Council Recommendation of 21 October 2024 on economic, budgetary, employment and structural policies of Czechia
Date: 2024-10-21
Institutions: Council of the European Union
Subjects: Czechia, budget policy, economic policy, economic recovery, economic reform, employment policy, innovation, pension scheme, social policy, stability pact








C_202406810EN.000101.fmx.xml












Official Journal of the European Union


EN
C series













C/2024/6810


29.11.2024







            COUNCIL RECOMMENDATION
         
of 21 October 2024
         
on economic, budgetary, employment and structural policies of Czechia
(C/2024/6810)


THE COUNCIL OF THE EUROPEAN UNION,

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


Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the effective coordination of economic policies and on multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/97 (1), and in particular Article 3(3) 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)


Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility (‘the Facility’), entered into force on 19 February 2021. The Facility provides financial support to the Member States for the implementation of reforms and investments, entailing a fiscal impulse financed by the Union. In line with the priorities of the European Semester for economic policy coordination, the Facility helps achieve the economic and social recovery and implement sustainable reforms and investments, in particular reforms and investments to promote the green and digital transitions and to make the Member States’ economies more resilient. It also helps strengthen public finances and boost growth and job creation in the medium and long term, improve territorial cohesion within the Union and support the continued implementation of the European Pillar of Social Rights.












(2)


Regulation (EU) 2023/435 of the European Parliament and of the Council (3) (‘the REPowerEU Regulation’), which was adopted on 27 February 2023, aims to phase out the Union’s dependence on Russian fossil-fuel imports. This would help achieve energy security and diversify the Union’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. Czechia added a new REPowerEU chapter to its national recovery and resilience plan in order to finance key reforms and investments that will help achieve the REPowerEU objectives.












(3)


On 16 March 2023, the Commission issued a communication entitled ‘Long-term competitiveness of the EU: looking beyond 2030’, in order to inform policy decisions and create the framework conditions for increasing growth. The communication frames competitiveness in terms of nine mutually reinforcing drivers. Among those drivers, access to private capital, research and innovation, education and skills, and a functioning single market emerge as paramount policy priorities for reform and investment to address current productivity challenges as well as to build up the long-term competitiveness of the Union and its Member States. On 14 February 2024, the Commission issued a communication entitled ‘The 2024 Annual Single Market and Competitiveness Report’. That communication details the competitive strengths and challenges of the European single market, tracking yearly developments according to the nine competitiveness drivers identified.












(4)


On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth Survey, marking the start of the 2024 European Semester. On 22 March 2024, the European Council endorsed the priorities of the 2024 Annual Sustainable Growth Survey, which are centred around the four dimensions of competitive sustainability. On 21 November 2023, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission also adopted the 2024 Alert Mechanism Report, in which it did not identify Czechia as one of the Member States that may be affected, or may be at risk of being affected, by imbalances and for which an in-depth review would be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2024 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (5) (‘the 2024 Recommendation on the euro area’) on 12 April 2024 and the Joint Employment Report on 11 March 2024.












(5)


On 30 April 2024, the Union’s new economic governance framework entered into force. The framework includes the new Regulation (EU) 2024/1263 on the effective coordination of economic policies and multilateral budgetary surveillance, the amended Council Regulation (EC) No 1467/97 (6) on speeding up and clarifying the implementation of the excessive deficit procedure, and the amended Council Directive 2011/85/EU (7) on requirements for the budgetary frameworks of Member States. The objectives of the new economic governance framework are to promote sound and sustainable public finances, sustainable and inclusive growth and resilience through reforms and investments, and prevent excessive government deficits. The new economic governance framework also promotes national ownership and has a greater medium-term focus, combined with more effective and coherent enforcement. Each Member State has to submit to the Council and to the Commission a national medium-term fiscal-structural plan. A national medium-term fiscal-structural plan contains the fiscal, reform and investment commitments of a Member State, covering a planning horizon of 4 or 5 years, depending on the regular length of the national legislative term. The net expenditure (8) path in the national medium-term fiscal-structural plans has to comply with the requirements of Regulation (EU) 2024/1263, including the requirements to put or keep general government debt on a plausibly downward path by the end of the adjustment period, or for it to remain at prudent levels below 60 % of gross domestic product (GDP), and to bring and/or maintain the general government deficit below the 3 %-of-GDP Treaty reference value over the medium term. Where a Member State commits to a relevant set of reforms and investments in accordance with the criteria set out in Regulation (EU) 2024/1263, the adjustment period can be extended by up to 3 years. For the purpose of supporting the preparation of those national medium-term fiscal-structural plans, on 21 June 2024, the Commission published guidance on the information to be provided by Member States in their national medium-term fiscal-structural plans and in their annual progress reports. In accordance with Articles 5 and 36 of Regulation (EU) 2024/1263, the Commission transmitted to the Member States reference trajectories and technical information, where applicable. Member States have to submit their national medium-term fiscal-structural plans by 20 September 2024, unless the Member State and the Commission agree to extend the deadline by a reasonable period of time. In accordance with their national legal frameworks, Member States may debate their draft medium-term plans with their national parliaments, may ask the independent fiscal institutions to issue an opinion, and may conduct a consultation of social partners and other national stakeholders.












(6)


In 2024, the European Semester continues to evolve in line with the implementation of the Facility. The full implementation of the recovery and resilience plans remains essential for delivering the policy priorities under the European Semester, as the plans help effectively address all or a significant subset of challenges identified in the relevant country-specific recommendations issued in recent years. The 2019, 2020, 2022 and 2023 country-specific recommendations remain equally relevant for the recovery and resilience plans which have been revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.












(7)


On 1 June 2021, Czechia submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines set out in Annex V to that Regulation. On 8 September 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Czechia (9), which was amended on 16 October 2023 pursuant to Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial contribution for non-repayable financial support, as well as to include the REPowerEU chapter (10). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Czechia has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed.












(8)


On 24 April 2024, Czechia submitted its 2024 National Reform Programme and, on 30 April 2024, its 2024 Convergence Programme, in line with Article 8(1) of Council Regulation (EC) No 1466/97 (11). In accordance with Article 27 of Regulation (EU) 2021/241, the 2024 National Reform Programme also reflects Czechia’s biannual reporting on the progress made in achieving its recovery and resilience plan.












(9)


On 19 June 2024, the Commission published the 2024 country report for Czechia. It assessed Czechia’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2023 and took stock of Czechia’s implementation of the recovery and resilience plan. On the basis of that analysis, the country report identified gaps with regard to those challenges that are not addressed or only partially addressed by the recovery and resilience plan, as well as new and emerging challenges. It also assessed Czechia’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.












(10)


According to data validated by Eurostat, Czechia’s general government deficit increased from 3,2 % of GDP in 2022 to 3,7 % in 2023, while the general government debt fell from 44,2 % of GDP at the end of 2022 to 44,0 % at the end of 2023. As announced in the Commission’s communication of 8 March 2023 entitled ‘Fiscal policy guidance for 2024’, the Commission is taking the first step for the opening of deficit-based excessive deficit procedures on the basis of the outturn data for 2023, in line with existing legal provisions. On 19 June 2024, the Commission issued a report under Article 126(3) of the Treaty. That report assessed the budgetary situation of Czechia, as its general government deficit in 2023 exceeded the 3 %-of-GDP Treaty reference value. The report concluded that, in light of that assessment, and after considering the opinion of the Economic and Financial Committee formulated pursuant to Article 126(4) of the Treaty, the Commission will not propose in July 2024 to open an excessive deficit procedure for Czechia.












(11)


On 12 July 2022, the Council recommended (12) that Czechia take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral fiscal policy stance (13), taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Czechia was recommended to stand ready to adjust current spending to the evolving situation. Czechia was also recommended to expand public investment for the green and digital transitions, and for energy security taking into account the REPowerEU initiative, including by making use of the Facility and other Union funds. In 2023, according to the Commission estimates, the fiscal stance (14) was contractionary, by 0,9 % of GDP, in a context of high inflation. The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 provided a contractionary contribution to the fiscal stance of 0,7 % of GDP. This includes the 0,1 %-of-GDP reduction in the cost of the targeted emergency support measures for households and firms most vulnerable to energy price hikes, as well as the 0,1 %-of-GDP reduction in the cost of offering temporary protection to displaced persons from Ukraine. In sum, the projected growth of nationally financed primary current expenditure in 2023 was in line with the Council Recommendation of 12 July 2022. Expenditure financed by grants under the Facility and other Union funds amounted to 1,1 % of GDP in 2023. Nationally financed investment amounted to 4,4 % of GDP in 2023, representing an increase of 0,5 percentage points as compared to 2022. Czechia financed additional investment through the Facility and other Union funds. Czechia financed public investment for the green and digital transitions and for energy security, such as energy-efficiency renovations and the installation of renewables, the modernisation and increased safety of railways and project preparation for electrification, flood protection and water retention of lands and municipalities, projects of Czech companies aimed at reducing water consumption and applying circular solutions for businesses, public-private partnerships in research and innovation, and the provision of digital devices for schools. That public investment is partly funded by the Facility and other Union funds.












(12)


In the 2024 Convergence Programme, the macroeconomic scenario underpinning the budgetary projections projects real GDP growth at 1,4 % in 2024 and 2,6 % in 2025, while projecting inflation measured by the harmonised index of consumer prices (HICP) at 2,7 % in 2024 and 2,4 % in 2025. The general government deficit is expected to decrease to 2,3 % of GDP in 2024 and stand at 2,1 % of GDP in 2025, while the general government debt-to-GDP ratio is set to increase to 45,5 % by the end of 2024 and 46,4 % by the end of 2025. After 2025, the general government deficit is projected to decrease gradually to 1,6 % of GDP in 2026 and 1,2 % in 2027. Therefore, the general government balance is planned to remain below the 3 %-of-GDP Treaty reference value over the programme horizon. In turn, after 2025, the general government debt-to-GDP ratio is projected to increase to 47,1 % in 2026 and stabilise in 2027.












(13)


The Commission’s 2024 spring forecast projects real GDP to grow by 1,2 % in 2024 and 2,8 % in 2025, and inflation measured by HICP to stand at 2,5 % in 2024 and 2,2 % in 2025.












(14)


The Commission's 2024 spring forecast projects a government deficit of 2,4 % of GDP in 2024, while the general government debt-to-GDP ratio is set to increase to 45,2 % by the end of 2024. The decrease of the deficit in 2024 mainly reflects the withdrawal of measures to mitigate the impact of high energy prices, and the implementation of a consolidation package. According to the Commission’s estimates, the fiscal stance is projected to be contractionary by 2,3 % of GDP in 2024.












(15)


Expenditure amounting to 0,5 % of GDP is expected to be financed by non-repayable support (‘grants’) under the Facility in 2024, compared to 0,4 % of GDP in 2023, according to the Commission's 2024 spring forecast. Expenditure financed by grants under the Facility will enable high-quality investment and productivity-enhancing reforms without a direct impact on the general government balance or debt of Czechia. Expenditure amounting to 0,1 % of GDP is expected to be backed by loans from the Facility, in 2024, compared with 0 % of GDP in 2023, according to the Commission’s 2024 spring forecast.












(16)


On 14 July 2023, the Council recommended (15) that Czechia ensure a prudent fiscal policy, in particular by limiting the nominal increase in net nationally financed primary expenditure (16) in 2024 to not more than 6,0 %. When executing their 2023 budgets and preparing their budgets for 2024, Member States were invited to take into account that the Commission would propose to the Council the opening of deficit-based excessive deficit procedures on the basis of the outturn data for 2023. According to the Commission’s 2024 spring forecast, Czechia’s net nationally financed primary expenditure is projected to decrease by 1,1 % in 2024, which is below the recommended maximum growth rate. This is in line with what was recommended by the Council.












(17)


Moreover, the Council recommended that Czechia take action to wind down the emergency energy support measures in force, using the related savings to reduce the government deficit, as soon as possible in 2023 and 2024. The Council further recommended that, if renewed energy price increases necessitate new or continued support measures, Czechia ensure that such support measures are targeted at protecting vulnerable households and firms, are fiscally affordable, and preserve incentives for energy savings. According to the Commission’s 2024 spring forecast, the net budgetary cost (17) of energy support measures is estimated at 1,2 % of GDP in 2023 and projected at -0,2 % of GDP in 2024, and 0,0 % in 2025. In particular, the windfall profit tax is assumed to remain in force in 2024 and 2025 (18). If the related savings were used to reduce the government deficit, as recommended by the Council, those projections would imply a fiscal adjustment of 1,4 % of GDP in 2024, whereas net nationally financed primary expenditure (19) provides a contractionary contribution to the fiscal stance of 2,2 % of GDP in that year. The emergency energy support measures have been wound down in 2023 and 2024. This is in line with what was recommended by the Council. Moreover, the related savings are projected to be fully used to reduce the government deficit. This is also in line with the Council recommendation.












(18)


In addition, the Council also recommended that Czechia preserve nationally financed public investment and ensure the effective absorption of grants under the Facility and of other Union funds, in particular to foster the green and digital transitions. According to the Commission’s 2024 spring forecast, nationally financed public investment is projected to decrease from 4,4 % of GDP in 2023 to 4,2 % of GDP in 2024. This decrease is due to the end of the 2014-2020 programming period for Union structural funds, for which funds were available until 2023. Taking this additional factor into account, public investment in 2024 is considered to be in line with the Council recommendation. In turn, public expenditure financed from revenues from Union funds, including grants under the Facility, is expected to decrease to 1,0 % of GDP in 2024 from 1,1 % of GDP in 2023. This decrease is due to the end of the 2014-2020 programming period for Union structural funds, for which funds were available until 2023.












(19)


On the basis of the policy measures known at the cut-off date of the forecast and on a no-policy-change assumption, the Commission’s 2024 spring forecast projects a government deficit of 1,9 % of GDP in 2025. The general government debt-to-GDP ratio is set to increase to 45,5 % by the end of 2025. The increase in the debt-to-GDP ratio in 2025 mainly reflects the negative headline balance, being partly offset by nominal GDP growth.












(20)


Czechia’s structural budget balance has decreased from close to balance on average over the period 2014–2019, to -2,9 % in 2023. This is due to permanent measures, such as the personal income tax cut, and the increase in social security benefits, including the automatic indexation of pensions to inflation, which were not financed by corresponding revenue growth. There is additional pressure on fiscal sustainability in the medium to long term, due to the increase in the cost of ageing. In 2023, Czechia amended the first pillar of the pension system, including reduced indexation of pensions and stricter early retirement. Still, without additional changes, an increase in pension expenditure of around 3 percentage points by 2060 is expected due to the projected doubling of the old-age dependency ratio (20), the capping of the retirement age, and a still high number of people taking early retirement. Unless financed by a corresponding growth in revenues, the projected rise in age-related spending could increase the fiscal sustainability risks in the medium and long term. The government proposes to link the statutory retirement age with life expectancy, and to slow down the growth of newly granted pensions. If implemented, these changes would improve the fiscal sustainability of the pension system. Other possible measures to address fiscal sustainability in the long term include increasing the labour supply by providing incentives to raise the participation rates of people beyond the pension age.












(21)


Competitiveness and productivity are held back by shortages of workers. The employment of mothers could be increased, as can be seen from the low female employment rate for several years after childbirth. In addition to the lack of available childcare, the tax and benefit system dissuades lower-earning parents, in particular mothers, from returning to work. Three-year periods of parental leave, high tax deductibles for non-working spouses, and family benefits incentivising the lower-earning parent to take long periods of leave discourage parents, in particular mothers, from working or looking for a job. The taxation of earnings from labour for second earners was above the Union average in 2022, and above the tax wedge for single people at the same wage level. Encouraging lower-earning parents to work or look for a job would also support higher revenues for the pension system.












(22)


Czechia’s overall tax revenue in relation to GDP is considerably below the Union average in 2022 (35,3 % compared to the Union average of 40,2 %). Broadening the tax base by expanding the share of taxes which are less detrimental to growth is an option to support economic growth and fiscal sustainability. Recurrent property taxes are among the taxes least detrimental to growth, but the revenue from recurrent property taxation is very low, at 0,2 % of GDP compared to the Union average of 1,0 % of GDP (as of 2022). Despite the increase in recurrent property taxes in 2024, the recurrent property taxation system of buildings and units is based on the location of the properties, which leads to unequal taxation of properties of the same value and does not react to changes in property values. Implementing a property valuation system which chooses the property values as the tax base, aligns property values to market values and allows for regular updates of property values would increase the efficacy of the tax as a tool to mitigate the increases in property prices and to put existing housing stock to its most productive use. In turn, this would raise housing affordability and people’s ability to move around for work, supporting economic growth and increasing revenue from recurrent property taxes.












(23)


In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. Those reforms and investments are expected to help effectively address all or a significant subset of challenges identified in the relevant country-specific recommendations. Within this tight timeframe, proceeding swiftly with the effective implementation of the recovery and resilience plan, including the REPowerEU chapter, is essential to boost Czechia’s long-term competitiveness through the green and digital transitions, while ensuring social fairness. To deliver on the commitments of the recovery and resilience plan by August 2026, it is essential for Czechia to continue the implementation of reforms and to accelerate investments by addressing relevant challenges while strengthening absorption capacity. The absorption of recovery and resilience funds is particularly constrained by limitations of administrative capacity at some of the implementing bodies. This is particularly visible in areas that require more expertise, such as the green and digital transitions. The systematic involvement of local and regional authorities, social partners, civil society and other relevant stakeholders remains essential in order to ensure broad ownership for the successful implementation of the recovery and resilience plan.












(24)


As part of the mid-term review of the cohesion policy programmes, in accordance with Article 18 of Regulation (EU) 2021/1060 of the European Parliament and of the Council (21), Czechia is required to review each programme supported by the European Regional Development Fund (ERDF), the European Social Fund Plus (ESF+), the Cohesion Fund and the Just Transition Fund (JTF) by March 2025, taking into account, among other things, the challenges identified in the 2024 country-specific recommendations, as well as its national energy and climate plan. That review forms the basis for the definitive allocation of the Union funding included in each programme. Czechia has made progress in implementing cohesion policy programmes and the European Pillar of Social Rights, but challenges and significant regional disparities remain. The regions of Severozápad and, to a lesser extent, Moravskoslezko, are caught in a development trap. Accelerating the implementation of cohesion policy programmes, together with strengthening administrative capacity, especially in those regions, is crucial. The priorities agreed in the cohesion policy programmes remain relevant. In particular, it is necessary to develop the administrative capacity of the regions, improve the partnerships between them and enhance their ownership in order to increase the absorption of Union funds by small municipalities, small and medium-sized enterprises (SMEs) and local non-governmental organisations. Investments supporting sustainable urban and regional transport and infrastructure for alternative fuels need to be implemented to accelerate the green transition, together with an increased use of renewable energy sources, as well as investments into energy efficiency and the circular economy. It is important to complete the planned climate adaptation actions, focusing on natural water retention measures. It is also a priority to step up the integration of people displaced from Ukraine under temporary protection, including on the labour market, according to their skills. It continues to be relevant to focus on the impact of measures related to disadvantaged groups, such as the Roma.












(25)


In the context of the mid-term review, the potential to mobilise more private-sector resources, especially through a wider use of financial instruments combined with grants, merits further attention. Such innovative instruments can make use of more private investment, especially for energy efficiency, clean energy solutions and business development. The capacities of the National Development Bank should be used more effectively to implement financial instruments in cohesion policy programmes. Taking into account Czechia's ambition to move up from the level of a moderate innovator, the country could also make use of the Strategic Technologies for Europe Platform, established by Regulation (EU) 2024/795 of the European Parliament and of the Council (22), in the areas of digital technologies and deep tech innovation, clean and resource-efficient technologies, and biotechnologies and, where relevant, in line with the national smart specialisation strategy to support the transformation of industry.












(26)


Beyond the economic and social challenges addressed by the recovery and resilience plan and other Union funds, Czechia faces several further challenges related to public administration and competitiveness.












(27)


There is pressure regarding the attractiveness of Czechia's public administration as an employer and on the abilities of the civil service to retain talent. This is particularly relevant for expert, management and information technology jobs. Amendments to the Civil Service Act entered into force in 2023, bringing in set terms of office for senior civil servants, faster recruitment processes and wider options to attract external applicants. However, the fragmentation of human-resource management hinders a more systemic approach to talent management. The size of the Czech public administration is below the Union average in both expenditure and number of employees. Still, wages are lower than in the private sector for comparable education levels and have declined in real terms by more than 10 % compared to 2004, further reducing the civil service’s attractiveness. Strengthening the capacity of Czechia’s public administration to attract, retain and develop talent is crucial to further increase its effectiveness and the quality of its services.












(28)


Czechia’s public administration plays an essential role in maintaining the economy’s competitiveness as it shapes the regulatory environment and public investment, especially in relation to the twin transition. Czechia’s public-sector performance and government effectiveness remained stable and close to the Union average in 2022. However, challenges persist in strategic steering and evidence-informed policymaking. This calls for reducing departmentalism and strengthening strategic steering capacities in order to improve the consistency of strategies and their implementation across policies. Czechia's fragmented local administrative capacity is a significant factor preventing, among other things, small beneficiaries from drawing on Union funds efficiently. The absorption of Union funds by small municipalities, SMEs and local non-governmental organisations would improve if support were provided to applicants, for example by appointing shared project managers and by providing comprehensive information on how they can apply for Union funding in one place. The priority in this regard is developing targeted support for boosting local administrative capacity in structurally affected regions such as Severozápad and Moravskoslezsko. The good example provided by the JTF shows that the regions would be more dynamic if they had a stronger role in determining their specific needs.












(29)


Czechia’s innovation performance continues to be held back by ineffective technology and knowledge transfer and by weak linkages between academia and the industrial sector. Public expenditure on research and development financed by businesses remains at around half of the Union average (0,023 % of GDP, compared to the Union average of 0,045 %), and has been on a declining trend in recent years, demonstrating the low degree of, and incentives for, cooperation between academia and business. This is weighing heavily on the transfer of research results into the economy and is limiting Czechia’s innovation capacity, as shown, for example, by limited patent applications, which remain well below the Union average (0,83 percentage points per billion of GDP in 2020, compared to the Union average of 3,4 percentage points). Measures to structurally improve and strengthen the transfer of technology in Czechia, aimed specifically at strengthening the efficiency of technology transfer and facilitating the creation of spin-offs, could help tackle this challenge. The Horizon Policy Support Facility project starting on 9 June 2024 is expected to provide concrete support and policy recommendations to Czechia as regards increasing science-business linkages.












(30)


Participation and attainment in higher education is decreasing, which aggravates the shortage of skilled workers. Tertiary educational attainment among 25-to-34-year-olds shows a downward trend since 2021 and is the fourth lowest in the Union (33,7 % versus the Union average of 43,1 %), far from the Union target of 45 %. Between 2016 and 2021, the number of students enrolled decreased by 11,6 %. The dropout rates are persistently high. Financial support for students is consistently low (2,5 % of public expenditure versus the Union average of 18,8 %), despite empirical evidence showing high productivity returns on investment in higher education.












(31)


Shortages of workers and skill mismatches remain a pressing challenge, hindering the competitiveness of the Czech economy. These could be improved by different measures, such as a reform of regulated professions and the increased involvement of tripartite platforms bringing together relevant stakeholders or experts in order to address a long-standing lack of skilled workers. In addition, Czechia has received the Union’s highest inflow per capita of people displaced from Ukraine under temporary protection. However, more than 50 % of them are in less qualified positions than they were in Ukraine, with language being reported as a clear barrier. Furthermore, roughly 30 % also claimed that the recognition of qualifications is a barrier to getting a better job. Simplifying the recognition of foreign qualifications and increasing the labour market participation of underrepresented groups including people displaced from Ukraine under temporary protection, could ease labour market tightness,





HEREBY RECOMMENDS that Czechia take action in 2024 and 2025 to:








1.


Submit the medium-term fiscal-structural plan in a timely manner. In line with the requirements of the reformed Stability and Growth Pact, limit the growth in net expenditure (23) in 2025 to a rate consistent with, inter alia, maintaining the general government deficit below the 3 %-of-GDP Treaty reference value and keeping the general government debt at a prudent level over the medium term. Take measures to ensure the long-term fiscal sustainability of the pension system. Lower tax and benefit disincentives for parents to return to work in order to promote higher female labour market participation. Improve incentives for people close to retirement to continue working. Take steps to increase revenue from recurrent property taxes.










2.


Strengthen administrative capacity to manage the recovery and resilience plan, accelerate investments, and maintain momentum in the implementation of reforms. Address relevant challenges to allow for the continued, swift and effective implementation of the recovery and resilience plan, including the REPowerEU chapter, ensuring the completion of reforms and investments by August 2026. Accelerate the implementation of cohesion policy programmes. In the context of the mid-term review of those programmes, continue focusing on the agreed priorities, taking action to better mobilise private-sector resources, including through the use of innovative financial instruments, while considering the opportunities provided by the Strategic Technologies for Europe Platform initiative to improve competitiveness.










3.


Strengthen the capacity of Czechia’s public administration to attract, retain and develop talent, in particular those with analytical, managerial and information technology skills. Reduce departmentalism and strengthen strategic steering capacities in order to improve consistency across policies. Support cooperation among municipal administrations, including by providing support for administrative capacity building targeted at structurally affected regions.










4.


Boost innovation by improving technology transfer from academia to businesses, supporting the creation of spin-offs and start-ups, and increasing participation in tertiary education. Strengthen the competitiveness of the economy by addressing skills mismatches, simplifying the recognition of foreign qualifications and increasing the labour market participation of underrepresented groups.







Done at Luxembourg, 21 October 2024.


For the Council


The President


               NAGY I.





(1)  
            OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj.

(2)  Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17, ELI: http://data.europa.eu/eli/reg/2021/241/oj).

(3)  Regulation (EU) 2023/435 of the European Parliament and of the Council of 27 February 2023 amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans and amending Regulations (EU) No 1303/2013, (EU) 2021/1060 and (EU) 2021/1755, and Directive 2003/87/EC (OJ L 63, 28.2.2023, p. 1, ELI: http://data.europa.eu/eli/reg/2023/435/oj).

(4)  Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (OJ L 306, 23.11.2011, p. 25, ELI: http://data.europa.eu/eli/reg/2011/1176/oj).

(5)  Council Recommendation of 12 April 2024 on the economic policy of the euro area (OJ C, C/2024/2807, 23.4.2024, ELI: http://data.europa.eu/eli/C/2024/2807/oj).

(6)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6, ELI: http://data.europa.eu/eli/reg/1997/1467/oj).

(7)  Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States (OJ L 306, 23.11.2011, p. 41, ELI: http://data.europa.eu/eli/dir/2011/85/oj).

(8)  Net expenditure as defined in Article 2, point (2), of Regulation (EU) 2024/1263: ‘net expenditure’ means government expenditure net of (i) interest expenditure, (ii) discretionary revenue measures, (iii) expenditure on programmes of the Union fully matched by revenue from Union funds, (iv) national expenditure on co-financing of programmes funded by the Union, (v) cyclical elements of unemployment benefit expenditure, and (vi) one-offs and other temporary measures.

(9)  ST 11047/21 INIT; ST 11047/21 ADD 1.

(10)  Council Implementing Decision of 16 October 2023 amending Implementing Decision of 8 September 2021 on the approval of the assessment of the recovery and resilience plan for Czechia (ST 13383/23 INIT; ST 13383/23 ADD 1).

(11)  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 policies (OJ L 209, 2.8.1997, p. 1, ELI: http://data.europa.eu/eli/reg/1997/1466/oj).

(12)  Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Czechia and delivering a Council opinion on the 2022 Convergence Programme of Czechia (OJ C 334, 1.9.2022, p. 19).

(13)  Based on the Commission’s 2024 spring forecast, the medium-term potential output growth of Czechia in 2023, which is used to measure the fiscal stance, is estimated at 10,5 % in nominal terms, based on the 10-year average real potential growth rate and the 2023 GDP deflator.

(14)  The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of the general government. It aims to assess the economic impulse stemming from fiscal policies, both those that are nationally financed and those that are financed by the Union budget. The fiscal stance is measured as the difference between (i) the medium-term potential growth and (ii) the change in primary expenditure net of discretionary revenue measures (and excluding temporary emergency measures related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) under the Facility and other Union funds.

(15)  Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Czechia and delivering a Council opinion on the 2023 Convergence Programme of Czechia (OJ C 312, 1.9.2023, p. 22.).

(16)  Net primary expenditure is defined as nationally financed expenditure net of (i) discretionary revenue measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) one-offs and other temporary measures.

(17)  The figure represents the level of the annual budgetary cost of those measures, including revenue and expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers.

(18)  Measures that, according to Czechia, remain in place until the end of 2024 are, in principle, assumed in the Commission's 2024 spring forecast as having a budgetary impact also in 2025.

(19)  This contribution is measured as the change in general government primary expenditure, net of (i) the incremental budgetary impact of discretionary revenue measures, (ii) one-offs, (iii) cyclical unemployment expenditure and (iv) expenditure financed by non-repayable support (grants) under the Facility and other Union funds, relative to the medium-term (10-year) average potential nominal GDP growth rate, expressed as a ratio to nominal GDP.

(20)  According to the 2024 Ageing Report issued by the Commission in April 2024.

(21)  Regulation (EU) 2021/1060 of the European Parliament and of the Council of 24 June 2021 laying down common provisions on the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund, the Just Transition Fund and the European Maritime, Fisheries and Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the Internal Security Fund and the Instrument for Financial Support for Border Management and Visa Policy (OJ L 231, 30.6.2021, p. 159, ELI: http://data.europa.eu/eli/reg/2021/1060/oj).

(22)  Regulation (EU) 2024/795 of the European Parliament and of the Council of 29 February 2024 establishing the Strategic Technologies for Europe Platform (STEP), and amending Directive 2003/87/EC and Regulations (EU) 2021/1058, (EU) 2021/1056, (EU) 2021/1057, (EU) No 1303/2013, (EU) No 223/2014, (EU) 2021/1060, (EU) 2021/523, (EU) 2021/695, (EU) 2021/697 and (EU) 2021/241 (OJ L, 2024/795, 29.2.2024, ELI: http://data.europa.eu/eli/reg/2024/795/oj).

(23)  According to Article 2, point (2), of Regulation (EU) 2024/1263, ‘net expenditure’ means government expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of the Union fully matched by revenue from Union funds, national expenditure on co-financing of programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs and other temporary measures.


ELI: http://data.europa.eu/eli/C/2024/6810/oj
ISSN 1977-091X (electronic edition)