  high  cost  needed  to  resolve  commercial  disputes  are  barriers  for  investment.  The 
implementation  of  the  amended  Construction  Act  (in  effect  since  January  2018)  aims  to  shorten  and 
streamline the procedures for granting land and building permits, e.g. providing the option of including the 
environmental impact assessment in the zoning decision or in the joint zoning and building permit.  

2.  Specific  concerns  about  the  conduct  of  public  procurement  procedures  prevent  public  investment  from 
fully exploiting its potential. Despite the reforms adopted by the authorities (e.g., the implementation of the 
public  procurement  directives)  and  the  training  of  procurers,  issues  include  the  steadily  increasing  rate  of 
single  bid  procedures  as  well  as  the  incidence  of  corruption.  Some  action  has  been  taken  to  improve 
efficiency  of  the  public  administration.  There  is  still  room  to  accelerate  the  drawdown  of  the  EU  funds. 
Several measures taken in 2017 are intended to boost the use of e-government services, one of the lowest in 
the EU.  

35 

Regulatory/ administrative burdenCSRTaxationPublic administrationCSRAccess to financePublic procurement /PPPsCSRCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionCSRWages & wage settingDigital Economy / TelecomEducation EnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentLabour market/ EducationSector specific regulationFinancial Sector / TaxationR&D&I 
 
3.5. SECTORAL POLICIES 

Research & development 

The  Czech  economy  is  shifting  towards  more 
knowledge-intensive  activities,  with  increased 
business R&D investment, mainly through FDI. 
The country saw some of the strongest EU growth 
in high-tech and medium-high-tech manufacturing 
and knowledge-intensive services sectors, in terms 
of  share  of  value  added  (Graph  3.5.1).  Business 
expenditure  on  R&D  (BERD)  has  increased  from 
0.7 %  of  GDP  in  2008  to  1 %  of  GDP  in  2016 
(61.1 %  of  total  R&D) (49).  About  7.3 %  of  R&D 
expenditure  in  business  was  funded  from  public 
sources.  R&D  conducted  by  foreign  companies 
stood  at  64.1 %  of  total  business  expenditure  for 
R&D in 2016. Public expenditure on research and 
development  decreased  by  0.27  pps  to  0.65 %  of 
GDP  in  2016  (with  the  decrease  of  public  R&D 
funded from abroad for more than 80 %). 

Graph 3.5.1:  Value added in high- and medium-high-tech 

manufacturing and KIS as % of value added 

inward  foreign  R&D  investment in  the  service 
sector. 

to 
Skilled  human  resources  are  crucial 
developing  a  well-functioning  research  and 
innovation  ecosystem  but  are  in  short  supply. 
The  proportion  of  the  population  aged  30-34  who 
have  completed  tertiary  education  is  still  well 
below  the  EU  average  (50),  although  it  has  been 
catching-up in the last 10 years. While the country 
performs  well  for  the  number  of  graduates  in 
computing  (sixth  in  the  EU),  it  is  below  the  EU 
in  science  and 
average 
engineering  (17.2  per  thousand  population  aged 
25-34,  against  an  EU  average  of  19.1).  This 
situation is likely to lead to further skill shortages 
in  the  future.  Attracting  more  talent  into  science 
and  engineering  and  into  a  research  career (51), 
including  recruiting  from  abroad  and  improving 
conditions  for  female  researchers (only  around 
23 %  full-time  equivalents  of  researchers  in  2016 
were women) (Srholec et al., 2017), could alleviate 
emerging shortages. 

for  new  graduates 

academia 

links 
Measures  have  been  taken  to  build 
between 
and  businesses,  but 
knowledge flows remain weak. Key indicators of 
public-private  cooperation  remain  below  the  EU 
average (52).  Setting  up  National 
Innovation 
Platforms  has  enabled  a  more  structured  debate 
with  the  private  sector  about  its  needs  and 
priorities in applied research in preparation for the 
updated  national  research  and  innovation  strategy 
for  smart  specialization.  The  National  Innovation 
Platforms 
the 
establishment of collaborative networks at regional 
level 
the 
too.  Several  programmes,  run  by 
Technological Agency of the Czech Republic (TA 
CR), 
public-private 
cooperation.  The  new  ETA  programme  managed 
by  TA  CR,  whose  aim  is to  strengthen  social and 
research, 
in 
human 
experimental development and innovation includes 
innovative  approaches  to  bring  together  research 
organisations  and  innovation  stakeholders.  The 

dimensions 

supporting 

encourage 

expected 

applied 

focus 

are 

on 

to 

(50)  32.8 %  in  the  Czech  Republic  against  39.1%  in  the 

EU - this puts it 23rd in the EU. 

(51)  51.8 %  (full-time  equivalents ̶  FTE)  of  researchers  were 
employed  in  the  private  sector in  2016.  Researchers  made 
up 0.74 % of all employees in 2015 (EU average: 0.79 %). 
(52)  Public R&D financed by business, as a percentage of GDP, 
stood at 0.030 in 2015 (EU average: 0.049); public-private 
co-publications  per  million  population  stood  at  10.2  in 
2015 (EU average: 28.7). 

(1) High-tech manufacturing (HT), medium-high-tech 
manufacturing (MHT) and knowledge-intensive services 
(KIS), 2015 and compound annual growth, 2000-2015. 
Source: European Commission (SRIP Report 2018). 

reduced 

While BERD spent by foreign enterprises more 
than  doubled  over  the  last  six  years,  domestic 
enterprises  actually 
their  R&D 
expenditure  over  the  last  two  years.  Foreign 
funds  for  R&D  activities  are  mostly  channelled 
into the manufacturing sector (about 56 % of total 
(Czech 
inward 
Statistical  Office,  2017). 
and 
communication  activitiesʼ  (19.6 %)  received  most 

foreign  R&D 

ʻInformation 

investment) 

(49)  The increasing BERD intensity is also reflected in its share 
of added value created by enterprises, which grew by about 
0.5 pp. since 2010 to 1.5 % in 2015 (2.0 % EU-28). 

36 

EUBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK-1.0-0.50.00.51.01.52.0253035404550556065Compound annual growth (%), 2000-2015% of total value added, 2015 
 
 
                                                           
                                                           
competence  centres  financed  by  TA  CR  and  the 
regional  voucher  programmes  (subsidies  for  the 
purchases  of  knowledge  from  regional  research 
institutions)  are  effective  instruments  to  foster 
public-private  cooperation,  with  potential  for 
scaling-up  (53).  However,  it  remains  to  be  seen 
whether the reform momentum will be sustained. 

The Czech Republic underperforms in terms of 
the quality of its public science base. Since 2010, 
very  significant  investment  notably  using  the  ESI 
Funds,  has  allowed  public  research  capacity  to 
grow. As a result, the Czech Republic ranked ninth 
in  the  EU  in  public  R&D  intensity  in  2016 
(measured as public R&D expenditures as a share 
of GDP: 0.65 % against an EU average of 0.69 %). 
However,  this  investment  has  not  yet  had  a 
sizeable impact on scientific quality. For instance, 
the Czech Republic ranks only 20th in the EU for 
its share of highly-cited scientific publications (54), 
a  key  indicator  of  scientific  quality,  even  if  more 
positive developments are visible in some specific 
areas (Albrecht et al., 2017). The rapid rise seen in 
investment  will  need  some  time  to  raise  outcome 
and  impact  indicators.  However,  the  contrast 
between  R&D  inputs  and  outcome  indicators 
highlights the importance of a more efficient R&D 
system.  The  relatively  low  international  openness 
of the research system (55) is one of the factors to 
be  addressed  in  raising  quality  (Jonkers  et  al., 
2017). 

Reforms to improve the efficiency of the public 
R&D  system  has  begun,  but  have  not  yet  been 
fully  implemented.  An  example  is  the  new 
evaluation  methodology  (Metodika  17+)  adopted 
in 2017, which will be gradually implemented until 
2019. The formal process for updating the national 
smart  specialisation  strategy  has  started.  An 
international  peer-review  evaluation  of  most 
important  research  facilities  took  place  in  2017 
large  R&D 
under 

funding  scheme 

the 

for 

(53)  The  ‘National  Competence  Centres  1  program’  has  been 

adopted in 2017. 

(54)  6.7 %  of  the  Czech  scientific  publications  are  among  the 
upper  10 %  of  most  cited  publications  worldwide  (EU 
average: 11.1 %) (European Commission, 2018b) 

(55)  As  measured  by  international  co-authorship  (22nd  in  the 
EU  by  share  of  internationally  co-authored  publications) 
and mobility of the research workforce. 

3.5. Sectoral policies 

infrastructures  (Roadmap  for  2016-2022  based  on 
the 2014 comprehensive ex-ante evaluation) (56). 

research,  development 

and 
The  public 
innovation  support  system  and  its  governance 
are  fragmented.  The  August  2017  proposal for  a 
new law on the support for research, development 
and innovation has been put on hold.  

Telecommunications 

of 
telephone 

the  market 
Consumersʼ 
assessment 
services  has 
of 
performance 
deteriorated  since  2015  and 
the  relevant 
indicators are  below the  EU  average.  The  fixed 
telephone  services  market  ranks  fifth  worst  in  the 
EU  and  the  mobile  telephone  services  market 
ranks  low,  with  3.9  points  below  the  EU  average 
(European  Commission,  2018c 
forthcoming). 
Mobile  broadband  prices  are  significantly  above 
the EU average (57). That goes for services offered 
for both handsets (EUR 44 against an EU average 
of  EUR  24)  and  tablets/laptops  (EUR  27  against 
EUR  17)  (European  Commission,  2018d). Mobile 
broadband  take-up  is  below  the  EU  average,  with 
81 subscriptions per 100 people in 2017. To tackle 
the  high  mobile  broadband  prices,  the  National 
Regulatory  Authority  (CTU)  launched  a  public 
consultation in August 2017, inviting comments on 
the  criteria  for  assessing  the  mobile  services 
market. An amendment to the Telecommunications 
Act  aims 
the  retail  market  more 
competitive by reducing the time needed to switch 
between  mobile  operators  from  40-60  to  10  days 
from February 2018. 

to  make 

access 

(NGA) 

coverage 

While  the  target  for  fixed  broadband  full 
coverage  target  has  almost  been  reached,  next-
generation 
is 
89 %. However,  NGA  coverage  in  rural  areas 
(59 %  of  households)  remains  a  challenge  (58). 
Subscriptions to high speed broadband — although 
in line with the EU average — are based mostly on 
DSL 
technology 
(FTTH/B)  only  represents  17  %  of  the  total 
(Digital Scoreboard 2017 indicators). 

technologies,  while 

fibre 

(56)  That evaluation will serve as an expert input into the 2018 

update of the roadmap.  

(57)  Prices are for the least expensive deals for a handset (1 GB 
+  300  calls)  and  for  a  tablet/laptop  (5 GB).  They  are 
expressed in EUR/PPP, VAT included (January 2017). 
(58)  Compared  with  an  EU  average  of  80 %  (47 %  in  rural 

areas). 

37 

 
                                                           
                                                           
3.5. Sectoral policies 

2011 (SŽDC, 2016). A new rail regulator has been 
set up to oversee the railway market. 

Graph 3.5.2:  Investment in road infrastructure (% of GDP) 

(1) Over- and underinvestment correspond to the difference 
between the observed investment rate and a model-
predicted rate which accounts for sectoral and 
macroeconomic factors. Maintenance costs are included. 
Source:  Commission  Services  calculations  based  on 
Eurostat/OECD 

Energy efficiency, resources and climate 

Progress  towards  better  energy  performance 
for  residential  buildings  is  slower  than  in  the 
rest  of  EU,  despite  substantial  EU  funds  and 
national  budget  allocations  to  the  sector. 
Channelling the allocation of EU funds earmarked 
for energy efficiency of private housing (EUR 512 
million  in  this  programme  period)  and  enterprises 
(EUR  746  million)  to  beneficiaries  remains  a 
challenge,  while  the  situation  of  public  buildings 
(EUR  598  million)  is  improving  moderately.  The 
absence  of  a  harmonised  rollout  of  flexible 
the  support  for 
financial 
energy efficiency measures. 

instruments  hinders 

The  interconnection  capacity  for  electricity  is 
well  above  the  2020  and  2030  EU  targets. 
However, the national arrangements for congestion 
management and the definition of bidding-zone in 
central  Europe  do  not  accurately  reflect  actual 
is 
congestion.  Lack  of  regional  coordination 
increasingly limiting cross-border electricity flow. 

The  Czech  Republic  plans  to  use  ESI  Fund  to 
of 
support 
broadband 
roll-out 
the 
the  Operational 
infrastructure.  Specifically, 
for 
Innovations 
Programme  Enterprise  and 
Competitiveness (OPEIC) should support areas not 
benefitting from high-speed connectivity delivered 
by 
the 
implementation of the high-speed internet subsidy 
scheme  has  suffered  substantial  delays  and 
encountered  a  number  of  problems  that  would 
require swift action. 

operators.  However, 

commercial 

Transport infrastructure 

Investment  in  infrastructure  continues  to  be 
below  the  EU  average.  The  total  motorway 
network  length  was  776 km  in  2015  (European 
Commission,  2017f),  with  several  hundreds  of 
kilometres of core TEN-T motorways still missing. 
The  existing  investment  gaps  are  linked  to  the 
infrastructure  quality  and  standards,  in  particular 
with  regards  to  the  TEN-T  Regulation (59).  More 
generally,  investment  in  transport  infrastructure 
was  inadequate  in  2011-2015  (Graph  3.5.2).  The 
analysis  points  to  underinvestment  of  0.3  pps  of 
GDP  even  in  2015,  a  year  which  saw  a  sizeable 
influx of EU funds. And while EU funds are key to 
infrastructure 
for 
projects  in  the  2014-2020  programme  is  only 
slowly improving. 

the  selection  rate 

funding 

The  Czech  Republic  has  the  densest  railway 
network  in  Europe (60),  but  lacks  key  cross-
border  linkages.  In  2016,  the  total  length  of  rail 
lines  in  use  was  9 463  km,  just  34 %  of  which 
were  electrified,  against  an  EU  average  of  53 %. 
Major  cross-border  links  for  rail  and  road  with 
higher  added  value  are  missing.  The  national 
railway  signalling  system  is  outdated  and  the 
European  Railway  Traffic  Management  System 
(ERTMS) has not been put into operation. Opening 
the  market  for  rail  operations  could  boost  rail 
infrastructure investment. Rail competitorʼs market 
shares are lower than that of the national provider 
(ČD)  —  around  9 %  for  passenger  and  35 %  for 
freight transport — although they have risen since 

(59)  Regulation  No 1315/2013  on  Union  guidelines  for  the 
development  of  the  trans-European  transport  network  and 
repealing  Decision  No  661/2010/EU,  OJ  L  348, 
20.12.2013, p.1. 

(60)  The rail network is about 120 km/1 000 km², compared to 

the EU average of 50 km/1 000 km2. 

38 

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%200720082009201020112012201320142015UnderinvestmentOverinvestmentObserved rateStructural rate 
                                                           
 
 
3.5. Sectoral policies 

the  stricter  emission 

comply  with 
limits  on 
pollutant emissions to air, water and soil under the 
Industrial Emissions Directive. 

Municipal  waste  generation  remains  below  the 
EU  average,  with  recycling  of  municipal  waste 
accounting  for  33 %  in  2016  (EU-28:  46.3 %). 
The  main  treatment  option  for  municipal  waste  is 
still  landfilling:  this  accounted  for  53 %  of  all 
waste in 2016, twice the EU average of 25 %. On 
the 
an  Extended  Producer 
Responsibility  Scheme  for  packaging  is  working 
well,  and  delivered  a  recycling  rate  of  73 %  in 
2014  well  above  the  55 %  target  set  out  in  the 
Packaging Directive. 

hand, 

other 

The  Czech  Republic  has  already  met  its  2020 
targets for renewable energy (target 13 %; 15.1 
%  in  2015).  However,  due  to  changes  to  support 
schemes  for  renewables,  the  development  of 
renewable energy sources levelled off in 2015. The 
use  of  bio  fuels  in  transport  decreased  in  2015  to 
6.5 %, staying below the specific 10 % target. 

Waste  management  and  air  pollution  remain 
particular  challenges.  Air  quality  continues  to 
give  cause  for  concern.  The  latest  reports  from 
2016 show breaches of the particulate matter (PM 
10) limit in four air quality zones. This also raises 
concerns  about  premature  deaths  attributable  to 
fine  particulate  matter  concentrations  (European 
Environmental  Agency,  2017a).  The  Czech 
Republic  is  one  of  three  Member  States  that 
granted  large  combustion  plants  more  time  to 

Box 3.5.1: Policy highlights - European Semester process 

The European Semester process in the Czech Republic is well established and ensures strong involvement of 
the national parliament and stakeholders. As for the Parliament, the key milestones of the Semester, such as 
the Country Report, the National Reform Programme, the Convergence Programme and the country-specific 
recommendations  (CSRs)  are  discussed  in  the  EU  committees  of  both  chambers.  The  Commission 
Representation is usually invited to present the Country Report and the CSRs to the relevant parliamentary 
committees.    

Stakeholders  are  involved  in  the  European  Semester  primarily  through  the  so-called  ‘National  Reform 
Programme  (NRP)  roundtables’,  debates  organised  by  the  Office  of  the  Government.  The  objective  is  to 
provide  an  inclusive  consultation  platform  to  prepare  the  National  Reform  Programme  between  February 
and  April  each  year.  Furthermore,  the  stakeholders  discuss  in  the  ‘NRP  roundtable’  format  the  country-
specific recommendations and progress with the NRP and CSR implementation in October. The government 
approves  a  detailed  progress  report  on  NRP  and  CSR  implementation  in  November  which  is  then  shared 
with the Commission. The NRP roundtables include inter alia representatives of the ministries, Parliament 
(EU committees), associations of regions and municipalities, social partners, academia and NGOs. Around 
five  roundtables  are  organised  every  year,  some  benefiting  from  visits  by  the  Commissioners  and/or  the 
Commission  officials.  The  Commission  Representation  is  also  invited  to  the  roundtables  and  ensures 
participation at the level of either Head of Representation or European Semester officers.  

Besides  the  NRP  roundtables,  social  partners  are  consulted  on  the  NRP  and  the  Convergence  Programme 
also  via  a  formal  tripartite  process.  Involvement  of  stakeholders  in  the  Semester  and  effective 
communication  with  the  Commission  is  further  reinforced  by  bilateral  meetings  between  the  Commission 
Representation and social partners, local governments and line ministries.   

39 

 
 
 
 
 
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment (61) 

2017 Country-specific recommendations (CSRs) 

CSR 1: 

  Ensure the long-term sustainability of public 
finances, in view of the ageing population. 

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

  Limited  progress.  Besides  the  cap  of  the 
retirement  age  at  65  a  new  measure  increasing 
the  indexation  of  pensions  has  been  adopted. 
Specifically,  the  indexation  formula  now  takes 
into  account  a  higher  proportion  of  the  real 
wage growth (from ⅓ to ½). According to long-
term  projections,  the  impact  on  expenditure 
amounts 
in  2070  and  worsens 
sustainability. A review report should assess the 
retirement  age  every  5  years,  starting  in  2019. 
These  possible  reviews  are  not  part  of  the 
expenditure  costs  projections,  because 
the 
system  lacks  an  automatic  increase  of  the 
retirement age in line with life expectancy.  

to  2  pps 

 

Increase 
effectiveness  of  public 
spending, in particular by fighting corruption 

the 

  Some  progress.  A  number  of  major  anti-
corruptions reforms were adopted as part of the 
government’s  anti-corruption  strategy.  Positive 
examples 
to 
information,  on  the  origins  of  property,  on 
political  parties,  on  public  procurement  and  on 
the  Central  Registry  of  Contracts.  New  public 

laws  on  access 

include 

the 

(61)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations,  to  be  interpreted  on  a  case-by-case  basis  taking  into  account  country-specific  conditions.  They 
include the following: 

no legal, administrative, or budgetary measures have been announced  
in the national reform programme, 
in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission,  
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative 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 to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has 
not proposed any clearly-specified measure(s) to address the CSR. 

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

legislative work is needed before the CSR is implemented;  

presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures  have been 
implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision, but 
no implementing decisions are in place. 

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

have been implemented. 

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

40 

 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
A. Overview table 

interest 

to  disclose 

information  on 

procurement  legislation  requires  the  winning 
supplier 
its 
ownership  structure,  right  up  to  the  ultimate 
beneficial owner. An amendment to the law on 
conflicts  of 
introduced  a  central 
electronic  registry  of  interest  declarations  and 
required  all  public  officials  to  file  declarations 
on  taking  up  office.  However,  penalties  are 
mainly  financial.  An  amendment  to  the  law  on 
the  Central  Registry  of  Contracts  introduced 
further exceptions in July 2017, so that the law 
no  longer  covers  a  large  part  of  contracts  by 
state  and  municipality-owned  enterprises.  This 
raises  further  concerns  about  transparency  in 
public  procurement.  Some  areas  still  remain 
unaddressed  by  the  anti-corruption  strategy.  In 
particular,  the  limited  role  of  the  state  audit 
office,  the  lack  of  supervision  of  state-owned 
companies (now excluded from the scope of the 
Central  Registry  of  Contracts),  and  gaps  and 
inefficiencies  in  the  conflict  of  interest  registry 
remain  challenges  for  the  next  action  plan. 
Moreover,  plans  to  revise  lobbying  legislation 
and 
legislation  on 
whistleblower  protection  failed  to  materialise 
under the previous term of the Parliament. 

introduce 

specific 

to 

  and 

inefficient 

practices 

in 

public 

procurement. 

the  modernised 

procurement.  Following 
of 

  Some  progress.  Steps  were  taken  in  2017  to 
improve the legal and administrative framework 
the 
for 
public 
transposition 
public 
procurement  directive  in  2016,  the  conflict  of 
interest  registry  has  been  operational  since 
September  2017  and  a  new  law  on  identifying 
beneficial  owners  was  to  enter  into  force  in 
January  2018.  These  measures  should,  in  time, 
improve  transparency  and  integrity  in  public 
procurement. However, the proportion of public 
procurement  contracts  awarded  in  a  procedure 
that  attracted  only  one  bidder  has  been 
increasing over time and reached 47 % in 2017, 
while  it  was  19 %  in  2014.  On  the  other  hand, 
the  percentage  of  contracts  awarded  without  a 
call  for  tenders  decreased  considerably  from 
21 % in 2016 to 10 % in 2017.. 

CSR 2: 

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

  Remove obstacles to growth, in particular by 
streamlining 
granting 
procedures 
building  permits  and  further  reducing  the 

for 

the  permit 
Some  progress.  To 
procedure,  an  amendment  to  the  Construction  Act 
was  adopted  in  mid-2017  and  is  effective  from 

accelerate 

41 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
administrative burden on businesses, 

  by rolling out key e-government services, 

  by improving the quality of R&D 

  and 

by 

fostering 

employment 

of 

underrepresented groups. 

A. Overview table 

January 2018. One of its main features is the option 
of  including  the  environmental  impact  assessment 
in  the  zoning  decision  or  in  the  joint  zoning  and 
building permit. This is a positive development, as 
it  reduces  extra  administrative  steps.  However, 
developers  doubt  that  the  amendment  will  make  a 
difference to the new construction projects, mainly 
because  various  other  authorisations  are  not 
included in joint permitting. This makes the simpler 
procedure  unworkable  for 
infrastructure 
projects.  Also,  there  is  no  obligation  to  use  the 
integrated permitting procedure.  

large 

Some  progress.  The  measures  taken  are  showing 
some  results  but  most  are  still  at  an  early  stage  of 
implementation. In 2017 two laws on secure access 
to  e-government  services  have  been  adopted,  with 
the  national  e-ID  planned  to  be  introduced  in  July 
2018.  

Some progress. Reforms to improve the quality of 
public  R&D  have  been  launched,  but  have  not  yet 
been  fully  implemented.  An  example  is  the  new 
evaluation methodology (Metodika 17+) which was 
in  2017  and  should  be  gradually 
adopted 
implemented until 2019. The August 2017 proposal 
for  a  new 
the  support  of  research, 
development and innovation was put on hold. 

law  on 

of 

the 

and 

low 

The 

remains 

situation 

progress. 

the 
Some 
underrepresented  groups  (women, 
low  skilled, 
Roma)  has  somewhat  improved  thanks  to  the  tight 
labour  market  and  consequent  high  demand  for 
labour.  Childcare  facilities,  including  those  for 
children  under  three,  are  being  built  with  ESF 
financing  in  order  to  help  women  return  faster  to 
the labour market. However, the use of the flexible 
female 
arrangement 
employment rate is still significantly lower than the 
male  one.  Moreover,  only  a  few  uncoordinated 
measures  targeting  low  skilled  were  taken.  On  the 
contrary, the activation works, being the most used 
measure,  were  reinforced.  However  this  measure 
has  a  strong  lock-in  effect  in  the  secondary 
(protected) employment and rarely leads to regular 
and 
employment. 
individualised approach are still missing. Roma are 
estimated  to  represent  around  a  half  of  the  low 
skilled  unemployed  and  inactive.  The  coordinated 
approach,  which  is  the  main  measure  to  address 
their  situation,  is  still  under  development  and 
covers  only  a  small  part  of  the  socially  excluded 

Specialised 

trainings 

42 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview table 

localities.  More  consistent  investment  may  help  to 
develop its full potential. 

Europe 2020 (national targets and progress) 

2020 Employment rate target: 

75 % 

2020 R&D rate target: 

1 % (only public R&D expenditure) 

The  employment  rate  has  risen  steadily  over 
the past  five  years,  reaching  79.0 %  in  the  third 
quarter of 2017. 

While  public R&D  expenditure  as  a  share of GDP 
strongly increased from 2008 to 2015 (from 0.52 % 
to  0.87 %),  it  decreased  to  0.65 %  in  2016.  This 
decrease is due to a drop in the public expenditure 
funded by ESI Funds. 

2020 Greenhouse gas emissions, national target 
for the non-ETS sector: 

Between  2005  and  2016  greenhouse  emissions 
decreased  by  6  pps.  The  Czech  Republic  is 
expected to overachieve the target in 2020 by 9pps. 

+ 9 % (compared with 2005 emissions). 

2020 Renewable energy target: 

13 %  

With  a  renewable  energy  share of  14.9 %  in 2016, 
the Czech Republic is on track to meet its target for 
2020. 

2020  Energy  efficiency,  energy  consumption 
targets: 

44.3 Mtoe (62) (primary energy consumption); 

The  Czech  Republic  increased  its  primary  energy 
consumption  to  39.9  Mtoe  in  2015.  Final  energy 
consumption increased to 24.2 Mtoe in 2015.  

25.3 Mtoe (final energy consumption). 

2020 Early school leaving target: 

5.5 % 

2020 Tertiary education target: 

32 % 

Early school leaving was 6.7 % in 2016, above the 
national  target.  It  has  increased  from  last  year, 
contrary to the EU declining trend. 

The tertiary attainment rate rose to 31.9 % in 2016, 
reflecting a sharp increase in recent years. 

Target for reducing the number of people at risk 
of  poverty  or  social  exclusion,  expressed  as  an 
absolute number of people: 

The  number  of  people  at  risk  of  poverty  or  social 
exclusion  has  fallen  by  191 000  since  2008, 
reaching 1 375 000 in 2016. 

Reduction  of  100 000  persons  between  2008 
and 2020. 

(62)  Updated level of the national energy efficiency target in line with NEEAP 2017. 

43 

 
 
                                                           
ANNEX B: MACROECONOMIC IMBALANCE PROCEDURE 

SCOREBOARD 

Table B.1: 

The MIP Scoreboard for the Czech Republic 

Flags: b: Break in series. p: Provisional.           
1 This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. Please 
note that figures reported in this table may therefore differ from more recent data elsewhere in this document. 2) Figures 
highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism Report. 
Source:  European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661 

44 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-2.6 -2.4 -1.4 -0.6 0.0 0.5 Net international investment position% of GDP-35%-45.2 -45.9 -41.4 -36.6 -32.9 -24.6 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-0.5 0.5 -3.0 -10.0 -8.1 -3.7 Export market share - % of world exports5 year % change-6%7.6 -4.0 -9.4 -5.8 -1.8 2.9 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)3.4 3.8 4.2 4.0 0.1 2.9 House price index (2015=100), deflated 1 year % change6%-1.7 -3.6 -0.8 1.8 3.8p6.7pPrivate sector credit flow, consolidated% of GDP14%2.1 2.9 4.4 1.7 0.3 4.4 Private sector debt, consolidated% of GDP133%68.3 70.7 73.7 71.5 68.1 68.7 General government gross debt% of GDP60%39.8 44.5 44.9 42.2 40.0 36.8 Unemployment rate3 year average10%6.9 7.0 6.9 6.7 6.1 5.1 Total financial sector liabilities, non-consolidated1 year % change16.5%4.3 5.2 11.4 5.2 8.1 14.5 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp0.8b1.5 2.7 3.0b2.4 2.1 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp0.5b1.0 0.0 0.0 -0.6 -1.3 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp8.2 2.9 0.6 -2.2 -6.9 -8.4 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

1)Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks 
2) Latest data Q2 2017. 
3) As per ECB definition of gross non-performing debt instruments 
4) Quarterly values are not annualised 
5) Latest data April 2017. 
* Measured in basis points 
Source:  European  Commission  (long-term  interest  rates);  World  Bank  (gross  external  debt);  Eurostat  (private  debt);  ECB  (all 
other indicators). 

45 

201220132014201520162017Total assets of the banking sector (% of GDP)1)118.7121.0124.8122.6126.9147.8Share of assets of the five largest banks (% of total assets)61.562.861.363.364.7-Foreign ownership of banking system (% of total assets)2)92.792.391.393.192.891.4Financial soundness indicators:2)----3.42.6              - capital adequacy ratio (%)15.616.617.017.617.717.6              - return on equity (%)4)13.711.411.411.311.97.2Bank loans to the private sector (year-on-year % change)1)3.43.84.57.18.89.3Lending for house purchase (year-on-year % change)1)5.65.75.78.29.29.6Loan to deposit ratio1)73.872.672.071.873.471.3Central Bank liquidity as % of liabilities5)0.00.00.00.00.00.0Private debt (% of GDP)70.773.771.568.168.7-Gross external debt (% of GDP)2) - public13.514.413.315.518.120.7    - private24.134.436.933.230.630.6Long-term interest rate spread versus Bund (basis points)*128.754.241.37.933.861.5Credit default swap spreads for sovereign securities (5-year)*103.855.747.244.938.737.0 
 
 
 
 
 
C. Standard tables 

Table C.2: 

Labour market and social indicators 

† The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
Source: Eurostat 

46 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)5.55.45.56.26.6:Gender employment gap (pps)17.717.217.516.616.015.9Income inequality, measured as quintile share ratio (S80/S20)3.53.43.53.53.5:At-risk-of-poverty or social exclusion rate1 (AROPE)15.414.614.814.013.3:Young people neither in employment nor in education and training (% of population aged 15-24)8.99.18.17.57.0:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)71.572.573.574.876.778.3Unemployment rate2 (15-74 years)7.07.06.15.14.02.9Gross disposable income of households in real terms per capita3 (Index 2008=100) ::100.9104.9107.6:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction445.548.243.642.340.5:Children aged less than 3 years in formal childcare3.02.04.42.94.7:Self-reported unmet need for medical care1.01.01.10.80.7:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::57.054.060.0 
 
 
 
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.   Values for 2012 and 2015 refer respectively to 
mathematics and science.     
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD. 

47 

Labour market indicators201220132014201520162017 5Activity rate (15-64)71.672.973.574.075.0:Employment in current job by durationFrom 0 to 11 months9.79.39.710.010.1:From 12 to 23 months7.77.37.07.58.5:From 24 to 59 months17.717.016.115.115.4:60 months or over64.866.267.167.365.9:Employment growth* (% change from previous year)0.40.30.61.41.31.6Employment rate of women(% of female population aged 20-64)62.563.864.766.468.670.2Employment rate of men (% of male population aged 20-64)80.281.082.283.084.686.1Employment rate of older workers* (% of population aged 55-64)49.351.654.055.558.561.7Part-time employment* (% of total employment, aged 15-64)5.05.85.55.35.76.1Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)8.39.19.710.09.79.6Transition rate from temporary to permanent employment(3-year average)36.034.733.535.1::Long-term unemployment rate1 (% of labour force)3.03.02.72.41.71.1Youth unemployment rate (% active population aged 15-24)19.518.915.912.610.57.9Gender gap in part-time employment6.47.57.07.17.78.5Gender pay gap2 (in undadjusted form)22.522.322.522.5::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)11.110.09.68.58.8:Underachievement in education321.0::21.7::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)25.626.728.230.132.8:Variation in performance explained by students' socio-economic status416.2::18.8:: 
 
 
 
 
C. Standard tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(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) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

48 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.06.06.05.8::Disability1.41.31.31.2::Old age and survivors9.59.39.08.7::Family/children1.81.81.71.6::Unemployment0.60.70.60.5::Housing0.20.30.30.3::Social exclusion n.e.c.0.30.30.30.3::Total19.819.619.118.4::of which: means-tested benefits0.40.50.50.5::General government expenditure by function (% of GDP, COFOG)Social protection13.313.513.112.512.3:Health7.77.67.67.67.4:Education5.05.15.14.94.5:Out-of-pocket expenditure on healthcare (% of total health expenditure):13.614.114.8::Children at risk of poverty or social exclusion (% of people aged 0-17)*18.816.419.518.517.4:At-risk-of-poverty  rate1 (% of total population)9.68.69.79.79.7:In-work at-risk-of-poverty rate (% of persons employed)4.54.03.64.03.8:Severe material deprivation rate2  (% of total population)6.66.66.75.64.8:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan3.33.32.21.72.3:Tenant, rent at market price10.910.68.98.89.2:Proportion of people living in low work intensity households4 (% of people aged 0-59)6.86.97.66.86.7:Poverty thresholds, expressed in national currency at constant prices*1011009856199553102238106735:Healthy life years (at the age of 65)Females8.98.99.38.6::Males8.38.58.58.0::Aggregate replacement ratio for pensions5 (at the age of 65)0.60.60.60.50.5:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::44.856.361.462.3GINI coefficient before taxes and transfers*46.346.046.946.246.1:GINI coefficient after taxes and transfers*24.924.625.125.025.1: 
 
 
 
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

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). 

49 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry5.863.46-2.77-4.093.381.592.55Labour productivity in Construction2.30-2.560.174.785.115.57-2.43Labour productivity in Market Services2.742.541.121.382.087.87-2.14Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry-5.860.395.705.25-0.641.920.60ULC in Construction-3.763.400.06-8.68-4.42-0.265.10ULC in Market Services0.73-0.222.83-0.880.01-2.604.95Business Environment2010201120122013201420152016Time needed to enforce contracts1 (days)611.0611.0611.0611.0611.0611.0611.0Time needed to start a business1 (days)17.015.515.515.515.515.09.0Outcome of applications by SMEs for bank loans2na0.70na0.730.330.430.19Research and innovation2010201120122013201420152016R&D intensity1.341.561.781.901.971.931.68General government expenditure on education as % of GDP5.105.105.005.105.104.90naPersons with tertiary education and/or employed in science and technology as % of total employment38363637383738Population having completed tertiary education315161718192021Young people with upper secondary level education492929191919090Trade balance of high technology products as % of GDP-1.320.140.650.400.26-0.64naProduct and service markets and competition200320082013OECD product market regulation (PMR)5, overall1.881.501.39OECD PMR5, retail1.031.231.56OECD PMR5, professional services2.772.482.36OECD PMR5, network industries62.962.452.016 Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).5 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm3 Percentage population aged 15-64 having completed tertiary education.Notes:1 The methodologies, including the assumptions, for this indicator are shown in detail here: 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 codified 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 don't know.4 Percentage population aged 20-24 having attained at least upper secondary education. 
 
 
 
 
 
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)  
Real  unit  energy  costs  for  manufacturing  industry  excluding  refining  :  real  costs  as  %  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 GHG 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 2010 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  covering  natural  gas,  total  petrol  products,  nuclear  heat,  renewable 
energies and solid fuels 

* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

50 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.270.270.280.260.250.24Carbon intensity kg / €0.860.840.820.780.75-Resource intensity (reciprocal of resource productivity)kg / €1.111.000.990.990.970.92Waste intensity kg / €-0.15-0.14--Energy balance of trade % GDP-3.9-4.1-4.1-3.7-2.3-1.9Weighting of energy in HICP%14.0414.2214.0614.3614.4213.71Difference between energy price change and inflation %3.75.0-0.1-5.70.8-1.1Real unit of energy cost% of value added20.120.720.119.4--Ratio of environmental taxes to labour taxesratio0.140.130.120.120.12-Environmental taxes% GDP2.32.22.12.12.12.1Sectoral Industry energy intensity kgoe / € 0.170.180.180.170.160.15Real unit energy cost for manufacturing industry excl. refining% of value added19.019.018.617.4--Share of energy-intensive industries in the economy% GDP13.6813.5513.0613.3913.2113.14Electricity prices for medium-sized industrial users€ / kWh0.110.100.100.080.080.07Gas prices for medium-sized industrial users€ / kWh0.030.030.030.030.030.03Public R&D for energy % GDP0.020.020.020.030.030.03Public R&D for environmental protection% GDP0.010.010.010.010.010.01Municipal waste recycling rate%17.023.224.225.429.733.6Share of GHG emissions covered by ETS*%55.553.651.853.054.150.8Transport energy intensitykgoe / €0.760.770.770.830.840.88Transport carbon intensitykg / €2.062.092.102.262.31-Security of energy supplyEnergy import dependency%28.825.427.730.332.032.8Aggregated supplier concentration indexHHI31.529.033.627.219.9-Diversification of energy mixHHI0.280.270.260.260.260.26 
 
 
 
C. Standard tables 

51 

 
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