Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Ireland and delivering a Council opinion on the 2018 Stability Programme of Ireland
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Ireland, budget deficit, credit policy, economic policy, economic reform, employment policy, health care, reduction of gas emissions, social policy, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 407 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Ireland  and delivering a Council opinion on the 2018 Stability Programme of Ireland  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Ireland 

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

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  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

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 identified Ireland 
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 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2018) 407 final. 
P8_TA(2018)0077 and P8_TA(2018)0078.  

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(2) 

(3) 

(4) 

(5) 

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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’). 

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, Ireland 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) and (2). 
The  2018  country  report  for  Ireland5  was  published  on  7  March  2018.  It  assessed 
Ireland’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 Ireland's progress towards its national Europe 2020 targets. It also 
included  an  in-depth  review  under  Article  5  of  Regulation  (EU)  No  1176/2011,  the 
results  of  which  were  also  published  on  7  March  20186.  The  Commission’s  analysis 
leads  it  to  conclude  that  Ireland  is  experiencing  macroeconomic  imbalances.  In 
particular, large stocks of private and public debt and net external liabilities constitute 
vulnerabilities. However, the improvements have been substantial. Strong productivity 
growth in past years led to improved competitiveness and to a positive current account 
balance entailing  a rapid reduction in the high  stock of net foreign  liabilities. Strong 
economic  growth  continues  to  support  private  deleveraging.  However,  the  stock  of 
private  debt  remains  high,  although  the  strong  influence  of  the  activities  of 
multinational  companies  needs  to  be  taken  into  account  when  evaluating  corporate 
debt,  while  household  debt  appears  broadly  in  line  with  fundamentals.  Government 
debt is projected to remain on a downward trajectory, and the deficit is moving closer 
to  balance. House  prices  are  growing  at  a rapid  pace,  albeit  from  likely  undervalued 
levels,  which  is  also  strengthening  households’  balance  sheets.  Banks  are  well 
recapitalised  and  their  profitability  is  improving  gradually.  The  stock  of  non-
performing  loans,  although  remaining  high,  continues  to  decrease.  Policy  action 
addressing  these  vulnerabilities  has  been  taken,  but  some  measures  will  take  time  to 
generate the expected effects. 

On 18 April 2018, Ireland submitted its 2018 National Reform Programme and on 30 
April  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  Council7,  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 

SWD(2018) 206 final. 
COM(2018) 120 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). 

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(6) 

(7) 

(8) 

in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance8.  

Ireland is currently in the preventive arm of the Stability and Growth Pact and subject 
to the transitional debt rule. In its 2018 Stability Programme, the government expects 
the  headline  deficit  to  decline  slightly  to  0.2 %  of  GDP  in  2018  and  to  continue  to 
gradually  improve  thereafter,  turning  into  a  surplus  of  0.4 %  of  GDP  in  2021.  The 
medium-  term  budgetary  objective  —  a  structural  deficit  of  0.5 %  of  GDP  —  is 
expected  to  be  met  from  2019  onwards.  According  to  the  Stability  Programme,  the 
general  government  debt-to-GDP  ratio  is  expected  to  fall  to  66 %  in  2018  and  to 
continue  declining  to  58.7 %  in  2021.  The  macroeconomic  scenario  underpinning 
those  budgetary  projections  is  plausible.  At  the  same  time,  the  measures  needed  to 
support  the  planned  deficit  targets  from  2019  onwards  have  not  been  sufficiently 
specified. 

On 11 July 2017, the Council recommended Ireland to ensure that the nominal growth 
rate  of  net  primary  government  expenditure  does  not  exceed  2.4 %  in  2018, 
corresponding to an annual structural adjustment of 0.6 % of GDP. At the same time, 
the Council stated that consideration should be given to achieving a fiscal stance that 
contributes to both strengthening the ongoing recovery and ensuring the sustainability 
of Ireland's public finances. Based on the Commission 2018 spring forecast, there is a 
risk of some deviation from the recommended fiscal adjustment in 2018 and over 2017 
and 2018 taken together.  

In  2019,  Ireland  should  achieve  its  medium-term  budgetary  objective.  This  is 
consistent with a nominal growth rate of net primary government expenditure9 which 
does not exceed 5.3 %10, corresponding to an annual structural adjustment of 0.1 % of 
GDP. Based on the Commission 2018 spring forecast, the structural balance is forecast 
to  reach  a  deficit  of  0.4 %  of  GDP  in  2019,  above  the  medium-term  budgetary 
objective. Ireland is forecast to comply with the transitional debt rule in 2018 and the 
debt  rule  in  2019.  Overall,  the  Council  is  of  the  opinion  that  Ireland  needs  to  stand 
ready  to  take  further  measures  to  ensure  compliance  in  2018  and  is  projected  to 
comply with the provisions of the Stability and Growth Pact in 2019. In view of the 
difference  between  measurements  of  GDP  and  domestic  output  in  Ireland  and  the 
associated impact on the debt-to-GDP ratio, Ireland’s current cyclical conditions and 
the  heightened  external  risks,  the  use  of  any  windfall  gains  to  further  reduce  the 
general government debt ratio would be prudent. 

(9) 

Public finances have further improved on the back of robust output growth, yet risks 
of revenue volatility remain, and there is scope for making revenue more resilient to 
economic fluctuations and adverse shocks. Limiting the scope and the number of tax 

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COM(2014) 494 final. 
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 
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. The expenditure benchmark for Ireland reflects an adjustment to correct for a distortion to the 10-
year reference rate of potential growth caused by the exceptionally high surge in real GDP growth in 
2015.  Following  the  approach  taken  by  the  Irish  authorities  in  their  Budget  2017  calculations,  the 
Commission has taken the average of potential growth rates in 2014 and 2016. 
As in 2018, the expenditure benchmark reflects an adjustment to correct for a distortion to the 10-year 
reference rate of potential growth caused by the exceptionally high surge in real GDP growth in 2015. 

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expenditures, and broadening the tax base would improve revenue stability in the face 
of economic volatility. However, some recent tax measures have focused on cuts and 
reliefs, and seem to have further increased reliance on highly pro-cyclical sources of 
revenue. Moreover, Ireland has further potential to improve the way its tax system can 
support environmental objectives. 

(10)  As  indicated  in  the  2018  euro  area  recommendation,  the  fight  against  taxpayer's 
aggressive  planning  strategies  is  essential  to  impede  distortions  of  competition 
between  firms,  provide  fair  treatment  of  taxpayers  and  safeguard  public  finances. 
Spill-over effects of taxpayers' aggressive planning strategies between Member States 
call  for  a  coordinated  action  of  national  policies  to  complement  EU  legislation.  The 
high  level  of  royalty  and  dividend  payments  as  a  percentage  of  GDP  suggests  that 
Ireland’s  tax  rules  are  used  by  companies  that  engage  in  aggressive  tax  planning. 
Limited application of withholding taxes on outbound (i.e. from EU residents to third 
country residents) royalty and dividend payments made by companies based in Ireland 
may lead to those payments escaping tax altogether, if they are also not subject to tax 
in  the  recipient  jurisdiction.  Furthermore,  companies  may  use  certain  provisions  in 
bilateral tax treaties between Ireland and some other countries to overrule the new tax 
residence  rule  put  in  place  in  Ireland  in  2015.  The  outcome  of  the  consultation 
undertaken by Ireland following the Independent Review of the Corporation Tax Code 
will be relevant for the design of the announced tax reforms. The Commission takes 
note of recent positive steps announced or adopted (i.e. steps taken to tackle aggressive 
tax planning domestically; possible defensive measures against listed non cooperative 
jurisdictions).  Based  on  recent  exchanges,  the  Commission  will  continue  its 
constructive dialogue to fight against taxpayers aggressive planning strategies. 

(11)  Long-term fiscal sustainability risks related to the cost of ageing remain. Ireland has 
introduced some significant efficiency measures such as a cost-saving agreement with 
the  pharmaceutical  industry,  a  financial  management  system  and  activity-based 
funding. Some measures have also been taken to improve the availability of primary 
health care. However, the Irish healthcare system is costly and faces many challenges, 
which  are  compounded  by  a  rapidly  ageing  population.  Moreover,  primary  and 
community care  services are not  yet  capable of alleviating the mounting pressure on 
capacity  and  costs  within  hospital  care.  The  planned  move  towards  universal  health 
care needs to be supported by multi-year budgeting and better expenditure control. In 
addition, it has to be informed by the findings from a comprehensive spending review 
of the effectiveness and efficiency of the health sector. In addition, strengthening the 
gatekeeper  role  of  primary  care  for  Ireland’s  overburdened  hospitals  should  be 
considered. Despite a wide range of reforms to contain public pension expenditure, the 
overall  pension  system  deficit  is  expected  to  grow  significantly  in  the  long  term.  A 
timely  implementation  of  the  presented  roadmap  for  pension  reform  is  key  to 
strengthening the fiscal sustainability of the Irish pension system.  

(12)  Years  of  low  investment  following  the  economic  bust  are  taking  their  toll  on  the 
availability of appropriate infrastructure in the areas of transport, clean energy, water 
services,  housing  and  telecommunications.  Persistent  supply  shortages,  coupled  with 
increasing demand, continue to fuel property price increases.  Although prices did not 
seem  overvalued  in  2016,  affordability  is  a  concern.  If  not  addressed,  constraints 
limiting the supply of housing could contribute to imbalances building up. Combined 
with  spatial  planning,  improved  infrastructure  is  a  critical  enabler  for  an  appropriate 
housing supply response, the enhancement of private investment, productivity growth 
and  a  balanced  regional  economic  development.  Moreover,  infrastructure  investment 

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in clean energy, clean and public transport and water as well as intensified efforts in 
the field of renewable energy and the circular economy will be essential for Ireland to 
succeed in its transition towards a low-carbon and environmentally resilient economy. 
The  National  Development  Plan  2018-2027  and  the  National  Planning  Framework, 
which are part of the ‘Ireland 2040 Strategy’, will be strong steps in the right direction 
once acted upon and implemented in close coordination with stakeholders. 

(13)  Existing climate change mitigation efforts will not enable Ireland to achieve its Europe 
2020  climate  goals  domestically.  Only  limited  progress  has  been  achieved  in 
decarbonising key parts of the economy, mainly in agriculture, road transport and the 
residential sector. This will make it necessary for Ireland to use available flexibilities 
to  comply  with  the  Effort  Sharing  Decision,  such  as  buying  allocations  from  other 
Member States.  National projections highlight the scale of additional efforts needed: 
emissions  under  the  Effort  Sharing  Decision  (setting  binding  annual  greenhouse  gas 
emission  targets  for  Member  States  for  2013-2020)  are  expected  to  increase  up  to 
2025,  before  stabilising  at  a  level  slightly  below  2005  emissions,  on  the  basis  of 
existing  policies.  Ireland  recently  adopted  a  National  Mitigation  Plan  laying  out  a 
roadmap towards a low-carbon economy and a coherent framework to tackle persisting 
challenges in the energy sector. As it stands, however, the plan offers few specific new 
mitigation measures. The National Planning Framework also has a climate component, 
in  recognition  of  the  fact  that  adequate  spatial  planning  will  be  a  critical  enabler  of 
climate change mitigation given that the population is so widely dispersed and Ireland 
only has a small number of large urban areas, all of which face serious congestion and 
public  transport  issues.  Finally,  the  National  Development  Plan  2018-2027  and  its 
effective  implementation  will  play  a  crucial  role  in  decarbonising  the  economy.  The 
plan will in fact determine the extent to which additional means are mobilised for the 
decarbonisation of the power sector, the deployment of renewable energy sources and 
the improvement of public transport and energy efficiency. 

(14)  Ensuring inclusive growth remains a challenge in Ireland. Unemployment fell to 6.7 % 
in  2017  but  certain  groups  are  still  largely  detached  from  the  labour  market  and 
socially  excluded.  The  social  protection  and  taxation  systems  are  very  effective  in 
curtailing  poverty  and  inequality,  and  Ireland  has  taken  measures  to  incentivise 
employment  by  tapering  the  withdrawal  of  benefits  and  supplementary  payments. 
Ireland’s  persistent  high  at-risk-of-poverty-or-social-exclusion  rate  is  linked  to  the 
high proportion of people living in households with low work intensity (almost twice 
the  EU  average  and  highest  in  the  EU  —  18.2 %  v  10.5 %  in  2016).  This  is 
particularly  prevalent  for  single-parent  households.  Almost  three  quarters  of  people 
not  working  in  Ireland  are  inactive.  Both  the  overall  and  child  at-risk-of-poverty-or-
social-exclusion rates fell slightly in 2016 but remain higher than the EU average. As a 
result,  Ireland  needs  to  complete  the  implementation  of  its  Action  Plan  for  Jobless 
Households, including by improving the integrated support to people furthest from the 
labour  market.  The  supply  of  social  housing  requires  continued  attention  to  meet 
ambitious targets and high demand.  

(15)  Access to affordable, full-time and quality childcare remains a challenge. According to 
the  Organisation  for  Economic  Co-operation  and  Development,  childcare  costs  in 
Ireland — relative to wages — were in 2015 the highest in the EU for lone parents and 
the  second  highest  in  the  EU  for  couples.  The  high  costs  of  childcare  can  act  as  a 
barrier  to  accessing  paid  employment,  particularly  in  low-income  households, 
including  single  parents.  This  has  a  negative  effect  on  women's  employment  rate, 
which  stood  in  2016  at  65.4 %  close  to  the  EU  average.  A  law  on  the  Single 

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Affordable  Childcare  Scheme 
in  Parliament. 
Implementation  is  expected  in  2018  but  delays  are  already  becoming  apparent.  The 
quality of childcare provision has also been promoted in particular through initiatives 
to ensure robust staff qualifications. 

is  currently  being  discussed 

(16)  The  differences  between  the  employment  rates  of  low,  medium  and  highly  skilled 
workers were among the highest in the EU in 2016 and the employment rate of low-
skilled labour is 10 pps lower than before the economic crisis. As a consequence and 
linked to  the  change in  economic activity, skills  mismatches and skills shortages are 
becoming  more  evident  in  several  areas.  This  accentuates  the  need  to  accelerate 
upskilling and reskilling policies and measures. Ireland has in particular a low level of 
participation  in  life-long  learning  among  low-skilled  people  in  employment,  which 
makes  them  vulnerable  to  changes  in  labour  demand.  Ireland  has  overall  one  of  the 
lowest  levels  of  digital  skills  in  the  EU,  which  is  in  stark  contrast  to  the  high 
proportion of science, technology, engineering and mathematics graduates leaving the 
Irish higher education system. Ireland also has one of the lowest employment rates of 
people with disabilities in the EU. 

(17)  Productivity  growth  in  Ireland  is  mainly  driven  by  multinational  companies.  The 
productivity  performance  gap  between  these  firms  and  Irish  indigenous  firms  —
mostly  small  and  medium-sized  enterprises  —  is  increasing.  The  high  international 
mobility  of  some  of  the  multinationals  and  current  uncertainties  may  put  the 
sustainability  and  resilience  of  the  Irish  economy  at  risk  in  the  longer  term.  Recent 
research  has  revealed  that  Irish-owned  firms  draw  limited  spill-overs  and  benefits in 
terms of productivity growth, innovation and export performance from the activities of 
multinationals  in  Ireland.  However,  Irish  firms  that  carry  out  research  and 
development  efforts  do  benefit  from  spill-overs  from  multinationals.  Public-sector 
incentives  to  carry  out  research  and  development  and  increasing  the  availability  of 
skilled workers to Irish small and medium-sized enterprises would foster the diffusion 
of new technologies in those firms. In addition and as repeatedly indicated by the Irish 
National  Competitiveness  Council,  ensuring  the  competitiveness  of  Irish  firms 
requires limiting the growth of certain inputs and of legal costs in particular. Barriers 
in  the  market  for  legal  services  continue  to  represent  a  challenge,  hampering 
competition  and  raising  costs  for  service  recipients.  These  affect  mostly  small 
businesses as they increase litigation costs. No implementing regulations are as yet in 
place  for  the  new  Legal  Services  Regulation  Act.  Public  consultations,  which  are  a 
pre-requisite to implementing legislation, are experiencing significant delays.  

(18)  Even if Ireland’s financial sector is on the way to a sustained recovery, legacy issues 
still create constraints. Although Ireland continued to make progress in reducing non-
performing loans, their ratio to total gross loans (11.2 % in September 2017) remains 
among  the  highest  in  the  EU.  Debt  overhang,  market  concentration  and  heightened 
uncertainty  in  some  exporting  sectors  weigh  on  the  demand  for  credit  by  small  and 
medium-sized enterprises which remains subdued.  It is crucial to reduce the long-term 
arrears, of which those overdue for more than 2 years account for around 60 % of total 
mortgages in arrears in 2017.  Reducing long-term arrears could also help address the 
problem  of  debt  overhang,  which  reduces  the  incentives  for  corporations,  and  small 
and  medium-sized  enterprises  in  particular,  to  put  credit  into  more  productive  uses. 
Recent  research  from  the  Central  Bank  of  Ireland  shows  that  restructuring  solutions 
involving  a  temporary  payment  reduction  are  particularly  prone  to  re-defaults.  The 
viability  of  repossessions  and  write-offs  could  be  improved  and  complemented  by  a 

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(19) 

(20) 

(21) 

stronger  consumer  protection  framework  for  secondary  market  loan  sales,  while 
safeguarding the durability of loan restructuring solutions. 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Ireland’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  Ireland  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Ireland  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.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Stability 
Programme and its opinion11 is reflected in particular in recommendation 1 below. 

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  the  National  Reform  Programme  and  the  Stability  Programme.  Its 
recommendations  under  Article  6  of  Regulation  (EU)  No  1176/2011  are  reflected  in 
recommendations 1 to 3 below. 

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

1. 

2. 

3. 

Achieve  the  medium-term  budgetary  objective  in  2019.  Use  windfall  gains  to 
accelerate the reduction of the general government debt ratio. Limit the scope and the 
number of tax expenditures, and broaden the tax base. Address the expected increase 
in  age-related  expenditure  by  increasing  the  cost-effectiveness  of  the  healthcare 
system and by pursuing the envisaged pension reforms. 

Ensure  the  timely  and  effective  implementation  of  the  National  Development  Plan, 
including in terms of clean energy, transport, housing, water services and affordable 
quality childcare. Prioritise the upskilling of the adult working-age population, with a 
focus on digital skills. 

Foster the productivity growth of Irish firms, and of small and medium enterprises in 
particular, by stimulating research and innovation with targeted policies, more direct 
forms of funding and more strategic cooperation with foreign multinationals, public 
research centres and universities. Promote faster and durable reductions in long-term 
arrears, building on initiatives for vulnerable households and encouraging write-offs 
of non-recoverable exposures. 

Done at Brussels, 

For the Council 
The President 

11 

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

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