Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Estonia and delivering a Council opinion on the 2018 Stability Programme of Estonia
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Estonia, budget deficit, economic policy, economic reform, equal pay, gender equality, research and development, social policy, social security, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 406 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Estonia  and delivering a Council opinion on the 2018 Stability Programme of Estonia  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Estonia 

and delivering a Council opinion on the 2018 Stability Programme of Estonia 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  in  which  it  did  not  identify 
Estonia as  one  of the Member States  for which an in-depth  review would be carried 
out. On the same day, the Commission also adopted a recommendation for a Council 
recommendation on the economic policy of the euro area, which was endorsed by the 
European  Council  on  22  March  2018.  On  14  May  2018,  the  Council  adopted  the 
recommendation  on  the  economic  policy  of  the  euro  area  (‘recommendation  for  the 
euro area’).  

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OJ L 209, 2.8.1997, p. 1. 
COM(2018) 406 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 

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(2) 

(3) 

(4) 

(5) 

(6) 

As a Member State whose currency is the euro and in view of the close interlinkages 
between  the  economies  in  the  economic  and  monetary  union,  Estonia  should  ensure 
the full and timely implementation of the recommendation on the economic policy for 
the euro area, as reflected in the recommendations below, in particular (1).  
The  2018  country  report  for  Estonia4  was  published  on  7  March  2018.  It  assessed 
Estonia’s progress in addressing the country-specific recommendations adopted by the 
Council  on  11  July  2017,  the  follow-up  given  to  the  recommendations  adopted  in 
previous  years  and  Estonia's  progress  towards  its  national  Europe  2020  targets.  The 
Commission’s  analysis  leads  it  to  conclude  that  Estonia  is  not  experiencing 
macroeconomic imbalances. 

On  26  April  2018,  Estonia  submitted  its  2018  National  Reform  Programme  and  its 
2018 Stability Programme. To take account of their interlinkages, the two programmes 
have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  for  the  2014-2020  period.  As 
foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament 
and  of  the  Council5,  where  it  is  necessary  to  support  the  implementation  of  relevant 
Council  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and propose amendments to its Partnership Agreement and relevant programmes. The 
Commission has provided further details on how it would make use of that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance6.  

Estonia  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact.  The 
government plans to move from a general government deficit of 0.3 % of GDP in 2017 
to  a  surplus  of  0.2  %  of  GDP  in  2018,  0.5  %  of  GDP  in  2019  and  move  towards  a 
balanced budget thereafter. Its medium-term budgetary objective is a structural deficit 
of  0.5  %  of  GDP.  According  to  the  2018  Stability  Programme,  the  recalculated7 
structural  deficit is  projected  to amount  to  0.8 %  of GDP in  2018, 0.4 %  of GDP in 
2019 and remaining in a slight deficit thereafter. The general government debt-to-GDP 
ratio is projected to remain below 9 % of GDP in 2018 and 2019, declining to 5.3 % of 
GDP by 2022. The macroeconomic scenario underpinning those budgetary projections 
is  favourable.  Negative  risks  for  the  revenue  yield  assumptions  primarily  relate  to 
some  of  the  measures  which  are  not  well  specified,  affecting  all  years  of  the 
programme horizon. 

(7) 

For  2018,  Estonia  was  recommended  to  remain  at  the  medium-term  budgetary 
objective.  This  is  consistent  with  a  maximum  nominal  growth  rate  of  net  primary 
government  expenditure8  of  6.1  %,  corresponding  to  an  allowed  deterioration  in  the 

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SWD(2018) 205 final. 
Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 
laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social 
Fund, the  Cohesion Fund, the European Agricultural Fund for Rural Development and the European 
Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European  Regional 
Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology 
Net  primary  government  expenditure  comprises  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 

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(8) 

(9) 

structural balance by 0.2 % of GDP.  Based on the Commission 2018 spring forecast 
there is  a  risk of some  deviation from that  requirement in  2018. In  2019,  in  view  of 
Estonia's projected output gap of 2.7 % and with projected GDP growth below to the 
estimated  potential  growth  rate,  the  nominal  growth  rate  of  net  primary  government 
expenditure should not exceed 4.1 %, in line with the structural adjustment of 0.6 % of 
GDP stemming from the matrix of requirements under the Stability and Growth Pact. 
Based  on  the  Commission  2018  spring  forecast  under  unchanged  policies,  there  is  a 
risk of some deviation from that requirement in 2019 and over 2018 and 2019 taken 
together.  Overall,  the  Council  is  of  the  opinion  that  Estonia  needs  to  stand  ready  to 
take further measures to ensure compliance in 2018 and 2019. 

Providing  a  more  adequate  social  safety  net  supported  by  better  service  provision 
remains  a  major  challenge  for  Estonia.  Estonia  spends  less  on  social  protection 
(around 16 % of GDP) than the European Union average (around 28 % of GDP). The 
impact of social transfers on reducing poverty is improving but still weak and below 
the  European  Union  average.  Estonia  still  has  a  high  at-risk-of-poverty  rate, 
particularly  for  people  with  disabilities,  jobless  households  and  older  people, 
especially those living alone. Income inequality at 5.6 % in 2016 remains higher than 
the European Union average (5.2 % in 2016) despite recent improvements. Some steps 
are  being  taken  to  provide  adequate  family  benefits  for  larger  families,  which  has 
further  reduced  relative  poverty  among  children.  The  level  of  minimum  income 
benefit was increased, accompanied by incentives to return to work. The payment of 
an allowance of EUR 115 to persons with low pensions and living alone was the first 
step  in  addressing  the  very  high  at-risk-of-poverty  rate  of  this  group.  The  at-risk-of-
poverty-or-social-exclusion  gap  between  people  with  disabilities  and  those  without 
(20.9  %  in  2016)  was  also  higher  than  the  European  Union  average  (10.1  %). 
Financing  of  long-term  care  services  does  not  match  the  needs  of  the  ageing 
population.  The  impact  of  ongoing  administrative  reform  on  the  delivery  of  high 
quality services remains to be seen.  

The  gender  pay  gap  remains  one  of  the  highest  in  the  European  Union  at  25.3 % 
although it is reducing. Work-life balance is being promoted by the recent changes to 
the parental leave and benefit system. These changes are expected to give women an 
incentive to return to work earlier and thereby contribute to lowering Estonia’s gender 
pay gap.  The changes will be implemented between 2018 and 2020. The proposal on 
the  second  stage  of  parental  leave  reform  is  being  discussed.  Continued  engagement 
with social partners and strengthening their capacity, in light of very low membership 
rates,  remain  important  in  this  context  and  beyond.  Amendments  to  the  Gender 
Equality Act to improve wage transparency have yet to be adopted and, once adopted, 
will  only  apply  to  the  public  sector  entities.  A  tool  to  analyse  wage  differences 
between genders is not expected to be developed before 2019.  

(10)  Estonia’s slow productivity growth is linked to its moderate performance on research, 
technology  and  innovation.  With  less  than  0.5 %  of  Estonian  companies  reporting 
research activities in 2016, business research and development intensity is only 0.7 % 
of  GDP  —  half  the  EU  average  of  1.3 %.  In  addition,  several  indicators  measuring 
innovation — such as small and medium-sized companies creating new products and 
processes or innovating in-house — have declined significantly in recent years. While 
the economy has some high value added and knowledge-intensive activities, business 

formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(11) 

research and development intensity, science-business links, and companies’ innovation 
and  technological  capacity  remain  low.  Public  sector  expenditure  on  research, 
technology and innovation has traditionally been above the European Union average. 
However, insufficient priority-setting in public research poses challenges. Estonia has 
put  in  place  several  measures  to  boost  the  economy’s  research  and  innovation 
performance, but it is a challenge to maximise their impact. 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Estonia’s  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Stability  Programme  and  the  2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  Estonia  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Estonia  but  also  their 
compliance with Union rules and guidance, given the need to strengthen the Union’s 
overall  economic  governance  by  providing  Union-level  input  into  future  national 
decisions.  

(12) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Stability 
Programme and its opinion9 is reflected in particular in recommendation 1 below. 

HEREBY RECOMMENDS that Estonia take action in 2018 and 2019 to: 

1. 

2. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed 4.1 % in 2019, corresponding to an annual structural adjustment of 0.6 % of 
GDP.  Improve  the  adequacy  of  the  social  safety  net,  in  particular  for  older  people 
and people with disabilities. Take measures to reduce the gender pay gap, including 
by improving wage transparency in the private sector. 

Promote research and innovation, in particular by providing effective incentives for 
broadening the innovation base. 

Done at Brussels, 

For the Council 
The President 

9 

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

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