Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Poland and delivering a Council opinion on the 2018 Convergence Programme of Poland
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Poland, budget deficit, economic policy, economic reform, industry-research relations, labour market, legislative procedure, pension scheme, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 420 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Poland  and delivering a Council opinion on the 2018 Convergence Programme of Poland  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Poland 

and delivering a Council opinion on the 2018 Convergence Programme of Poland 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2)/Article 9(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) 

(2) 

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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 
Poland  as  one  of  the  Member  States  for  which  an  in-depth  review  would  be  carried 
out.  
The  2018  country  report  for  Poland4  was  published  on  7  March  2018.  It  assessed 
Poland’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 Poland's progress towards its national Europe 2020 targets.  

OJ L 209, 2.8.1997, p. 1. 
COM(2018) 420 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 
SWD(2018) 219 final. 

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(3) 

(4) 

(5) 

(6) 

On  26  April  2018,  Poland  submitted  its  2018  National  Reform  Programme  and  its 
2018  Convergence  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.  

Poland is currently in the preventive arm of the Stability and Growth Pact. In its 2018 
Convergence  Programme,  the  government  plans  a  gradual  improvement  of  the 
headline balance from a deficit of 1.7 % of GDP in 2017 to 0.7 % of GDP in 2021. 
The medium-term budgetary objective, a deficit of 1.0 % of GDP in structural terms, 
is  not  expected  to  be  reached  by  2021,  i.e.  in  the  Convergence  Programme  horizon. 
The  recalculated  structural  balance7  points  to  a  deficit  of  1.3  %  of  GDP  in  2021. 
According to the 2018 Convergence Programme, the general government debt-to-GDP 
ratio is expected to decrease from 50.6 % of GDP in 2017 to 50.4 % of GDP in 2018 
and  to  46.0  %  by  2021.  The  macroeconomic  scenario  underpinning  those  budgetary 
projections is cautious in 2018 and plausible thereafter.  

On 11 July 2017, the Council recommended Poland to ensure that the nominal growth 
rate  of  net  primary  government  expenditure8  does  not  exceed  3.7  %  in  2018, 
corresponding to an annual structural adjustment of 0.5 % of GDP. At the same time, 
it was stated that the assessment of the budgetary plans and outcomes will need to take 
due  account  of  the  goal  of  achieving  a  fiscal  stance  that  contributes  to  both 
strengthening the ongoing recovery and ensuring the sustainability of public finances. 
The  Commission  has  carried  out  a  qualitative  assessment  of  the  strength  of  the 
economic  conditions  in  Poland  while  giving  due  consideration  to  its  sustainability 
challenges. On that basis, it is concluded that no additional elements need to be taken 
into  account.  Based  on  the  Commission  2018  spring  forecast,  there  is  a  risk  of  a 
significant deviation from that recommended adjustment in 2018. 

(7) 

In 2019, in view of Poland's projected output gap of 1.5 %, the nominal growth rate of 
net  primary  government  expenditure  should  not  exceed  4.2  %,  in  line  with  the 

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

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(8) 

(9) 

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, 
there  is  a  risk  of  a  significant  deviation  from  that  requirement  in  2019.  Overall,  the 
Council  is  of  the  opinion  that  the  necessary  measures  should  be  taken  as  of  2018  to 
comply with the provisions of the Stability and Growth Pact. 

In the medium and long term, Poland will face expenditure pressures in several areas, 
notably related to population ageing, which necessitate new mechanisms to assess the 
efficiency  and  effectiveness  of  public  spending  and  to  facilitate  a  reallocation  of 
resources.  To  this  end,  the  government  has  started  work  on  reforming  the  budgetary 
process,  in  particular  to  strengthen  the  medium-term  budgetary  framework,  and 
incorporate spending reviews into the budgetary process. Poland is the only Member 
State  without  a  fully-fledged  independent  fiscal  council  and  with  no  known  plans  to 
create one, even though existing independent institutions cover some of the functions 
typically fulfilled by fiscal councils. The 2018 country report finds that Poland made 
no  progress  in  limiting  the  extensive  use  of  reduced  rates  for  the  value  added  tax. 
However,  the  Polish  Ministry  of  Finance  is  working  on  to  simplify  how  applicable 
rates are assigned to goods and services. 

The  performance  of  the  Polish  labour  market  has  been  strong  in  recent  years  and 
employment  rates  have  continued  to  increase.  However,  the  participation  of  some 
groups  in  the  labour  force,  especially  women,  the  low-skilled  and  older  people,  has 
remained low in comparison to other Member States. Several recent policy measures 
have  tended  to  lower  the  incentive  to  work,  especially  for  women  and  older  people. 
The Polish social  protection system provides  insufficient incentives to take up work. 
While  the  child  benefit  has  reduced  poverty  and  inequality,  it  has  already  had  a 
negative effect on the participation of parents, mostly women, in the labour market as 
its  size  and  limited  means-testing  offset  work  incentives  built  into  other  social 
benefits.  Further  hampering  women’s  participation  in  the  labour  market,  the  formal 
childcare enrolment rate for children under the age of three remains among the lowest 
in  the  EU.  The  limited  support  made  available  to  people  providing  long-term  care 
prevents them from entering the labour market. Lowering the statutory retirement age 
has encouraged some older workers to exit the labour force. Migration from non-EU 
countries is helping to meet the increase in demand for labour. 

(10)  A  complementary  route  to  support  both  participation  in  the  labour  force  and  the 
innovative capacity of the economy is to equip pupils and adults with adequate skills 
and  competences  that  support  employment  in  a  rapidly  changing  labour  market.  The 
rate  of  adult’s  participation  in  education  and  training  is  much  lower  than  the  EU 
average. This, combined with certain weaknesses in digital skills, as well as in literacy 
and  numeracy  skills,  particularly  among  adults  with  below-tertiary  education,  is 
hampering  their  employability.  To  what  extent  recently  introduced  and  still  planned 
policy measures, such as changes in the organisation of general education, vocational 
education and higher education, will have an impact on skill levels is not yet known.  

(11)  Poland  has  continued  taking  measures  to  tackle  labour  market  segmentation  by 
limiting  the  possibility  to  abuse  temporary  employment,  increasing  social  security 
contributions  on  some  non-standard  labour  contracts  and  introducing  a  minimum 
hourly wage for some of these contracts. The number and share of permanent contracts 
has been rising since the end of 2016, however the share of temporary contracts still 
remains  among  the  highest  in  the  EU.  Some  further  legislative  changes  relevant  for 
labour market duality might be included in the reformed labour code. Social protection 
coverage  of  workers  who  are  self-employed  and  have  certain  non-standard  contracts 

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emerges  as  a  potential  issue,  especially  from  the  perspective  of  adequacy  of  their 
future pensions. Several measures have been introduced since 2015 to improve social 
protection coverage of the self-employed and those employed with atypical contracts. 

(12)  The  average  age  of  retirement  has  increased  in  recent  years,  reflecting  past  reforms, 
such  as  withdrawing  early  retirement  options  and  a  gradual  increase  of  the  statutory 
retirement age. A continuation of an increase in the average retirement age is crucial 
for  medium-term  economic  growth,  and  to  ensure  the  adequacy  and  fiscal 
sustainability  of  the  pension  system.  However,  the  recent  lowering  of  the  statutory 
retirement age to 60 for women and to 65 for men goes in the opposite direction. In 
contrast, the retirement age of male and female judges of ordinary courts was aligned 
at  65,  which  is  in  line  with  the  request  by  the  Commission.  The  special  social 
insurance  system  for  farmers,  being  subsidised  to  a  cost  close  to  1  %  of  GDP,  is 
among the reasons for low labour mobility and hidden unemployment in agriculture. 

(13)  Better access to healthcare and an increase in its effectiveness are needed in order to 
improve health outcomes in Poland. Self-reported unmet needs for medical care rank 
among  the  highest  in  the  EU,  and  waiting  times  for  certain  interventions  are 
particularly  long.  The  number  of  hospital  beds  is  relatively  high  and  not  optimally 
distributed  geographically. Outpatient  and  primary  healthcare  are  generally 
underdeveloped,  with  doctors  having  incentives  to  refer  investigations  and  treatment 
to specialist providers. Tackling these issues is particularly challenging, given that the 
level of public funding and the number of doctors and nurses in certain specialisations 
in  Poland  are  well  below  the  EU  average.  In  2017,  some  efforts  were  made  to 
distribute healthcare resources more efficiently, but the effects of these measures are 
yet to be seen.  

(14) 

Increasing the economy’s capacity to innovate is crucial for enabling Poland to move 
up in the global value chain, thus sustaining the potential to improve living standards. 
This requires policy action on many fronts in a gradual process of several years. The 
key  relevant  policy  areas  include  building  trust  in  the  regulatory  environment, 
providing  incentives  for  business  expenditure  on  research  and  development, 
strengthening  the  science  base  including  through  reforms  of  tertiary  education  and 
encouraging a strong flow of knowledge and close co-operation between business and 
research  institutions.  The  latter  also  involves  ensuring  favourable  conditions  for  the 
commercialisation  of  research,  developed  and  supported  by  public  funding.  Several 
policy  measures  have  already  been  implemented  in  these  areas,  and  further  ones  are 
planned by the government.  

(15)  The  fast  pace  of  regulatory  change  and  the  limited  use  of  public  and  social 
consultations on a number of key laws are weighing on the quality of legislation and 
increasing uncertainty for business. Guaranteeing the rule of law and the independence 
of the judiciary are also essential in this context. The Commission concluded that the 
adopted changes to the justice system pose a clear risk of a serious breach of the rule 
of law. Legal certainty and trust in the quality and predictability of regulatory, tax and 
other policies and institutions are important factors that could allow an increase in the 
investment rate. Solid ex ante and ex post impact assessments and well designed and 
exercised social and public consultations could help improve the quality of legislation, 
limit the need for subsequent amendments and  in this way increase the predictability 
of  the  regulatory  environment.  This  could  also  help  to  limit  possible  negative  side 
effects of new laws in  the short  term, such  as  for instance  the temporary  increase in 
administrative burdens resulting from a change in tax regulations.  

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(16)  The  road  network  has  developed  rapidly  thanks  to  EU  funding,  but  the  road  fatality 
rate  is  still  among  the  highest  in  the  EU.  Moreover,  cities  face  growing  mobility 
challenges,  such  as  congestion  and  air  pollution  created  by  the  increasing  passenger 
car fleet and the large share of old cars. The current incentives to use collective, low 
emission  and  active  transport  modes  are  insufficient  to  tackle  these  challenges.  The 
implementation  of  EU  co-financed  railway  projects  continues  to  face  major 
bottlenecks  mainly  due  to  the  limited  capacity  of  the  construction  sector  and  the 
institutional weaknesses of the railway infrastructure manager. There is still a lack of a 
strategic  reflection  on  the  long-term  development  of  the  transport  networks  in  all 
modes  beyond  2023,  where  their  respective  roles  would  be  clearly  identified  and 
attributed. 

(17) 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Poland’s  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Convergence  Programme  and  the  2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  Poland  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Poland  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.  

(18) 

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

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

1. 

2. 

3. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed 4.2 % in 2019, corresponding to an annual structural adjustment of 0.6 % of 
GDP.  Take  steps  to  improve  the  efficiency  of  public  spending,  including  by 
improving the budgetary process. 

Take steps to increase labour market participation, including by improving access to 
childcare  and  by  fostering  labour  market  relevant  skills,  especially  through  adult 
learning, and remove remaining obstacles to more permanent types of employment. 
Ensure the sustainability and adequacy of the pension system by taking measures to 
increase  the  effective  retirement  age  and  by  reforming  the  preferential  pension 
schemes.  

Strengthen  the  innovative  capacity  of  the  economy,  including  by  supporting  closer 
collaboration  between  business  and  research  institutions.  Improve  the  regulatory 
environment, in particular by ensuring effective public and social consultations in the 
legislative process. 

Done at Brussels, 

For the Council 
The President 

9 

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

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