Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Poland and delivering a Council opinion on the 2019 Convergence Programme of Poland
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: Poland, economic policy, economic reform, investment, labour market, pension scheme, public expenditure, research, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 521 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Poland and delivering a Council opinion on the 2019 Convergence Programme of Poland    
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of Poland and delivering a Council opinion on 
the 2019 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 9(2) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

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) 

On 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for 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  21  March 
2019.  On  21  November  2018,  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 2019 country report for Poland2 was published on 27 February 2019. It assessed 
Poland’s progress in addressing the country-specific recommendations adopted by the 
Council  on  13  July  2018,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and Poland's progress towards its national Europe 2020 targets.  

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OJ L 209, 2.8.1997, p. 1. 
SWD(2019) 1020 final. 

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(3) 

(4) 

(5) 

(6) 

On  26  April  2019,  Poland  submitted  its  2019  National  Reform  Programme  and,  on 
29 April  2019,  its  2019  Convergence  Programme.  In  order  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  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council3,  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 ESI Funds to sound economic governance4.  

Poland is currently in the preventive arm of the Stability and Growth Pact. In its 2019 
Convergence Programme, the government plans a slight deterioration of the headline 
balance from a deficit of 0.4% of GDP in 2018 to 0.6% of GDP in 2022, with a deficit 
of  1.7%  of  GDP  in  2019  and  a  surplus  of  0.2%  of  GDP  in  2020.  The  recalculated 
structural  balance,  at  a  deficit  of  1.1%  of  GDP  will  come  close  to  the  medium-term 
budgetary objective, set at a structural deficit of 1.0% of GDP, in 2022. According to 
the  2019  Convergence  Programme,  the  general  government  debt-to-GDP  ratio  is 
expected  to  decrease  from  48.9%  of  GDP  in  2018  to  40.6%  by  2022.  The 
macroeconomic scenario underpinning those budgetary projections is plausible. At the 
same  time,  the  operational  details  of  some  of  the  measures  needed  to  support  the 
planned deficit targets from 2020 onwards have not been sufficiently specified. 

The 2019 Convergence Programme indicates that Poland implemented drought-related 
compensatory measures and that their budgetary impact in 2018 was significant. The 
Convergence Programme provides adequate evidence of the scope and nature of these 
additional budgetary costs. The specific treatment of drought related expenditure could 
be  considered  in  application  of  the  ‘unusual  event  clause’.  According  to  the 
Commission, the related eligible additional expenditure in 2018 amounted to 0.07% of 
GDP. The provisions set out in Articles 9(1) and 10(3) of Regulation (EC) No 1466/97 
cater  for  this  additional  expenditure,  in  that  the  exceptionality  of  the  drought  is 
considered an unusual event, its impact on Poland's public finances is significant and 
sustainability would not be compromised by allowing for a temporary deviation from 
the  adjustment  path  towards  the  medium-term  budgetary  objective.  Therefore,  the 
required adjustment towards the medium-term budgetary objective for 2018 has been 
reduced to take into account these additional costs. 

(7) 

On 13 July 2018, the Council recommended Poland to ensure that the nominal growth 
rate  of  net  primary  government  expenditure5  does  not  exceed  4.2%  in  2019, 

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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. 
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 

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(8) 

(9) 

corresponding  to  an  annual  structural  adjustment  of  0.6%  of  GDP.  Based  on  the 
Commission  2019  spring  forecast,  there  is  a  risk  of  a  significant  deviation  from  that 
recommended adjustment in 2019.  

In 2020, in view of Poland's projected output gap of 2.0% of GDP, the nominal growth 
rate of net primary government expenditure should not exceed 4.4%, in line with the 
structural  adjustment  of  0.6%  of  GDP  stemming  from  the  commonly  agreed 
adjustment matrix of requirements under the Stability and Growth Pact. Based on the 
Commission  2019  spring  forecast  under  unchanged  policies,  there  is  a  risk  of  a 
significant  deviation  from  that  requirement  in  2020.  Overall,  the  Council  is  of  the 
opinion  that  the  necessary  measures  should  be  taken  as  of  2019  to  comply  with  the 
provisions of the Stability and Growth Pact. 

Poland achieved significant progress in increasing tax compliance. At the same time, 
the country enjoyed strong economic growth, the labour market was buoyant and the 
share  of  labour  contracts  being  subject  to  social  security  contributions  has  been 
gradually increasing. All those factors contributed to an increase in public revenue. A 
part  of  the  increased  revenue  is  of  cyclical  nature  and  may  fade  when  the 
macroeconomic  environment  worsens.  At  the  same  time,  over  recent  years,  public 
spending increased as a share of GDP. Several new categories of expenditure are of a 
permanent nature and may not be easy to change in the near future. Moreover, going 
forward Poland’s public finances will face pressures for higher spending, in particular 
due to population ageing. These factors amplify the need for new tools to strengthen 
expenditure  management,  including  a  regular  assessment  of  the  effectiveness  and 
efficiency  of  spending.  While  in  2018  Poland  continued  to  work  to  improve  the 
budgetary  process,  the  overall  reform  is  complex  and  will  be  applied  in  stages  over 
several  years.  Whereas  overall  the  fiscal  framework  is  strong  and  independent 
institutions  cover  some  of  the  functions  typically  fulfilled  by  fiscal  councils,  Poland 
remains the only  Member State without  an independent fiscal council. While Poland 
made no progress in limiting the extensive use of reduced Value Added Tax rates, the 
government launched a reform which has the potential to make the rates less complex 
and less error-prone. 

(10)  Until 2017, the average age of retirement was increasing, reflecting past reforms such 
as  the  withdrawal  of  early  retirement  options  and  a  gradual  increase  of  the  statutory 
retirement  age.  In  2018,  the  average  retirement  age  decreased  both  for  men  and  for 
women, reflecting lowering of the statutory retirement age in late 2017. A continued 
increase in the  effective retirement age  is  crucial for labour  market participation and 
thus  economic  growth,  given  the  decline  in  the  working  age  population.  It  is  also 
crucial to ensure the adequacy of future pensions, prevent poverty at old age and hence 
also  to  improve  the  fiscal  sustainability  of  the  pension  system.  The  lowering  of  the 
statutory retirement age to 60 for women and to 65 for men in autumn 2017 will have 
a  significant  negative  impact  on  future  pension  benefit  levels  and  introduces  a 
significant gap between men and women in this regard. Existing preferential pension 
schemes  imply  fiscal  costs  and  reduce  the  mobility  of  workers  between  sectors.  The 
special  social  insurance  system  for  farmers,  subsidised  at  a  cost  of  around  0.8%  of 
GDP,  is  hampering  labour  mobility  and  contributing  to  hidden  unemployment  in 
agriculture. 

mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(11)  The favourable macroeconomic environment has helped the strong performance of the 
Polish  labour  market  in  recent  years.  Employment  rates  have  continued  to  increase, 
while the unemployment rates, after several years of decline, stabilised at a historical 
low  of  below  4%  in  2018.  However,  the  participation  of  some  groups  in  the  labour 
force,  especially  the  low-skilled,  persons  with  disabilities  and  their  carers  and  older 
people,  has  remained  low  in  comparison  to  other  Member  States.  The  Polish  social 
benefit system provides insufficient incentives to take up work. The child benefit has 
reduced poverty and inequality, but it has had a negative effect on the participation of 
parents, mostly women, in the labour market due to its size and design. The enrolment 
rate for children under the age of three in formal childcare remains among the lowest 
in the EU. In addition, long-term care is mostly provided by family members without 
almost  any  institutional  support,  which  prevents  carers  from  working.  The  lowered 
statutory retirement age has encouraged some older workers to exit the labour force. 
Migration from non-EU countries has been helping to meet the increase in demand for 
labour, but there are signs that a continued inflow of migrant workers may be difficult 
to achieve. 

(12)  Between 2015 and 2017, Poland took 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. While the share of temporary contracts has 
been  declining  since  2015,  thanks  to  the  measures taken  and  due  to  the  shortages  of 
workers, and this process accelerated during 2018, it still remains among the highest in 
the  EU.  Further  legislative  changes  addressing  this  issue  were  not  pursued  as  the 
reform  of  the  labour  code  was  finally  not  implemented.  The  adequacy  of  future 
pensions of workers who are self-employed and those who have certain non-standard 
contracts emerges as a potential issue. 

(13)  A quality education and training system that takes the life-long perspective, supported 
by  sufficient  investment,  could  be  one  crucial  factor  supporting  future  growth 
prospects in Poland. Equipping people with skills and competences that are needed to 
find  employment  in  a  rapidly  changing  labour  market  is  of  crucial  importance  to 
encourage  both  participation  in  the  labour  force  and  the  innovative  capacity  of  the 
economy.  The  rate  of  the  participation  of  adults  in  education  and  training  is  much 
lower than the EU average and vocational training in enterprises is underutilised. This, 
combined with certain weaknesses in digital skills, as well as in literacy and numeracy 
skills,  particularly  among  adults  with  no  higher  education,  is  hampering  their 
employability. The insufficient quality of teacher training and gaps in their skills are 
likely to have a negative impact on the quality of education. There are also weaknesses 
in  the  quality  assurance  system  of  the  higher  education.  Despite  recent  reforms  in 
vocational  education  and  in  higher  education,  the  effective  coordination  of  adult 
learning is still lacking and the impact of different policy measures on the quality of 
the education and training provided and the skill levels is not clear.  

(14)  Poland’s long-term economic prospects depend on developing the economy’s capacity 
to  innovate.  However,  Poland  still  ranks  low  in  terms  of  innovation,  with  low-tech 
sectors representing an important share in the country’s economic structure and with 
an  important  regional  disparities  in  innovation  performance.  While  some  measures 
have  been  taken  to  improve  science-business  cooperation,  a  number  of  financial  and 
non-financial  obstacles  persist.  In  particular,  complex  administrative  procedures  and 
limited skills of academics in managing joint public-private research and development 
projects  remain  key  barriers.  The  clusters  and  formalised  corporate  networks, 

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especially between small and medium-sized enterprises and large firms, play a limited 
role  in  diffusing  innovative  solutions.  The  2018  higher  education  reform  improves 
some aspects of the Polish scientific landscape, but only partially addresses important 
issues  such  as  the  fragmentation  of  the  research  sector,  researchers’  wages  or  the 
internationalisation  of  Polish  science.  Gross  domestic  expenditure  on  research  and 
development  remained  at  about  half  of  the  Union  average  in  2017,  with  important 
regional disparities. 

(15)  Health  outcomes  have  continued  to  improve  but  remain  below  the  EU  average  with 
males  faring  worse  in  life  expectancy  than  females  by  8.2  years,  while  the  gap 
between  the  highest  and  lowest  educated  Poles  is  10  years. Access  to  and  the 
effectiveness of the healthcare system is affected by low spending and staff shortages. 
The number of practising doctors and nurses relative to population size is among the 
lowest  in  the  Union  with  quarter  of  the  medical  staff  above  retirement  age.  Unmet 
needs for medical services declined in 2017, but remain among the highest in the EU 
and the waiting times for certain procedures have increased substantially since 2010. 
Poland  has  developed maps  of  healthcare  needs,  but  they have  not  yet  become  tools 
for  supporting  decisions  on  the  purchasing  of  health  services  and  investments.  The 
health  care  system  remains  overly  hospital-based  and  primary  and  ambulatory  care 
remain underdeveloped. Long-term care system is weak, lacking standardised services 
and a coherent strategic approach. Most long-term care is provided by informal carers, 
often  family  members  with  little  institutional  support.  In  2017,  Poland’s  public 
healthcare  expenditure  totalled  4.7%  of  GDP,  well  below  the  EU  average  of  7%  of 
GDP.  Poland  plans  to  gradually  increase  this  expenditure  in  the  coming  years. 
However, this may be difficult to achieve, given that the recently announced plans to 
increase  social  transfers  to  medium-  and  high-income  households  will  limit  fiscal 
space in the future. 

(16)  While  infrastructure  in  Poland  has  improved  significantly,  some  sectors  still  exhibit 
important  connectivity  gaps.  Road  investments  that  are  to  be  completed  by  2024 
according to the national road construction programme will be concentrated mainly in 
the  eastern  part  of  Poland,  leaving  some  northern  regions  less  connected.  There  are 
still  important  gaps  in  the  Trans-European  Transport  Network  Railways,  and 
investment in rail is proceeding slower than investment in roads. The road fatality rate 
is still among the highest in the Union. 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.  Greenhouse  gas  emissions  from  road  transport  have  increased 
strongly for the last 5 years. The current incentives to use collective, low emission and 
active  transport  modes  are  insufficient  to  tackle  these  challenges.  Fixed  internet 
connectivity  in  Poland  remains  one  of  the  lowest  in  the  Union,  with  ultra-fast 
broadband available mainly in big cities.  

(17)  The Polish economy is among the least carbon-efficient in the Union. Poor insulation 
of public and private buildings contributes to higher energy consumption and energy 
poverty.  Poland  also  has  the  most  air-polluted  cities  in  the  Union,  especially  in  the 
southern and central regions. Investing in higher energy efficiency,  in particular in the 
buildings  sector,  increasing  the  share  of  low-carbon  intensive  and  cleaner  energy 
production,  and  supporting  lower  emissions  from  transport,  would  reduce  the 
dependency  on  fossil  fuels  and  limit  air  pollution,  while  reducing  social  costs  and 
improving  the  quality  of  life.  The  current  legislative  environment,  including  the  gas 
stock-piling  act,  the  electricity  price  freeze  act  and  on-shore  wind  farms  regulations, 

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may hamper investments in electricity and gas markets and affect the competitiveness 
of Poland’s energy sector and energy-intensive industries in the long-term. 

(18)  The  quality  of  new  and  revised  legislation,  and  a  stable  and  predictable  business 
environment  are  of  high  importance  for  sustaining  favourable  economic  conditions 
and supporting the increase in private investment. The unstable regulatory framework 
and  other  barriers  to  the  expansion  of  firms  are  negatively  affecting  investment 
activity  and  productivity.  Establishing  an  effective  dialogue  with  all  stakeholders 
would  help  improve  the  quality  of  legislation  and  –  by  limiting  the  number  of 
revisions  needed  –  would  contribute  positively  to  the  stability  of  the  business 
environment. Therefore, strengthening the role of consultations of social partners and 
public  consultations  –  by  ensuring  a  sufficient  length  of  time  for  consultations, 
improving  the  uptake  of  the  stakeholders’  opinions  gathered  in  the  process,  and 
minimising  the  number  of  laws  exempted  from  consultations  –  would  substantially 
help to minimise the administrative burden resulting from frequent changes in the law, 
increase investment and promote sustainable economic growth in the long term. The 
Commission considers that the risk of a serious breach of rule of law in Poland persists 
and  that  the  situation  is  deteriorating  as  many  of  the  contested  measures  are  being 
implemented and consolidated. These concerns are the subject of on-going procedures 
which are pending before the European Court of Justice and in the context of Article 7 
TEU. Legal certainty and trust in the quality and predictability of regulatory, tax and 
other policies and institutions are important factors for the investment environment.  

(19)  The programming of EU funds for the period 2021-2027 could help address some of 
the  gaps  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex D to the country report6. This would allow Poland to make the best use of those 
funds in respect of the identified sectors, taking into account regional disparities. 

(20) 

In  recent  years,  the  state  role  strongly  expanded  in  banking,  insurance  and  energy 
sectors.  Increased  state  ownership  presents  a  new  challenge  to  competition  and  the 
regulatory  and  governance  framework.  The  quality  of  governance  and 
the 
independence  of  regulators  and  supervision  is  therefore  becoming  increasingly 
important given potentially conflicting interests and stronger financial-sovereign links.  

(21) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Convergence 
Programme and its opinion7 is reflected in particular in recommendation (1) below. 

HEREBY RECOMMENDS that Poland take action in 2019 and 2020 to: 

1. 

2. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed  4.4%  in  2020,  corresponding  to  an  annual  structural  adjustment  of  0.6%  of 
GDP. Take further steps to improve the efficiency of public spending, including by 
improving the budgetary process.  

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

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SWD(2019) 1020 final. 
Under Article 9(2) of Regulation (EC) No 1466/97. 

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3. 

Strengthen the innovative capacity of the economy, including by supporting research 
institutions  and  their  closer  collaboration  with  business.  Focus  investment-related 
economic  policy  on  innovation,  transport,  notably  on  its  sustainability,  digital  and 
energy  infrastructure,  healthcare  and  cleaner  energy,  taking  into  account  regional 
disparities.  Improve  the  regulatory  environment,  in  particular  by  strengthening  the 
role  of  consultations  of  social  partners  and  public  consultations  in  the  legislative 
process. 

Done at Brussels, 

For the Council 
The President 

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