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# 52015SC0044

**COMMISSION STAFF WORKING DOCUMENT Country Report Slovakia 2015 {COM(2015) 85 final} This document is a European Commission staff working document . It does not constitute the official position of the Commission, nor does it prejudge any such position. /\* SWD/2015/0044 final \*/**

  

Executive summary  4

1.       Scene
setter: economic situation and outlook  5

2.       Other
structural issues 11

2.1.   Fiscal policy
and taxation  13

2.2.   Labour
market, education and social policies 19

2.3.   Business
environment and infrastructure  25

2.4.   Modernisation
of public administration  33

AA.   Overview
Table  37

AB.   Standard
Tables 43

LIST OF Tables

1.1.     Key economic,
financial and social indicators 9

1.2.     Macroeconomic
imbalance procedure (MIP) indicative scoreboard   10

AB.1.  Macroeconomic
indicators 43

AB.2.  Financial
market indicators 44

AB.3.  Taxation
indicators 45

AB.4.  Labour market
and social indicators 46

AB.5.  Expenditure on
social protection benefits (% of GDP) 47

AB.6.  Product market
performance and policy indicators 48

AB.7.  Green growth  49

LIST OF Graphs

1.1.     Real GDP
growth and contributions (pps.) 6

1.2.     Net
investment (% of GDP) 7

1.3.     Unemployment,
youth unemployment and long-term unemployment rates (%) 7

1.4.     General
government deficit (a) and debt (b) 8

2.1.1.  VAT effective
rate  13

2.2.1.  Government
expenditure on education and teachers’ salaries 23

2.3.1.  Easiness of
doing business in Slovakia   25

2.3.2.  Motorway
infrastructure in Slovakia   27

2.3.3.  Investment in
Slovakia   27

2.3.4.  Private
R&D expenditures in Slovakia and the EU-28 (% of GDP) 28

2.3.5.  Network costs
comparison for industrial consumers across the EU (Graph 1a) and changes in
network costs per consumption band in Slovakia (Graph 1b) 29

2.3.6.  Determinants
of energy intensity in Slovakia   30

2.4.1.  Government
effectiveness 33

LIST OF Boxes

1.1.     Economic surveillance process 5

LIST OF Maps

No table of contents
entries found.

Growth in Slovakia gathered pace in
2014, driven by a recovery in domestic demand, as both private consumption and
investment picked up after several years of decline. Export growth, however, weakened, as demand from Slovakia's main
trading partners declined. Overall, GDP is estimated to have grown by 2.4% in
2014, putting Slovakia among the better performers in the euro area. Employment
grew throughout the year, but the unemployment rate remained above 13%.
Inflation collapsed sharply in 2014, driven mainly by a fall in energy prices.

Domestic demand is expected to remain
the main motor of growth. Export growth, on the
other hand, is projected to continue to slow down in 2015 due to weaker demand
from Slovakia's trade partners and is only likely to recover in 2016. Labour
market conditions are projected to improve in line with the recovery in
economic activity, while inflation is expected to slowly increase over the
coming two years.

This Country Report assesses Slovakia's
economy against the background of the Commission's Annual Growth Survey which
recommends three main pillars for the EU's economic and social policy in 2015:
investment, structural reforms, and fiscal responsibility. In line with the
Investment Plan for Europe, it also explores ways to maximise the impact of
public resources and unlock private investment. Finally, it assesses Slovakia
in the light of the findings of the 2015 Alert Mechanism Report, in which the
Commission found it useful to further examine the persistence of imbalances or
their unwinding. The main observations and findings of the analysis are:

· The long-term prospects of public finances have improved thanks to
changes in taxation, the pension and healthcare systems, and the fiscal
framework. Implemented measures of the Action Plan
to fight tax fraud are already bearing fruit, particularly in collecting VAT
revenue. Nevertheless, inefficiencies in tax collection and tax administration
remain. The reform of the pension system has eased the expected pressure on
public finances in the future, but the healthcare sector continues to be a drag
on the public budget.

· The labour market showed signs of recovery in 2014, but unemployment
remains high. Disincentives in the social-benefit
system have been reduced and some positive results have been obtained in
reducing youth unemployment, but long-term unemployment remains a major
challenge. Employment among Roma and the low-skilled is low. The relevance of
education to the labour market is low and the transition from education to
employment is slow.

· The country's long-term growth prospects are harmed by the
lacklustre performance of investment since the onset of the crisis. The poor investment performance is also reflected in the relatively
low quality of infrastructure, which puts a drag on growth in Slovakia's
Central and Eastern regions.

· Slovakia's competitiveness is held back by lack of improvements in
the ease of doing business. Slovakia continues to
rank relatively poorly on several indicators of business environment quality,
including the ease of starting a business and the ease of paying taxes. High
electricity network charges result in high electricity prices for Slovak firms.

· The low efficiency of the public administration and of the justice
system are not conducive to an efficient allocation of resources. The civil service suffers from high staff
turnover and an inefficient management of human resources. Efforts to tackle corruption have so far been limited. Public
procurement suffers from engrained deficiencies that affect the allocation of
public resources.

Overall, Slovakia has made limited
progress in addressing the 2014 country-specific recommendations. There has been limited progress in
improving the long-term sustainability of public finance by increasing the
cost-effectiveness of the healthcare sector. No measures were taken to further
strengthen the fiscal framework. Only limited efforts have been made to
increase the efficiency of the tax administration, while no action has been
taken to link the base for real estate taxation to the market value of the property.
Limited progress has been made in tackling long-term unemployment. There has
been some progress regarding work-based learning, with a new Act on vocational
education and training to enter into force in 2015. However, limited progress
has been made in improving the teaching conditions, encouraging the creation of
more profession-oriented bachelor programmes, and increasing the participation
of Roma in early childhood education and care. No measures have been taken to
ensure a wider participation of Roma in vocational training and higher
education. Only limited progress has been made in addressing the gaps in the
Slovak research and innovation system, namely to improve the quality and
relevance of the science base and cooperation between academia, research and
business. Some progress has been made in developing energy interconnections
with neighbouring countries; in particular, the gas reverse flow with Ukraine
has been operational since September 2014. Progress in improving the
functioning of the energy market, however, is slow. Measures taken to improve
the quality and efficiency of the public administration and the justice system
have been limited.

The staff working document also discusses
the policy challenges stemming from this analysis:

· The high unemployment rate hampers Slovakia's growth potential. The main challenges remain insufficient capacity of public
employment services to provide personalised services and low internal labour
mobility. At the same time, improving access to childcare, in particular for
children below three, could increase the labour force participation of women. The
school-to-work transition remains difficult for vocational education and
training and higher education graduates. Low investments underminesSlovakia's
competitiveness and growth prospects. Continuing economic convergence will
require significant increases in both physical and human capital. Regional
disparities in economic development are caused also  by lacking  infrastructure
in Slovakia's eastern regions.  The quality of the business environment hampers
Slovakia's attractiveness for both foreign and domestic investment.

· Slovakia's competitiveness depends on the efficiency of its public
administration and on the quality of the environment in which businesses operate.  Weaknesses in public administration and ineffective public procurement affect the sound and efficient allocation of
public resources. Efforts to tackle corruption have so far remained limited.

· Changes to taxation, the pension and healthcare systems have
contributed to a better state of public finances.
Still, inefficiencies remain in tax collection and administration.  There
has been no shift in the tax burden to areas such as real estate or
environmental taxation that are less detrimental to growth. Long-term
sustainability of public finances depends on increasing the cost-effectiveness
of the healthcare sector.

Growth
and inflation

Slovakia's recovery from the economic
crisis was one of the strongest and fastest in the EU, but the recovery of
domestic demand lingered as both private
consumption and investment stayed below their 2008 levels in real terms. In
2014, domestic demand recovered and growth gathered more pace. According to the
Commission 2015 Winter forecast, real GDP grew by 2.4% in 2014, as compared
with 1.4% in 2013. Both private consumption and investment rebounded after
several years of decline. Export growth, however, weakened, chiefly due to
lower demand from Slovakia's main trading partners.

Graph 1.1:     Real GDP growth and contributions (pps.)

Source: European Commission

Going forward, domestic demand is
expected to remain the main driver of growth.
Growing disposable income and low inflation are expected to continue to bolster
private consumption, while a planned expansion of production facilities in the
automotive industry will support investment in 2015 and 2016. Export growth, on
the other hand, is projected to continue to slow down in 2015 and is only
likely to recover in 2016. With imports evolving in line with exports, Slovakia
is expected to continue running a current account surplus over the coming
years.

Declining energy prices led to a sharp
drop in inflation in 2014. Consumer price inflation
was slightly negative for the year as a whole, but core inflation remains well
above zero and the risk of deflation is low. Inflation is projected to slowly
increase over the coming years, driven by a pick-up in the prices of services
mirroring the recovery in domestic demand.

Investment

Investment fell sharply with the onset
of the crisis and has yet to fully recover. In
2013, investment in capital goods was still around 13 % lower in real
terms than in 2008. In 2013, investments fell short of amortisation, indicating
a shrinking capital stock (Graph 1.2). The relatively low quality of transport
infrastructure, especially in Slovakia's Central and Eastern regions, makes
under-investment ever more apparent. The lacklustre performance of investment
also harms the country's long-term growth potential.

Graph 1.2:     Net investment (% of GDP)

Source: European Commission

Slovakia's position in global value
chains is relatively low. R&D intensity in
Slovakia remains one of the lowest in the EU, due in particular to an extremely
low level of business expenditure on R&D.

Unemployment

At over 13%, the unemployment rate
remains high despite employment growth throughout 2014.  Looking forward, labour market conditions are projected to improve
in line with the recovery in economic activity. However, given the
structural nature of unemployment in Slovakia, the unemployment rate is
expected to remain above 12% over the coming years.

Graph 1.3:     Unemployment, youth unemployment and long-term unemployment rates (%)

Source: European Commission

Long-term unemployment is a persistent
problem in Slovakia. Over two thirds of the
unemployed have been jobless for more than a year, while around half have been
jobless for more than two years. Despite some recent improvements, the youth
unemployment rate is among the highest in the EU. Low
labour mobility reinforces the geographical segmentation of the labour market
as reflected by the high regional differences in employment. Female employment continues to be held back by the insufficient
availability of childcare services, while the integration of Roma people into
the labour market is limited.

Public finances developments

The general government deficit in
Slovakia increased considerably with the onset of the crisis. Since then, public finances have undergone a significant consolidation,
with the deficit declining from almost 8% of GDP in 2009 to 2.6% in 2013. In
2014, the deficit is projected to have slightly deteriorated to 3% of GDP.
However, the broadening of the tax base for the corporate income tax,
continuing improvements in VAT tax compliance and favourable macroeconomic
developments are expected to further bring down the government deficit over the
coming two years. The deficit developments also affected the general government
debt, which rose from less than 30% of GDP in 2008 to almost 55% in 2013 before
stabilising at that level.

Graph 1.4:     General government deficit (a) and debt (b)

Source: European Commission

Projected increases in age-related costs
affect the long-term sustainability of public finances. With the pension system being put on a more sustainable path,
healthcare expenditure is expected to be the main driver of age-related costs.
Health outcomes for the Slovak population, however, continue to lag behind the
rest of the EU.

Box 1.1: Economic surveillance process

The Commission’s Annual Growth Survey, adopted in November 2014, started the 2015 European Semester, proposing that the EU pursue an integrated approach to economic policy built around three main pillars: boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation. The Annual Growth Survey also presented the process of streamlining the European Semester to increase the effectiveness of economic policy coordination at the EU level through greater accountability and by encouraging greater ownership by all actors. This Country Report includes an assessment of progress towards the implementation of the 2014 Country-Specific Recommendations adopted by the Council in July 2014. The Country-Specific Recommendations for Slovakia concerned public finances and taxation, the labour market, education, the energy market, and public administration.

Table 1.1:       Key economic, financial and social indicators

(1) Domestic banking groups and stand-alone banks. (2) Domestic banking groups and stand-alone banks, foreign-controlled (EU and non-EU) subsidiaries and branches. (3) Real effective exchange rate (\*) Indicates BPM5 and/or ESA95 Source: European Commission,2015 winter forecast; ECB

Table 1.2:       Macroeconomic imbalance procedure (MIP) indicative scoreboard

Flags: na: not available.          Figures highlighted are the ones falling outside the threshold established by EC Alert Mechanism Report. For REER and ULC, the first threshold concerns Euro Area Member States. (1) Figures in italic are according to the old standards (ESA95/BPM5). (2) Export market shares data: the total world export is based on the 5th edition of the Balance of Payments Manual (BPM5). (3) Unemployment rate i=Eurostat backcalculation to include Population Census 2011 results.    Source: European Commission

Taxation

Improvements have been made in tax
collection (especially for VAT), however increasing the efficiency of tax
collection and the taxation system remains challenging. In 2012, the government embarked on a fight against tax fraud,
especially in the area of value-added tax (VAT). Among the measures are a ‘VAT
control statement’ ([1]), which has
to be submitted electronically by all VAT payers, and a compulsory down-payment
on VAT registration for high-risk applicants. Although the public finance
accounts point to a continued improvement in VAT collection ([2]), this result has been achieved only to a limited extent by
efficiency improvements through adjustments in the risk assessment of taxpayers
and tax audits. While the additional measures introduced in January 2015 to
broaden the tax-base have the potential to improve the efficiency of corporate
taxation, other areas such as real‑estate or environmental taxation,
which are less detrimental to growth, have received little or no attention.

Graph 2.1.1:   VAT effective rate

Source: Ministry of Finance, Slovakia

Improved collection of VAT has been
accompanied by an increase in administrative requirements on businesses. The measures adopted so far to fight tax fraud appear to have
significantly increased tax compliance costs for businesses. Having to submit
electronic ‘VAT control statements’ and deal with a higher number of
VAT-related inspections and changing tax legislation means that businesses
perceive arrangements for paying taxes as increasingly demanding ([3]). Pre-filling of tax returns remains limited and the time necessary
to comply with VAT requirements is the second highest in the EU ([4]).

Delays in promoting further enhancements
of the risk assessment and audit capacities weigh on further significant
progress in tax collection. The control statements
appear to have helped in identifying problematic VAT taxpayers, as successful
investigations in 2014 increased by more than 4 pps. as compared with
2013. However, the tax authorities currently use several data mining models to
assess risky taxpayers and these do not appear to be well integrated. The
introduction of a scheme to rate taxpayers has been postponed. The links
between tax assessment and tax collection and subsequently risk assessment and
tax audits have so far not been sufficiently exploited.

Resources in the tax administration
appear not to be used efficiently. One of the
reasons for this is delayed development and implementation of fully fledged,
end-to-end processes and strategies to manage compliance risks. Currently, the
tax authorities place a great deal of emphasis on inspections, especially in
the area of VAT (which accounted for 80 % of all tax audits in 2014). As
a result, resources within the tax administration are concentrated on VAT
inspections, even though other areas of taxation also deserve attention. For
example, there appears to be ample scope for the self‑employed to
underreport revenue and over-report costs ([5]). Moreover, evidence suggests that, despite the higher compliance
costs, the self‑employed are converting to limited liability companies
without employees, which may indicate that this offers even larger margins for
tax optimisation ([6]). In
addition, collection of tax debts has been relatively stagnant, with the
recovery rate in 2013 and 2014 standing at about 24 % of recoverable tax
debts.

Fragmentation also represents an
obstacle to efficiency improvements in the tax administration. The implementation of the UNITAS project, aimed at merging the
collection of taxes, customs and social security contributions, has been very
slow. While the tax and customs offices were formally merged into one
institution (the Financial Administration) in 2012, they still function de
facto as two separate entities not making use of economies of scale, e.g. by
sharing IT resources. An integration of the IT systems within the Financial
Administration is expected to take place only in 2015 ([7]). Fragmented information sources impinge on the exchange of
information with revenue authorities in other Member States; in 2013, the
Slovak authorities replied late to requests for VAT-related information in
80 % of cases ([8]).
Implementation of the second phase of the UNITAS project is expected in 2016.

Several planned measures may shorten the
time necessary to pay taxes, thus reducing compliance costs and mitigating the
negative impact on businesses. The time period for
VAT registration was shortened from 30 to 21 days in 2015. The time required
for refunds of excessive deductions due to a tax audit is expected to decline
because during an audit the tax authorities will be able to refund a part of
deductions that do not require further investigation. In addition, fines for
declaration-related mistakes have been capped and the introduction of an
initial ‘self‑assessment’ by taxpayers of tax due will facilitate imports
of goods from third countries. The government also plans to scrap the VAT
guarantee for start-ups and newly established businesses. To limit SME
insolvencies, the government will propose a cash accounting scheme whereby
suppliers do not become liable for tax until paid by their customer.

Broadening the base for corporate
taxation is likely to contribute to higher overall efficiency in the tax
system. Several measures have been adopted in 2015
including: (i) changes to the rules on the depreciation of assets and leasing,
including limits to car depreciation ([9]), (ii) thin capitalisation rules limiting tax deduction for
interest payments between associated parties, (iii) the extension of transfer
pricing rules to (associated) domestic parties, (iv) limits on the
deductibility of losses and (v) limitation of deductibility of expenses claimed
for personal use through an amendment of the definition of ‘tax‑deductible
expenses’. While promotion of R&D through deductibility of up to
150 % of R&D‑related expenditure will make the tax‑base
narrower, it may become a useful instrument to support business innovation.

The taxation of real estate remains
inefficient and changes to environmental taxes have been marginal. Taxes from real estate have yielded some 0.4 % of GDP since
2000, about 1 pp. lower than the EU average. Plans to introduce a new
system of real‑estate taxation that would reflect the value of underlying
property has been postponed to 2016 at the earliest. Moreover, the Ministry of
Finance has not yet published an analysis on possible changes in the taxation
of real estate. No major changes have been introduced in environmental
taxation, thus keeping in place an inconsistent framework of incentives in the
area of environmental policy ([10]).Taxation of pollution and use of resources remains very low and
revenue from environmental taxes is among the lowest in the EU (1.8 % of
GDP). In 2012, Slovakia introduced a registration tax on motor vehicles that is
based on engine power. In 2015, the government changed the system of vehicle
circulation tax paid by businesses, introducing an ‘ecological discount’ based
on the age of the vehicle. However, there are no plans to extend this tax to
privately-used passenger cars. Based on some estimates, reviewing the system of
environmental taxation could yield up to 2.3 % of GDP in additional
revenue in the medium to long term ([11]).

Debt sustainability

Ageing costs will weigh on the
relatively sound debt position of Slovakia in the future. With a debt-to-GDP ratio below 55 %, Slovakia is not expected
to face major risks in the medium term. However, the impact of population
ageing on pensions, healthcare and long-term care expenditure might pose a
challenge to long-term fiscal sustainability ([12]). Despite slightly more favourable demographic developments, the
main trend of a sharply increasing old-age dependency ratio remains intact.
Updated projections of the cost of ageing based on the latest demographic
projections and agreed methodologies ([13]) will be available in the first half of 2015.

After repeated changes, the pension
system enjoyed a period of stability in 2014, but this may be short-lived. Since the introduction of a second (fully funded) private pension
pillar in 2004, the pension system has undergone numerous changes. The latest
adjustments adopted in 2012 ([14]) had an overall positive impact on the sustainability of the
pension system. In 2015, first pension savers from the private pension pillar
were eligible to claim pensions. Given low annuities offered by insurance
companies, the government opened the private pension pillar for the fourth
time, in order to enable pension savers to leave the scheme ([15]). This proposal addresses the adequacy of pensions but, all things
being equal, it may impinge on the sustainability of the public pension system
due to higher financing requirements driven by an increase in the number of
future beneficiaries.

The projected long-term increase in
healthcare expenditure weighs on the long-term sustainability of public
finances, posing challenges in terms of the cost-effectiveness of the
healthcare sector. Inefficiencies ([16]) reported mainly in the in-patient sector seem to be the
result of misaligned incentives. Despite improving trends, the country ranks
low in terms of headline health status indicators and lowest in the EU when it
comes to years of healthy life expectancy ([17]). Against this background, the overall efficiency of the Slovak
health system is low and performs poorly when compared with the rest of the EU.
This is true even if relatively low public healthcare resources in Slovakia are
taken into account and if the system output is corrected for socio-economic
factors and population life style behaviour ([18]).

Delays in the introduction of a payment
system based on diagnosis-related groups (DRG) have led to suboptimal resource
allocation across hospitals. Lack of transparency
of service delivery contracts between insurers and healthcare providers,
including unit costs, aggravate the problems. Missing systemic measures as
regards guidance and supervision lead to persistent irregularities in
healthcare‑specific public procurement  (see also part on procurement in
healthcare in section 2.4). Finally, unavailability of data, either because of
irregular tracking or complicated access in the in-patient sector, hampers any
efficiency analysis or quality assessment.

Most measures to improve the
cost-effectiveness of the healthcare sector are still in preparation. In an effort to address the shortcomings of the national healthcare
system, the government adopted a Strategic framework for health for 2014‑30,
which is being implemented. Primary care, the hospital sector and public health
are the three intervention areas of the strategy. The benefits of the
integrated care model ([19]) at the core
of the strategy are uncertain, particularly in the short term. This is because
the strategy seems to focus too narrowly on infrastructure construction and
grouping general practitioners and second-line specialists into medical centres
without ensuring ownership among key players such as self‑governing
regions and doctors. Hence, there are risks of delayed implementation similar
to those of the planned introduction of e-health, for which there are no
tangible results. Furthermore, the allocation of resources earmarked for the
strategy goals may not be optimal. Ultimately, these shortcomings could
endanger the success of the strategy. Incentives for general practitioners to
operate efficiently and meet their gatekeeping role in the system, such as a
shift to ‘per service’ reimbursement, are being considered and delegation of
competences from specialists is progressing slowly.

Preventing further build-up of debt in
public hospitals remains a challenge in the absence of measures to buttress
sound financial management. The primary focus of
measures in the hospital segment, where appropriate budgeting, monitoring and
regular assessment are lacking, is on preventing the build-up of debt by public
hospitals, their reconstruction and optimising their total in-patient bed
capacities. To this end, hospitals have been asked to present recovery plans
geared to balancing budgets in 2015 and discussions on their implementation are
ongoing. Slow progress in improving the current situation is, partly due to
delays in the introduction of DRGs and inefficient public procurement
practices. Moreover, the high indebtedness of some hospitals will make it difficult
to unwind their debts without public support. Finally, the renewed interest in
public-private partnerships for the construction of new hospitals warrants
attention to project design in order to ensure efficiency both in terms of
costs and services provided ([20]).

Fiscal framework

The medium-term budgetary framework
remains relatively weak. The central government
prepares a three-year budget for the general government. However, the
involvement of other levels of government or the parliament in the budgetary
process is relatively limited. The fiscal targets for the general government
are set by the central government without consulting local authorities or other
concerned parties. Moreover, the final years of the multi-annual budget are
only indicative and the current set-up does not prevent the parliament from
adopting legislative amendments with major fiscal impacts. Such changes may
have a multi-annual budgetary impact without being reflected in the
multi-annual budgetary framework ([21]). The situation is caused also by absent binding expenditure
ceilings, which have so far not been adopted despite being required under
constitutional law ([22]).

Public employment services and labour market
participation

The unemployment rate decreased slightly
in 2014 but remains above the EU average (12.5 % vs 9.9 % in the
EU-28 in December 2014) and is mostly structural and long-term in nature. Weak labour demand and a low number of vacancies, in conjunction
with one of the lowest labour turnovers in the EU, give rise to one of the
highest long-term unemployment rates in the EU (10 % vs 5.1 % in
the EU‑28 in 2013). The principal reasons for the poor labour market
outcome are the low employment of certain groups including Roma, the existence
of work disincentives coming from the tax and benefit systems, the weak
capacity of the public employment services to assist the most disadvantaged
jobseekers, and a relatively low internal geographical labour mobility.

The public employment services (PES)
have limited capacity to provide personalised services, in particular to those
furthest from the labour market, such as the long-term unemployed, the
low-skilled, young people and Roma ([23]). Total spending on active labour
market policies remains relatively low, particularly for the provision of
quality training. Some stakeholders find the administrative burden of
benefiting from active labour market policies relatively heavy and point to a
lack of support by the Public Employment Service before, during and after the provision
of active labour market policies. Employers in Slovakia report skills shortages
but adult participation in lifelong learning activities is among the lowest in
the EU and has decreased since 2011.

The ongoing public administration
reform ([24])
introduced changes in the organisation of the Public Employment Service aimed
at increasing their efficiency. With the European
Structural and Investment Funds support in 2014-20 Slovakia plans to strengthen
the capacity and quality of the Public Employment Service and introduce
systemic training for front-line officers. This will also involve private
employment services, particularly in placing the long-term unemployed on the
labour market.

Youth unemployment declined slightly to
28.9 % in December 2014 (to the lowest level since 2009) but Slovakia
still has one of eight the highest rates in the EU.
Almost two thirds of unemployed young people have been looking for a job for a
year or longer, the highest proportion in the EU. The proportion of young
people that were neither in employment, nor in education or training is close
to the EU average. School-to-job transition is still slow and the education
system does not respond readily to labour market needs ([25]).

The updated Youth Guarantee
Implementation Plan was adopted in February 2014
and a number of reforms (e.g. on vocational education and training, discussed
below) have been implemented. In 2014, 1 694 young people were placed in
wage-subsidised jobs. However, in 2014 only around 10 % of young
unemployed eligible for the Youth Guarantee actually received one of four
offers (job offer, training, apprenticeship, or internship). New programmes
aimed at securing employment for the low-qualified long-term unemployed,
including young marginalised Roma and other risk groups, are to be launched in
2015. Furthermore, the Slovak authorities plan to reach inactive young people
through existing community centres in marginalised Roma communities and social
fieldworkers, but it is unclear what particular support will be provided.
Delivering the Youth Guarantee will depend on ensuring adequate funding,
strengthening administrative capacity, and building partnerships at local level
for a wider outreach to non-registered young people that are neither in
employment, nor in education or training.

The employment rate for women (20-64)
remains well below the EU average (53.4 % vs 58.8 % in 2013). Estimates show that increasing women’s labour force participation
to the EU-15 average could increase Slovakia’s GDP by 1.6 percentage
points ([26]).The gender
employment gap for young women (20-29) remains high and the impact of
parenthood on female employment increased in 2013 and is among the highest in
the EU. The employment rate for women (25-49) with children below six years of
age is under 40 %, while it is 83 % for men of the same age and
marriage status, reflecting the insufficient provision of good quality and
affordable childcare services and relatively lengthy parental leaves ([27]). The gender pay gap is above the EU average despite the higher
educational attainment of women compared to men in Slovakia and is linked to
gender inequalities in the labour market and longer career breaks. Finally, the
employment of both women and men is also negatively affected by the low take-up
of flexible work arrangements.

Child care provision for children under
three years of age remains poor. European
structural and investment funds will support actions to improve the current
situation, but the legislative framework is lacking. Some improvements can be
expected in the provision of childcare services for older children (aged 3-6)
as Slovakia plans to increase its pre-school education capacity by 20 000
places (with funds of EUR 155 million). In addition, actions supporting
innovative childcare will be launched in 2015 (through the EUR 23 million
‘Family and Work’ project), which could encourage employers to introduce
childcare and flexible forms of employment. Nevertheless, awareness of the
potential of quality in the area of very early child education and care
continues to be weak in Slovakia.

Despite substantial progress during last
decade, older workers remain a potential untapped resource. The employment rate for older workers (aged 55-64) substantially
increased from 24.6 % in 2003 to 44 % in 2013 but it is still
clearly below the EU28 level (50.2 % in 2013). Low participation in
life-long learning to address skills mismatches contribute to poor performance.

In Slovakia, about 60 % of the
unemployed are low-skilled and almost 70 % are long-term unemployed
(without jobs for more than a year), both outcomes being among the worst in the
EU-28. Although the tax burden on low wage earners
was around the EU average in 2013 and the overall level of social assistance in
Slovakia is relatively low, some disincentives to work might still remain for
certain types of households at the bottom of the income scale.

Slovakia launched a number of reforms aimed
at addressing disincentives in the social-benefit system. In addition to the introduction of a workfare policy, a reform
aimed at improving the activation of long-term unemployed through enhancing
in-work benefits was adopted in 2014. The simultaneous drawing of the special
benefit in material need will be available for jobseekers who start working on
a low wage. A temporary reduction of the tax wedge for workers who were
previously long-term unemployed workers (in force since November 2013) did improve
the attractiveness of the long-term unemployed but did not seem to reduce
overall long-term or low-skilled unemployment ([28]) among the low-skilled. One of the reasons for the low interest
from employers might be the simultaneous implementation of other activation
policies. The government reduced health insurance contributions for low-paid
workers from January 2015, which could have a significant impact on the
employment of this group, with up to 580 000 employees potentially
benefitting from the measure.

Regional labour mobility

Despite high regional differences in
unemployment levels, regional labour mobility in Slovakia is relatively low,
limiting matching between jobseekers and vacancies.
The Slovak labour market has one of the lowest job turnover rates in the EU,
with low internal geographical labour mobility a contributing factor. Factors
hampering mobility include insufficient transport infrastructure, high travel
and housing costs relative to income, and an insufficiently developed rental
market. In Slovakia, only a very small share of the working-age population
(aged 15-64) changed their place of residence in 2011 while no more than
3 % of residential migrants indicated employment-related motives as a
reason for relocation. The housing stock is generally low in Slovakia. The
insufficient availability of dwellings ([29]) translates into one of the highest household overcrowding rates in
the EU and is accompanied by poor living conditions. While Slovakia has a high
home ownership rate, the rental market is small and access to social housing is
among the lowest in the EU. In addition, since eligibility for social housing
depends on income, once a person manages to obtain a public housing apartment
his incentive to earn more is reduced for fear of becoming ineligible. This
leads to disincentives for labour supply and hampers labour mobility.

Recently Slovakia has taken a number of
measures addressing housing issues. An Act on the
State Housing Development Fund has been in force since 2014 and supports public
and private rental housing. An Act on short-term tenancy in force since May
2014 promotes flexibility on the housing market and the growth of the rental
sector by establishing special legal arrangements for the private rental
sector. Since last year, new limits on the level of subsidies have applied in
the social housing sector. However, the data point to a decreasing number and
proportion of municipal social dwellings. In particular, the number of
newly-started constructions in the social segment decreased by almost
80 % between 2009 and 2013. In addition, although there are a number of active
labour market policy measures supporting labour mobility, some of them are not
used. For example, no employers benefited from support for the transport of
employees to the workplace in 2013-2014 and only 66 jobseekers received a
removal contribution in 2013. Nevertheless, demand from the workers’ side for
support to cover travel costs to the workplace is high (almost 13 000
benefited from such support in 2013) ([30]). A new state housing policy strategy plans to review existing tax
legislation and introduce a system of tax incentives in support of rental
housing. Overall, despite recent reforms, internal regional labour mobility and
access to housing, including through the private rental sector, remain a
challenge.

Addressing poverty and social exclusion

Although the overall risk of poverty or
social exclusion in Slovakia (19.8 %) is broadly stable and below the EU
average, there are significant regional discrepancies in the poverty rate. Material deprivation remains above the EU average (19.5 %)
and has further deteriorated recently (to 23.4 % in 2013). The impact of
social transfers in reducing child poverty is well below the European average
(33.7 % in Slovakia compared to 41.3 % in the EU as a whole),
mainly linked to the fact that material need benefits are only partly sensitive
to the number of children in the household. Moreover, indexation of the
benefits to inflation is subject to a discretionary decision by the government.

The minimum income support is not based
on actual living costs and is inadequate to prevent poverty, especially for
households affected by long-term unemployment. The
universal child allowance, while rather modest (EUR 23.52), is an
important benefit for low-income families. Inadequate income support may lead
to taking out loans with excessive interest rates from non-bank financial
institutions. Indebtedness then acts as one of the major disincentives to take
up low-paid jobs as wages, contrary to social benefits, are not exempted from a
seizure of property. As a result, large families (with more than three
children), unemployed and single parents are most affected by poverty and
social exclusion. The benefits in material need (Slovak equivalent of minimum
income support) underwent a major reform in 2014 by obliging recipients to work ([31]). The projected increase of the retirement age brought about by the
2012 pension reform and the short average duration of working life, especially
for women, carry a risk related to future pension adequacy (see also part on
debt sustainability in section 2.1). Measures to promote longer working careers
and healthy life years (both significantly below the EU average) are not
sufficiently promoted ([32]).

The minimum wage increased by almost 8 % (to EUR 380) in 2015
and the net minimum wage (EUR 339) now surpasses the poverty
threshold ([33]). The government intends to introduce a minimum pension in 2015,
which will be above the level of the subsistence minimum but only for those
with a sufficient number of years worked ([34]). New legislation was introduced in 2014
regulating the maximum interest rate and charges for loans by the non-bank
financial companies. The Fund for European Aid to the Most Deprived will support
an operational programme for food and basic material assistance (EUR 62.8
million in 2014-20) to alleviate the worst forms of poverty.

Education

Public expenditure on education remains
largely below the EU average and is on a decreasing trend. Despite recent rises in teachers’ salaries and a commitment to
increase them to 120 % of the average wage, funds for teaching activities
remain low in international comparison. The shortage of qualified teachers has
a negative impact on learning outcomes. According to the OECD’s TALIS survey,
teachers perceive their status as extremely low and the proportion of teachers
undertaking professional development activities is the lowest in the EU
(73 %). The areas in which the highest proportions of teachers report a
strong need for professional development are teaching students with special
needs and developing skills to teach with ICT. The OECD’s 2012 Programme of
International Student Assessment (PISA) study showed a significant
deterioration of 15‑year‑olds’ proficiency in reading, maths and
science. Truancy and grade repetition are on the rise.

The quality of teaching and educational
outcomes remain poor. Increases in salaries remain
insufficient to attract and retain talented young people and notably starting
salaries are low. The Ministry of Education is working on improvements in
initial teacher training through an EU-supported project. Its results, to be
published early 2015, will include recommendations to higher education
institutions that prepare future teachers. Professional standards for teachers
have been developed but have yet to be published and implemented. The
continuous professional development of teachers requires improvements based on
an in-depth analysis of teachers' needs. An amendment to the Education Act
adopted in December provides some means for the direct purchasing of textbooks
by schools. The 2020 Strategy for Digitalisation of the Education sector
adopted in September 2014 aims at improving ICT usage in classes and teachers´
skills in that respect. In 2014, the government presented measures to reform
the school curricula that will enter into force in September 2015. Measures
such as the reinforcement of science and polytechnic education could bring
positive results. However, the implementation of the curricular reform requires
teachers’ support and abolishing the compulsory second foreign language in
primary education goes against recommendations at EU level ([35]). A national electronic system for testing children’s learning
outcomes in grade 9 and at the end of secondary education was pilot-tested in
2014 and a new general testing at grade 5 was organised at the end of 2014. If
supported by adequate learning materials and accompanied by appropriate support
measures for underperforming schools/teachers/pupils, these tests might be a
useful tool to support improved outcomes. Prospective teachers in mathematics,
science and information technology receive a ‘motivation stipend’.

Graph 2.2.1:   Government expenditure  on education and teachers’ salaries

Source: European Commission, OECD

The school-to-work transition remains
difficult for vocational education and training and higher education graduates. Vocational education and labour market-relevant training is weak,
hampering regional development. The labour market relevance and quality of
higher education is also a challenge. The anticipation of skills needs is not
adequate, contributing to qualifications and skills mismatches ([36]). The latest report by the Academic Ranking and Rating Agency
points to increasing numbers of Slovak students preferring to study in the
Czech Republic than in Slovakia and to the increasing unused capacities at
Slovak universities.

Some measures have been taken to improve
the provision of work-based learning in companies in vocational education and
training (VET). The draft new Act was adopted by
the Government in January 2015 with an intended entry into force in September
2015. Fiscal incentives for employers to get more involved in VET are confirmed
in the 2015 budget. During the legal process, employers raised concerns that
the planned financial support that may be insufficient to incentivise companies
to participate. Otherwise, the impact of the new Act will largely depend on the
capacity-building support offered to companies and professional organisations
to properly train students at the workplace. Projects with Austrian, German or
Swiss employers, such as the highly successful Young Stars project, support the
reform. A revised funding system for schools is being set up, aimed at moving
to a formula that would take into account quality criteria such as the
employability of graduates. New rules will already allow for revised funding
from September 2015 on. A new data system is being developed by the Ministry of
Education, in cooperation with the Ministry of Labour that would improve the
labour market intelligence of policy-making Ministries.

The proportion of profession-oriented
bachelor programmes remains very low and there are no specific accreditation
criteria for such programmes. A high proportion of
graduates occupy jobs that do not require master’s degrees. The mainly
per-capita funding system does not favour technical universities, even though
graduates in technical and scientific fields are lacking. The employment
advantage for tertiary education graduates over people with lower education is
lower than the EU average and decreasing.

No measures have been taken to support
the creation of professional-oriented bachelor programmes. The new Act on Higher Education is likely to be delayed until after
the next parliamentary elections in 2016. Progress is not clear on the work
towards introducing more quality-based funding criteria for public higher
education institutions and encouraging the creation of profession-oriented
bachelor programmes by institutions. The systematic use of the HE Innovate tool
and methodology for supporting institutional change conducive to this end is
currently under consideration. A project supported with EU funds is ongoing,
exploring innovative forms of learning and ways to increase cooperation with
employers.

Inequalities in education, in particular
for the Roma population, hold back inclusive growth.  While the early school-leaving rate is low, it has increased in
recent years, in particular for the Roma population, putting the national 2020
target of 6 % at risk. This is alarming as the employment disadvantage
for people without upper secondary education is significantly higher in
Slovakia than in the EU in general. According to OECD data, both equality and
performance deteriorated in the country between 2003 and 2012 ([37]). At the same time, participation in early childhood education and
care remains very low and has decreased in recent years, with Roma
participation being particularly low ([38]). This is partly due to insufficient capacities and the need to
work together with parents to raise awareness of future returns of
participation in terms of educational outcomes. The current practice of testing
school readiness continues to be discriminatory ([39]). The proportion of Roma children in special schools with lower
learning standards is disproportionally high. At the
same time, the heavy reliance on ESIF funding in that
respect does not ensure a systemic approach and the sustainability of budget
allocation is also unclear.

Access to high quality and inclusive
pre-school and school education for marginalised communities including Roma has
somewhat improved, but the wider participation of Roma in vocational training
and higher education is not ensured. The number of
teacher assistants for children with special needs, including children from
socially disadvantaged environments, has been significantly increased for the
school year 2014-2015 and a further increase is budgeted for 2015. The
EU-funded PRINED project carried out at 150 schools in 2014-2015 aims at
eliminating the misplacement of disadvantaged students in special schools due
to misdiagnosis. Early childhood education and care capacities are being
enlarged with the support of EU funds and the 2015 budget provides more
investments; it is unclear at this stage to what extent children from
marginalised communities will benefit from new or enlarged capacities.
Compulsory enrolment in early childhood education and care for children from
socially disadvantaged environment was envisaged by the Plenipotentiary for
Roma Communities but no practical steps have been taken since 2012. The
Ministry is now considering extending free education for all children from the
age of four, together with the entitlement to get a place.

Business environment

Businesses in Slovakia continue to face
a sluggish public administration and poor quality of infrastructure. E-government services for regular business operations are
underdeveloped, business registries are not unified and there is no
one-stop-shop for paying taxes. Despite having made big improvements over the
last five years, Slovakia is among the EU Member States in which exports take
longest (16 days), mainly due to administrative hurdles and poor
infrastructure, which affect document preparation as well as  and port and
terminal handling.

Graph 2.3.1:   Easiness of doing business in Slovakia

(1) While 1 stands for the best EU performer, 0 for the worst. Source: European Commission, Word bank, World Economic Forum, Intrum Justicia, latest available 2013 or 2014 data

Some measures have been taken to improve
the business environment. Reduction in the time
needed to register with district courts has made it easier to start a business,
as has the elimination of the need for the verification of signatures by a
public notary ([40]). The
government has committed to improving support for start-ups. A strategy
creating a start-up ecosystem in Slovakia is scheduled to be approved through a
Government Resolution in February/March 2015. Its implementation will be
coordinated by the Ministry of Finance. The government has also committed to
creating a simplified joint stock company, which will facilitate relations
between investors and the start-up and thus allow innovative companies to
become operational much faster. A one-stop-shop service to start a company
should be launched by the end of 2015. The National Business Centre, offering
comprehensive services to companies, is scheduled to become operational in
2016.

Overall, however, improvements in
Slovakia’s business environment have been modest.
In spite of the electronic filing for VAT and social security contributions,
paying taxes remains burdensome (see section 2.1 on taxation). Measures
supporting start-ups and entrepreneurship are still at an early stage. No
measures have been taken to reduce the time and cost for issuing licenses and
construction permits, while e-services are still underdeveloped and not well
integrated.

Local corporations finance themselves
only very marginally through the local equity market and the availability of
venture capital is limited. Lack of demand for
equity financing may be an important reason the small size of the equity
market. Encouraging cross-border investment could help overcome Slovakia’s
market size limitation and reach the desired multiplier effect of financial
instruments. Slovakia has improved its credit information system by
implementing a new law on the protection of personal data. Venture capital,
risk-sharing, loan guarantees and private equity investments are being made
available through three JEREMIE ([41]) instruments, which are channelled through the JEREMIE Holding Fund
(EUR 100 million, managed by the European Investment Fund). These instruments
were launched considerably later than expected, and thus only 20 % of
available funds had been distributed to final beneficiaries by end of 2014. In
the 2014-20 financing period, the first round of applications for the COSME and
Horizon 2020 instruments had very few successful applicants from Slovakia.

There are concerns regarding the high level
of regulation of professions. Slovakia reports
twice as many regulated professions as the EU average ([42]). It also ranks high in the 2013 OECD PMR index ([43]) for entry regulations with respect to the legal, accounting,
engineering and architecture professions which signals an excessive level of
regulation. Removal of barriers would promote competition and drive companies
to reduce their mark-ups, thus reducing end-prices. Subject to demand
elasticity, this should boost output and support demand for all production
factors. Reduced prices and improved demand could yield non-negligible benefits
for the economy. In the context of the mutual evaluation exercise initiated by
the Commission in 2013, Slovakia’s assessment of access and restrictions is
pending for the vast majority of its regulated professions.

Investment

Slovakia’s capital stock remains low as
compared with the EU-15. Further convergence
requires significant additional investment. However, investment in Slovakia has
been lacklustre since the onset of the economic crisis. Total investment
collapsed sharply in 2009 and, as of 2013, it remained around 13 % lower
in real terms than its 2008 level. A similar picture emerges if we look at
investment in new capital (Graph 2.3.3a), i.e. excluding amortisation.
Consumption of fixed capital outweighed gross investment in 2013, implying
negative net investment and thus a shrinking capital stock. Weak investment has
adverse effects both in the short term, by slowing down the economic recovery,
and in the long run, by harming Slovakia’s growth potential.

As with other countries in the region,
the economic crisis led to a drying-up of FDI inflows. The drop was particularly sharp for Slovakia (Graph 2.3.3b)
with raised concern due to the country's high reliance on FDI. Besides harming
capital formation, the fall in FDI is also likely to have adverse effects on
technology diffusion, particularly given the very low levels of R&D
expenditure in Slovakia.

The private sector was the main
contributor to the decline in investment between 2008 and 2013, with
non-financial corporations accounting for around 90 %
of the fall. Investment declined across most branches of the economy, but
manufacturing alone explains around half of the fall. General government
investment accounts for a very small proportion of the total drop and has
remained roughly at 2008 levels. Overall, the sizable drop in private
investment could not have been compensated by a rise in public investment.
Nevertheless, general government investment in Slovakia was the lowest in the
region before the economic crisis and has been since (Graph 2.3.3c).

The poor investment performance is also
reflected in the relatively low quality of infrastructure in Slovakia. The country’s specialisation in export-oriented manufacturing
places increasing demands on its transport infrastructure, which remains underdeveloped
as compared with other Member States (Graph 2.3.2a). Furthermore,
transport infrastructure is unequally distributed within the country: it is
significantly less developed in eastern and central Slovakia
(Graph 2.3.2b). Improving transportation infrastructure, especially in
these regions, would not only directly increase investment but could also
attract private investment that would otherwise be discouraged by the high
transportation costs.

Slovakia’s energy infrastructure also lacks
further investment, the most pressing needs being the development of the gas
and electricity grids, strengthening interconnections with neighbouring
countries, and improving energy efficiency for both households and enterprises. Missing public disclosure of the methodology for setting
electricity network tariffs undermines efforts to understand their high levels
that weigh on electricity prices. High electricity prices may discourage
investment by both foreign and domestic firms in all sectors of the economy.

Investment is hampered by the poor
quality of the business environment. Dealing with
building permits and obtaining a permanent electricity connection are
relatively cumbersome in Slovakia ([44]). The length of the insolvency process also discourages new
investment projects as the average duration of bankruptcy procedures was four
years, the longest in the EU.

Graph 2.3.2:   Motorway infrastructure in Slovakia

Source: European Commission

Graph 2.3.3:   Investment in Slovakia

Source: European Commission

Research, development and innovation

The low quality and lack of industrial
relevance of the science base impedes the emergence of a well-functioning research
and innovation ecosystem in Slovakia. In spite of
its past competitive advantage in terms of FDI and production process
sophistication, Slovakia has failed to significantly increase employment in
R&D activities and in sectors related to exports of knowledge-intensive
services.

Slovakia is well below the EU average in
terms of innovation performance and company spending on R&D. It also lags behind considerably in terms of capacity for
innovation, firm-level technology absorption, government procurement of
advanced technology, cluster development and IP protection ([45]). The current gap between supply of knowledge from research
institutions and demand from local industry is illustrated by the relatively
low amount of funding that universities receive from the business sector.
Inefficiencies persist in the allocation of public research funding, while the
skills mismatch between industry needs and university graduates limits the
performance of high-tech sectors and encourages brain drain, which is worsened by
the low attractiveness of research careers.

Graph 2.3.4:   Private R&D expenditures in Slovakia and the EU-28 (% of GDP)

Source: European Commission

Co-operation between academia, research
and business remains limited. The adoption of the
Implementation Plan for the Smart Specialisation Strategy has been
significantly delayed and incentives for research and development activities
continue to be weak. Measures taken so far on a piecemeal basis have had a
limited effect in encouraging companies to use universities’ research
facilities. The incomplete legal framework to protect intellectual property and
the set-up of the university financing system do not motivate universities to
create spin-offs and increase the number of contracts with companies. The
ambition of the innovation vouchers scheme has so far been limited. Vouchers
have been offered to larger companies, at the expense of SMEs, and there is no
system in place to evaluate the results of this programme. Business-academia
collaborative research centres and clusters have had modest results so far. No
measures have been taken to reform public funding for research. The merger of
existing agencies into two new Science and Technology Agencies has been
delayed. There are no policy instruments targeting non-technological
innovations.

Nevertheless, a few steps have been
taken to encourage research and innovation. A law
introducing tax deductions for private companies investing in R&D entered
into force in January 2015. A system of national promotion of knowledge and
technology transfer has been set up to provide assistance in the application of
intellectual property rights. Finally, measures to support innovation-oriented
SMEs and start-ups, as well as the export of technological products, are under
discussion.

Energy market,
infrastructure and efficiency

High network charges set by the
Regulator of Network Industries still hamper the competitiveness of Slovak
companies. According to Eurostat data, network
charges set by the Regulator of Network Industries for both industry and
households are among highest in the EU. Specifically, charges for industrial
consumers were the second highest ([46]) in the EU in absolute terms in 2013 (0.0665 EUR/kwh) and the
third highest in terms of the proportion of the final electricity price
(54.3 %). Slovakia is one of three Member States where network charges
for industrial consumers are higher than energy supply costs. These findings
are supported by a comparison of transmission tariffs carried out regularly by
ENTSO-E ([47]) which
indicates that Slovak transmission tariffs for electricity are among the
highest in the EU with only a subtle downward shift between 2013 and 2014.

Key issues are the effect of regulated
components on the end-price of electricity, in particular the subsidies for
renewables and lignite, and high transmission and possibly also distribution
tariffs. The increase in network costs stems partly
from the rise of levies to remunerate producers of renewable energy sources,
from combined heat and power generation, as well as from environmentally
harmful subsidies for domestically produced lignite (all these components are
included in the network costs). Lack of public disclosure of the methodology
for setting network tariffs including the breakdown of all cost drivers undermines
the efforts to explain their high levels.

Transparency of the regulatory framework
and analysis of determinants of the high electricity network charges has not
advanced. In general, in Slovakia the economic
assessment of regulatory decisions is not made public nor, due to a policy of
commercial confidentiality, are the objections raised by those affected by the
regulatory decision. The 2014 National Reform Programme announced relevant
measures in this field, namely (i) the establishment of a data centre, (ii)
public disclosure of economic underpinning of regulatory decisions (iii) and
assessment of the need for any further regulation. Implementation of all these measures
is subject to risks given the absence of a clear timeframe.

Graph 2.3.5:   Network costs comparison for industrial consumers across the EU (Graph 1a) and changes in network costs per consumption band in Slovakia (Graph 1b)

Source: European Commission

With one of the highest energy
dependencies in the EU and full reliance on gas supply from Russia, energy
security is a major concern for Slovakia. With
energy imports equal to 5.8% of GDP, Slovakia is one of the Member States with
the highest dependency on foreign gas and oil supplies. Gas deliveries from
Russia have been cut by roughly half since October 2014, although gas reserves
are almost full and reverse flows from the West are operational. Based on
stress tests, shortage of gas is expected only in the event of full disruption
of Russian supplies lasting half a year. Another source of concern is the
decreasing revenues from east – west gas transmission and electricity loop
flows from Germany to Slovakia.

All necessary steps have been taken to
further develop interconnections with neighbouring countries, including Ukraine.
The gas reverse flow with Ukraine has been
operational since September 2014 and its capacity has been increased. The
challenge of building strong north-south interconnections has been addressed by
taking all required steps on the Slovak side to set up a new two-way
interconnection with Hungary, which is expected to be operational soon in 2015.
At the same time, further electricity interconnections with Hungary are planned
and these have been selected as Projects of Common Interest. A planned gas interconnection
between Poland and Slovakia is expected to be commissioned in 2018. Such
long-term investment strengthens the country's physical infrastructure
endowment, improving energy security and securing sustainable growth.

Despite a constant gradual increase,
energy efficiency remains relatively low and there is a potential for
substantial energy savings. While the country´s
total final energy consumption decreased by some 11% between 2005 and 2012, the
industry and transport sectors (i.e. the two largest consumers) maintained a
relatively constant consumption and Slovakia still remains among the Member
States with the highest energy intensity ([48]). As energy efficiency is increasing in all sectors except for
industry, the EU2020 target is within reach. The National Energy Efficiency
Action Plan calculates the overall investment in energy efficiency in 2014-16
at EUR 8.7 billion (as compared with EUR 6.9 billion
invested in 2011-13). In the 2014-20 programming period, EU funds will cover
most of the envelope. Investments of this nature support transition to a low
carbon economy that generates substantial savings, fosters competitiveness and
reduces the country's  dependency on foreign energy imports.

Graph 2.3.6:   Determinants of energy intensity in Slovakia

(1) The growth levels of GDP and energy consumption have been translated into the standard units required to calculate energy intensity level. Source: European Commission

An efficient and reliable legal and
regulatory framework for renewable energy is an essential element for
attracting and maintaining investments in the renewable energy sector and
maintaining the 2020 RES target. In addition,
burdensome administrative procedures and insufficient investments in
electricity infrastructure, including decentralised production of renewable
energy hamper the production and distribution([49]).

Transport

Slovakia’s specialisation in
export-oriented manufacturing places increasing demands on the quality of
transport infrastructure. The opening of the rail
passenger service to competition in 2014 gave a new impetus to the transport
market as private companies started operating on major routes from Košice to
Bratislava and Prague. Generally, infrastructure remains relatively
underdeveloped negatively affecting Slovakia's competitiveness. While the rail
network is better developed, road density is lower than the EU average. Total
investment in transport infrastructure is slightly below pre-crisis levels,
however, several important D1 motorway stretches are under construction and
there has been progress on the development of a Master plan for transport.
Funds allocated to the railways have increased by almost a half between 2008
and 2013. Still, absorption of the EU funding remains a source of concern due
to weak governance of the planning procedures, poor project preparation and
regulatory provisions that impede infrastructure development. The situation is
further complicated by the low transparency and lengthy duration of the permit
procedure ([50]). These
deficiencies hamper Slovakia´s investment in the transport sector that is
important for the country in order to take advantage of its geographical
location and strongly export-oriented economy.

Digital economy

Broadband networks are the key
infrastructure of the digital economy and society, but Slovakia scores poorly
in several areas on the Digital Agenda Scoreboard ([51]). Slovakia has the lowest fixed
broadband coverage (85.3%) in the whole EU, which resulted from the failure to
absorb EU funds in the programming period 2007 - 2013, but the coverage is
expected to advance significantly in the ongoing programming period. Slovakia
also lags behind in the deployment of 4G mobile broadband coverage, which is
available to only 24 % of population, as compared with an EU average of
59 %. Sparse broadband coverage, particularly in rural areas, hinders the
further development of digital skills. Use of e-government services in Slovakia
has recently shown some negative trends ([52]) and Slovakia ranked among the worst in the EU against the newly
introduced User-centric e-Government Indicator and the Transparent e-Government
Indicator ([53]). Slovakia
underperforms in the field of e-health as well. In particular, the medical data
exchange and e-prescriptions are rarely used and remain way below the EU
average.

Environment

Environmental incentives remain weak in
Slovakia. The country has one of the highest
landfilling rates in the EU ([54]), reflecting the low level of landfill gate fees. The amendment of
the Act on fees for waste disposal, which came into force in 2014, introduced
only limited increases for municipal residual waste rates. A draft of the new
Waste Act was presented by the government in December 2014, but it remains to
be seen whether an effective waste management system will be put in place to
reach the Europe 2020 recycling target of 50 %. The current price of
water supply in Slovakia does not reflect the full costs in terms of extraction
treatment and distribution. Also, Slovakia does not comply with EU air quality
standards. Taxes on air pollution are relatively low and do not efficiently
address the impact of negative externalities on the health status of the
population.

Public governance and efficiency of the
public administration

The low 
efficiency of the public administration ultimately
affects the allocation of resources in the economy.
According to the Public Administration Scoreboard 2014 ([55]), Slovakia’s performance in terms of government
effectiveness ([56]) is well
below the EU average. High staff turnover and weak human resource management
persist, while poor analytical capacities impair effective policy-making. The
use of evidence-based instruments ([57]) is not wide-spread in the public administration.

Graph 2.4.1:   Government effectiveness

Source: World Bank, 2013 estimates

Improvements in the independence of the
public administration, management of human resources, and analytical capacities
in ministries continue at a slow pace. The
government is committed to amending the Public Service Act by mid-2015, with
the aim of improving the independence of public servants. In parallel, a
strategy on human resources is being developed, with adoption expected in 2015.
This should standardise performance evaluations, unify ethical codes and reform
the general competitions for graduates entering public service. To improve
analytical capacity in the public administration, the Ministry of Finance has
been preparing a comprehensive approach aimed at strengthening evidence-based
policy‑making in all ministries. In January 2015, the government amended
the methodology to carry out policy impact assessment. The Centre for Better
Regulation, to be established under the Ministry of Economy, will monitor the
business environment and analyse the possible effects of EU legislative
proposals on SMEs (‘SME test’) ([58]).

The institutional framework for tackling
corruption, which has considerable economic
costs in terms of a misallocation of resources, is
largely inefficient. There is no independent body
charged with fighting corruption, which would be in line with international
best practices. Both the 2009 National Strategy to fight corruption and the
related action plan were updated but their implementation is hampered by
limited human and financial resources. Prosecution of alleged corruption cases
is rare, especially when high-level corruption is suspected. Slovakia does not
follow up corruption and fraud cases where legal persons are involved, as it
currently lacks the necessary legal framework. Furthermore, data on the number
of investigations, prosecutions and convictions are not made public
systematically. Most importantly, no significant steps have been taken to
reduce the likelihood of potential misuse of EU or other public funds or the
circumvention of public procurement rules. This is partly because the Act on
criminal liability of legal entities has not yet been adopted, although the new
legislation on whistleblowing adopted in 2014 seems to be a good step towards
encouraging the reporting of suspected wrongdoing.

Public procurement

The sound and efficient allocation of
public resources is also affected by lack of transparency
and effectiveness of public procurement procedures across all sectors of public
administration. Adequate expertise levels are not
universally available in the public entities involved in public procurement and
effective public oversight is lacking. Overpriced tenders and tailor‑made
specifications are used to limit competition ([59]). Currently, no templates are available to guarantee
non-discriminatory tender notices for complex purchases. Another common
occurrence that reduces competition is the grouping of unrelated items into one
tender, instead of separate lots. Substantial weight is still given to the
price criterion although the recent reform tries to ensure that it does not
have a negative impact on the quality of procured goods ([60]). Transparency remains an issue, as long as, inter alia,
contracting authorities’ reasons for awarding contracts remain
unpublished ([61]). Slovakia
makes only limited use of e-procurement thus reducing the overall
administrative efficiency of the process. Moreover, disputes relating to public
procurement decisions have vastly limited public spending.

In some sectors, notably healthcare,
public procurement practices have a high impact on the cost-effectiveness of
public expenditure. Although only a relatively minor
proportion of all procured goods and services are in healthcare ([62]), the sector provides an illustration of the problems encountered
in public procurement. Technical requirements, often resulting in tailor-made
tenders corresponding to a specific brand or technology and a low level of
openness to innovative or alternative solutions, limit competition and do not
foster the uptake of innovative or cost-effective solutions. The weak solvency
of hospitals discourages economic agents from participating in tenders ([63]). Between 2012 and 2014, one-bid procedures accounted for around
two thirds of all resources in the procurement of both public and private
hospitals in Slovakia ([64]).

At the same time, the average number of
bids in hospital tenders was 1.9, as compared with 5.7 in the public sector as
a whole in 2013. The absence of hard budgetary constraints and incentives for
cost-efficient procurement lead to inefficient allocation of public resources.
.

Public institutions and economic agents
are slowly reacting to the legislative changes in
public procurement introduced in 2013. As both
contractors and bidders strove to comply with the legislative changes in
procurement, in 2014 public procurement procedures were lengthier than a year
earlier and the average number of competitors in a tender was the lowest since
2010. Compulsory referencing of suppliers has not led to the expected
differentiation in terms of quality ([65]). Positive developments were the reduction in the number of tenders
with a single competitor and the launching of the Electronic Contracting
System, which has become compulsory as of 2015 for all contracting authorities,
although it is used only for public contracts under the EU thresholds for
off-the-shelf supplies (i.e. supplies not designed or made to order but taken
from existing stock or supplies). A parallel electronic public procurement
system (EVO) is an optional e‑procurement platform for all other types of
procedure although utilisation of this system is limited.

Management of EU funds

Slovakia continues to face the recurrent problems in financial management and control that
negatively affect the implementation of financial resources available under the
EU cohesion policy. The main areas of weakness include public procurement procedures,
management verifications and project selection. Shortcomings continue to affect
the implementation of financial management and audit procedures. These
weaknesses are often reflected in the high costs of projects and lead to
significant financial corrections. In addition, corruption in the allocation of
EU funds threatens their efficient and effective use. The end of the 2007-13
programming period and completion of projects that have started late, mainly
because of public procurement delays, will create additional pressures. Although
contracting of European funds has increased at the end of 2014
(104.85 %) ([66]), absorption
remains slow (60.11 % vs EU average of 76.74). Therefore, Slovakia needs
to spend some EUR 4 billion in 2015 (about one third of the total cohesion
policy allocation for 2007-13) if it wishes to make full use of funds. EU funds
represent a very high proportion of total public investment in Slovakia (around
86 %) compared to EU peers (see also investment section in ‘Business
environment and infrastructure’ section).

Justice reform

The lengthy proceedings in the judiciary
and lack of alternative dispute resolution mechanisms affect the private
sector. The length of judicial proceedings in
Slovakia is high ([67]) and the
number of pending cases is increasing. Workload and human resources appear
unevenly distributed between courts. With respect to quality, there are
challenges relating to the publication of annual activity reports for courts,
the use of surveys, the promotion of alternative dispute resolution methods and
the training of judicial and non‑judicial staff. The screening of the
suitability of judges on the basis of information from the Slovak National
Security Authority raises concerns for the independence of the judiciary ([68]), which is perceived to be the lowest in the EU ([69]). Consumer law enforcement capacity remains limited, as reflected
in consumers’ and retailers’ poor assessments and some of the highest reported
levels of unfair commercial practices and unfair contract terms in the
EU ([70]). As a
positive development, the re-codification of all consumer law planned for
spring 2015 bodes well for a better clarification of powers and strengthening
of resources of the Slovak Trade Inspectorate.

Reform steps are partial and
fragmentary. The global strategy for justice,
announced for November 2014, has not yet been adopted. Notwithstanding the
ongoing reform of the Code of Civil Procedure ([71]), no measures have been taken to improve allocation of resources
(personnel and material means) to courts on the basis of more objective
criteria, or to identify and relieve overburdened courts ([72]). As a result of an infringement case in relation to the practice
of enforcing arbitration awards violating consumer law, a new Act on
arbitration in consumer cases was adopted and the effects should become visible
in the future. In June 2014, the Slovak Constitution was amended in order to
reform certain aspects of the justice system ([73]). In particular, the amendments were aimed at improving the
functioning of the Judicial Council ([74]). However, the reform included contentious aspects, notably the new
suitability requirement applicable to all judges, which raises concerns as
regards security of tenure and irremovability, which are key elements of
judicial independence. In September, the Constitutional Court decided to
suspend the application of related provisions.

Commitments || Summary assessment

2014 Country specific recommendations (CSRs)([75])

CSR1: Following the correction of the excessive deficit, reinforce the budgetary measures for 2014 in the light of the emerging gap of 0,3 % of GDP relative to the preventive arm of the Stability and Growth Pact requirements based on the Commission services 2014 Spring forecast. In 2015, ensure the required adjustment of 0.1 % of GDP towards the medium-term objective taking into account the expected weak economic conditions. Thereafter, until the medium-term objective is achieved, pursue an annual structural adjustment of 0.5 % of GDP as a benchmark. Further strengthen the fiscal framework, also by ensuring binding and enforceable expenditure ceilings. Improve the long-term sustainability of public finance by increasing the cost-effectiveness of the healthcare sector, in particular by rationalising hospital care and management and by strengthening primary care. || Slovakia has made limited progress in addressing CSR 1 of the Council recommendation (this overall assessment of CSR 1 excludes an assessment of compliance with the Stability and Growth Pact): No progress with respect to further strengthening the fiscal framework. The Draft Budgetary Plan does not mention any measures aimed at strengthening the fiscal framework by designing binding and enforceable expenditure ceilings. Limited progress with respect to increasing the cost-effectiveness of the healthcare sector. Most measures of the Strategic framework are still in a preparatory phase.

CSR2: Improve the efficiency of the tax administration by strengthening its audit, risk assessment and debt collection capacity. Link the basis for real-estate taxation to the market value of the property. || Slovakia has made limited progress in addressing CSR 2 of the Council recommendation: There has been limited progress to improve the efficiency of the tax administration, due to the absence of a strategy that would promote further enhancements of the risk assessment and audit capacity. There has been no progress in reforming real estate taxation as no legislation has been adopted.

CSR3: More effectively address long-term unemployment through activation measures, second-chance education and tailored quality training. Enhance the capacity of public employment services for case management, personalised counselling and activation of jobseekers, and strengthen the link between activation and social assistance. Effectively tackle youth unemployment by improving early intervention, in line with the objectives of a youth guarantee. Improve incentives for women's employment, by enhancing the provision of childcare facilities, in particular for children below three years of age. || Slovakia has made some progress in addressing CSR 3 of the Council recommendation: Some progress has been achieved in addressing disincentives in the social-benefit system (e.g. the introduction of in-work benefit or temporary reduction of the tax wedge for long-term unemployed recruits). Only limited progress has been made to increase access to second-chance education and tailored quality training.  Limited progress has been achieved in enhancement of the capacity of public employment services as the reform is on-going (with completion foreseen for 2020 only). There has been some progress in tackling youth unemployment, due both to authorities' stepping up efforts and to general improvement in labour market conditions. Limited progress has been made in improving access to childcare services in particular for children below 3. The government has set a target of expanding capacity in preschool facilities.

CSR4: Take measures to increase the quality of teaching in order to raise educational outcomes. Reinforce the provision of work-based learning in companies in vocational education and training. Adapt accreditation, funding and governance measures to encourage the creation of profession-oriented bachelor-level programmes. Improve the quality and relevance of the science base and implement plans to foster effective knowledge transfer and cooperation between academia, research and business. Adopt systemic measures to improve access to high quality and inclusive pre-school and school education for marginalised communities, including Roma and take steps to increase their wider participation in vocational training and higher education. || Slovakia has made limited progress in addressing CSR 4 of the Council recommendation: Limited progress has been achieved to increase the quality of teaching and educational outcomes. Some progress has been achieved regarding the CSR on work-based learning. The draft new Act has been adopted by the Government in January 2015 with an intended entry into force in September 2015. There has been limited progress towards the creation of professionally-oriented bachelor programmes. The new Act on Higher Education is delayed. Limited progress has been made to improve co-operation between academia, research and business. The centre of scientific-technical information launched a support system for transferring knowledge and technologies. Limited progress has been made towards improving access to high quality and inclusive pre-school and school education. The number of teacher assistants for children with special needs, including children from socially disadvantaged environments, has been significantly increased. No progress has been made to ensure wider participation of Roma in vocational training and higher education.

CSR5:  Step up efforts to make the energy market function better, in particular by increasing the public transparency of the regulatory framework and by exploring the determinants of the high electricity network charges, in particular for industrial consumers. Building on the progress made so far, further develop interconnections with neighbouring countries, including with Ukraine, in accordance with the Memorandum of Understanding signed in April. || Slovakia has made limited progress in addressing CSR 5 of the Council recommendation: No progress has been made with respect to public transparency of the regulatory framework and analysis of determinants of the high electricity network charges. Substantial progress has been made with respect to further developing interconnections with neighbouring countries. In particular, the gas reverse flow with Ukraine has been operational since September 2014.

CSR6: Take measures, including by amending the Act on Civil Service, to increase the independence of the public service. Adopt a strategy to improve the management of human resources in public administration. Step up efforts to strengthen analytical capacity in key ministries with a view to adopting evidence-based policies, and improving the quality of policy impact assessment. Take steps to fight corruption and accelerate efforts to improve the efficiency and quality of the judicial system. Introduce measures to improve the business environment including for SMEs. Step up efforts to improve the efficiency of public procurement. || Slovakia has made limited progress in addressing CSR 6 of the Council recommendation: Limited progress has been made in increasing the independence of the public service. The adoption of the amendment to the Civil Service Act is expected by mid-2015 with an entry into force 2016. Limited progress has been achieved in adopting a strategy to improve the management of human resources. A strategy is being developed in parallel to the Civil Service Act. Limited progress has been registered with respect to strengthening analytical capacity in key ministries. The Ministry of Finance has been entrusted with drafting the strategy on how to improve analytical capacities. Some progress has been achieved on improving the quality of policy impact assessment. The government amended the methodology on regulatory impact assessments and the Centre for Better Regulation will be created. Limited progress has been achieved in fighting corruption. The new legislation on whistleblowing was adopted in 2014 and an Action plan on fighting corruption has been updated in December 2014. Limited progress has been assessed with respect to the justice system. A new Act on arbitration came into force. A Constitutional reform aimed at improving the functioning of the Judicial Council but also included a contentious suitability requirement for judges. The reform of civil procedure and IT projects are on-going. Limited progress has been achieved in terms of improving the business environment. A one-stop-shop for starting a company should be fully operational by the end of 2015. The National Business Centre is scheduled to become operational in 2016. Limited progress has been observed with respect to improving the efficiency of public procurement. The Electronic Contracting System was launched during 2014 but is applied only for public contracts under the EU thresholds for off-the-shelf supplies.

Europe 2020 (national targets and progress)

Employment rate target set in the 2014 NRP: 72% || The employment rate was 65.1% in 2012 and 65% in 2013.  The gap to reach the national target by 2020 remains high. Low skilled workers and women have particularly low employment rates.

R&D target set in the 2014 NRP: 1.2% of GDP (where the business sector should provide 2/3 of total expenditure). || During the period 2007-2013, R&D intensity increased from 0.46% to 0.83% of GDP but remains one of the lowest in the EU, due in particular to an extremely low level of business expenditure on R&D (0.38% in 2013). Slovakia has not been able so far to benefit of its industry structure strongly oriented towards high-tech and mid-to-high tech sectors to attract large volume of business R&D activities.

Greenhouse gas emissions, base year 2005: maximum 13% increase in 2020 compared to 2005 (in non-ETS sectors) || Slovakia can increase by no more than 13% its Greenhouse Gas emissions by 2020 compared to 2005 in the sectors not covered by the Emissions Trading System (ETS). According to the latest national projections and taking into account the existing measures, the non-ETS emissions are expected to decrease by 24.2% in 2020 compared to 2005 pointing to a substantial over-achievement of the target. Furthermore, while the target for 2013 was an increase of no more than 2.3% compared to 2005, the actual emissions dropped by 8%.

2020 Renewable energy target: 14% Share of renewable energy in all modes of transport: 10% || With 10.4% share of renewable energies in 2012 in the final energy consumption, Slovakia is currently on track to achieve its national renewable energy target of 14%. As the trajectory of interim targets towards 2020 is not linear there are risks that without additional efforts in the future the legally binding target of 14%, including 10% target of the share of renewable energy in transport sector, might not be met.

Energy efficiency: SK’s 2020 EE target is 16.2 Mtoe expressed in primary energy consumption (10.0 Mtoe expressed in final energy consumption). || Slovakia is on track in meeting its national energy efficiency target for primary and final energy consumption, however additional efforts are needed to keep the primary energy consumption at this level or to minimise its increase if the GDP increases. The Commission is monitoring closely the transposition and implementation of the Energy Efficiency Directive (EED).

Early school leaving target: 6% || The percentage of early leavers from education and training increased from 5.3% in 2012 to 6.4% in 2013 and is particularly high for Roma people, calling for targeted measures. It has surpassed the 6% national target in 2013.

Tertiary education target: 40% || The tertiary educational attainment rate increased from 23.7% in 2012 to 26.9% in 2013, calling for efforts to ensure quality and labour market relevance. The 40% national target is at risk.

Target on the reduction of population at risk of poverty or social exclusion in number of persons: Baseline situation: - 170 000 people || In 2013 there was a decrease by 39,000 persons and by 41,000 persons against the baseline situation. Continuous effort is needed if Slovakia wants to meet its national poverty reduction target by 2020.

Table AB.1:     Macroeconomic indicators

(1) The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.         (2) The indicator of domestic demand includes stocks.         (3) Unemployed persons are all those who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.         Source: European Commission 2015 winter forecast; Commission calculations

Table AB.2:     Financial market indicators

(1) Latest data November 2014.      (2) Latest data Q3 2014.      (3) Excludes foreign branches.      (4) Latest data September 2014.      (5) Latest data Q1 2014. Monetary authorities, monetary and financial institutions are not included.      \* Measured in basis points.      Source: IMF (financial soundness indicators); European Commission (long-term interest rates); World Bank (gross external debt); ECB (all other indicators).

Table AB.3:     Taxation indicators

(1) Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission (2014), Taxation trends in the European Union, for a more detailed explanation.      (2) This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.      (3) VAT efficiency is measured via the VAT revenue ratio. It is defined as the ratio between the actual VAT revenue collected and the revenue that would be raised if VAT was applied at the standard rate to all final (domestic) consumption expenditures, which is an imperfect measure of the theoretical pure VAT base. A low ratio can indicate a reduction of the tax base due to large exemptions or the application of reduced rates to a wide range of goods and services (‘policy gap’) or a failure to collect all tax due to e.g. fraud (‘collection gap’). It should be noted that the relative scale of cross-border shopping (including trade in financial services) compared to domestic consumption also influences the value of the ratio, notably for smaller economies. For a more detailed discussion, see European Commission (2012), Tax Reforms in EU Member States, and OECD (2014), Consumption tax trends.      Source: European Commission

Table AB.4:     Labour market and social indicators

(1) Unemployed persons are all those who were not employed, but had actively sought work and were ready to begin working immediately or within two weeks. The labour force is the total number of people employed and unemployed. Data on the unemployment rate of 2014 includes the last release by Eurostat in early February 2015.       (2) Long-term unemployed are persons who have been unemployed for at least 12 months.       Source: European Commission (EU Labour Force Survey and European National Accounts)

Table AB.5:     Expenditure on social protection benefits (% of GDP)

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).      (2) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national equivalised median income.       (3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour TV, or ix) have a telephone.       (4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.      (5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices (HICP) = 100 in 2006 (2007 survey refers to 2006 incomes)      (6) 2014 data refer to the average of the first three quarters.      Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC."

Table AB.6:     Product market performance and policy indicators

(1) Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.       (2) Patent data refer to applications to the European Patent Office (EPO). They are counted according to the year in which they were filed at the EPO. They are broken down according to the inventor’s place of residence, using fractional counting if multiple inventors or IPC classes are provided to avoid double counting.         (3) The methodologies, including the assumptions, for this indicator are presented in detail here: http://www.doingbusiness.org/methodology.        (4) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are presented in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       (5) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).       Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for the product market regulation indicators)

Table AB.7:     Green growth

Country-specific notes:          2013 is not included in the table due to lack of data.        General explanation of the table items:        All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)                  Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)                  Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)                  Resource intensity: Domestic material consumption (in kg) divided by GDP (in EUR)                  Waste intensity: waste (in kg) divided by GDP (in EUR)        Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP          Energy weight in HICP: the proportion of "energy" items in the consumption basket used for the construction of the HICP        Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % change)        Environmental taxes over labour or total taxes: from DG TAXUD’s database ‘Taxation trends in the European Union’        Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)         Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP        Electricity and gas prices for medium-sized industrial users: consumption band 500–2000MWh and 10000–100000 GJ; figures excl. VAT.        Recycling rate of municipal waste: ratio of recycled municipal waste to total municipal waste        Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP        "Proportion of GHG emissions covered by ETS: based on greenhouse gas emissions (excl LULUCF) as reported by Member States to the European Environment Agency "        Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value added (in 2005 EUR)        Transport carbon intensity: greenhouse gas emissions in transport activity divided by gross value added of the transport sector        Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of international bunker fuels        Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin        Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels        Renewable energy share of energy mix: %-share of gross inland energy consumption, expressed in tonne oil equivalents        \* European Commission and European Environment Agency        \*\* For 2007 average of S1 & S2 for DE, HR, LU, NL, FI, SE & UK. Other countries only have S2.        \*\*\* For 2007 average of S1 & S2 for HR, IT, NL, FI, SE & UK. Other countries only have S2.        Source: European Commission unless indicated otherwise; European Commission elaborations indicated below

([1])  Control statements contain a full list
of invoices of VAT taxpayers. This enables the tax authorities to cross-check
transactions.

([2])  The effective tax rate of VAT increased
by 2 pps from its lowest-ever level in 2012, reaching 14 % in 2014.
Preliminary information from the Ministry of Finance points to a continued
reduction in the VAT gap to 32.4 % of potential VAT in 2014, from a peak
of 40.6 % in 2012.

([3])  In Doing Business 2015, Slovakia
slid back by nine places in the ‘paying taxes’ ranking compared to one year
before. These factors have also contributed to the deterioration of the
business environment indicator produced by the Business Environment Index of
the Business Alliance of Slovakia.

([4])  It took 103 hours in 2013 to comply
with the VAT requirements, as compared with 60 hours in the EU as a whole (Doing
Business 2015).

([5])  Overall declared costs of the
self-employed have hovered around 90 % of their revenues since 2007.

([6])  While the number of active
self-employed has declined since 2009, the number of limited companies without
employees has increased in that time. In addition, the proportion of limited
companies without employees in the total number of companies increased from
28 % in 2011 to 36 % in 2013.

([7])  Conception of Development of Financial
Administration for years 2014-20, November 2013.

([8])  Commission staff working document
accompanying the Report from the Commission to the Council and the European
Parliament on the application of Council Regulation (EU) No 904/2010 concerning
administrative cooperation and combating fraud in the field of VAT, (SWD(2014)
39 final).

([9])  New depreciation groups were
introduced, e.g. administrative buildings will be depreciated over 40
years and the depreciation period for information technologies was shortened.

([10]) For example, the price of electricity
includes a levy to support electricity production from renewable resources and
at the same time production from lignite, which on top of being economically
inefficient has a large negative impact on emissions.

([11]) Study on Environmental Fiscal Reform
Potential in 12 EU Member States,       
No 07.0307/ETU/2013/SI2.664058/ENV.D.2 Final Report to DG Environment of
the European Commission.

([12]) Based on the 2012 Ageing Report
projections.

([13]) See 2015 Ageing Report: underlying
assumptions and projection methodologies, European Economy, No 8. 2014.

([14]) For example, linking the statutory
pension age to life expectancy and pension indexation to inflation.

([15]) Recurrent changes to the private
pension pillar have been one of the reasons for the low returns on pension
savings.

([16]) Relevant indicators are: (i) a high
number of out-patient consultations per capita (11.0 compared with an average
of 6.8; 2011 Eurostat figures); (ii) low occupancy rate of acute care beds
(67.3 % compared with an average of 74.6 %; OECD 2012); (iii) a high
number of acute care beds (4.5 beds per 1 000 population against 3.6 in
the EU, Eurostat).

([17]) At birth, Slovaks are expected to have
53.3 years of healthy life against the EU average of 61.6, according to latest
Eurostat data.

([18]) See report on Comparative efficiency
of health systems, corrected for selected lifestyle factors http://ec.europa.eu/health/systems\_performance\_assessment/docs/2015\_maceli\_report\_en.pdf.

([19]) WHO definition: Integrated care is a
concept of bringing together inputs, delivery, management and organisation of
services related to diagnosis, treatment, care, rehabilitation and health
promotion. Integration is a means to improve services in relation to access,
quality, user satisfaction and efficiency. See also expert panel on investing
in health report on primary care and integration of care:           
http://ec.europa.eu/health/expert\_panel/opinions/docs/004\_definitionprimarycare\_en.pdf.

([20]) See report of the expert panel on
investing in health: Health and Economic Analysis for an Evaluation of the
Public-Private Partnerships in Health Care Delivery across Europe     
http://ec.europa.eu/health/expert\_panel/opinions/docs/003\_assessmentstudyppp\_en.pdf.

([21]) Council for Budgetary Responsibility
(2014), Amendment to the Assessment of the General Government Budget for 2015-17.

([22]) The expenditure ceilings which may be
adopted by the government in the event of a deviation from the adjustment path
towards the MTO are not an integral part of the annual budgetary process and
hence cannot be considered as a standard budgetary instrument.

([23]) The average ratio of one front-line
officer to 600 jobseekers in 2014.

([24]) ESO — Effective, reliable and open
public administration.

([25]) According to OECD Economic Surveys,
Slovakia 2014 p.100, 19 % of Slovak young people are not in employment,
education or training (NEET):   
http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-surveys-slovak-republic-2014\_eco\_surveys-svk-2014-en#page100.

([26]) Institute for Financial Policy, Ženy
by mohli pomôcť zvýšiť HDP o 1,6 %, 2011.

([27]) In general, the current entitlement for
post-natal leave is up to three years (parental leave contribution was 203
Euros monthly in 2014).

([28]) Institute for Financial Policy, Odvodová
úľava zlepšila vyhliadky dlhodobo nezamestnaným, 2014.

([29]) In 2009, Slovakia had one of the lowest
ratio in the EU (326 dwellings per 1,000 inhabitants).

([30]) SK Ministry of Labour calculation,
January 2015

([31]) In 2014, 6.9 % of all recipients
in material need were affected by the benefit withdrawal or reduction due to
non-compliance with work obligation.

([32]) The death rate at working age implies a
1.5 % higher shortfall in the Slovak workforce when compared to a
scenario under which the EU average mortality would apply.

([33]) 2013 EU-SILC data: The poverty
threshold is EUR 337 per month for a one person household. Around
2 %-6 % of employees earn the minimum wage in Slovakia and the
reduction of health contributions should compensate employers for the increased
labour costs. The increased costs for insurance contributions will be
deductible for employers through government compensations so as to avoid a
negative impact on businesses. REER and unit labour costs in SK are stable (AMR
2015), while earnings and labour market security are among the lowest in the
OECD (2014).

([34]) The number of required years of work
under consideration is 30.

([35]) Still, schools will have to offer the
possibility to study a second foreign language.

([36]) Automotive employers complain that only
6 % of secondary VET graduates are properly trained when entering the
labour market: Cedefop 2013.

([37]) OECD, Education at a Glance 2014.

([38]) UNDP/World Bank/EC Regional Roma Survey
http://issuu.com/undp\_in\_europe\_cis/docs/education\_web

([39]) See the Report on the impact of
school readiness testing on basic rights of children by Public Defendant of
Rights (http://www.vop.gov.sk/files/Sprava%20VOP%20FINALNA%20VERZIA.pdf).

([40]) World Bank Doing Business 2015.

([41]) The JEREMIE initiative, developed by
the European Investment Fund (EIF) in cooperation with the European Commission,
offers Member States the opportunity to use part of their Structural Funds to
finance SMEs by means of equity, loans or guarantees.

([42]) See the regulated professions database
(http://ec.europa.eu/internal\_market/qualifications/regprof/index.cfm?fuseaction=home.home). It is responsibility of each country to update information on its regulated professions,
competent authorities and statistics. Member States
have the obligation to notify to the Commission all the regulated professions
by 18 January 2016, which is why the number of regulated professions varies
considerably and, in general, increases.

([43]) The OECD’s PMR index for Slovakia
reached 2.9 as compared with an OECD average of 2.2 measured on a sample of 40
countries in 2013.

([44]) Slovakia ranks 100th in the world on ‘ease
of getting electricity to a newly constructed warehouse’ and 110th on ‘ease of
dealing with construction permits’. World Bank, Doing Business 2015: Going
Beyond Efficiency.

([45]) WEF Global Competitiveness Report
2014-15.

([46]) Electricity price components for
industrial consumers, from 2007 onwards — annual data, Eurostat 2013 data, Band
IC: 500 MWh < Consumption < 2 000 MWh.

([47]) ENTSO-E Overview of transmission
tariffs in Europe: Synthesis 2014, chapter 12, p. 19; 
https://www.entsoe.eu/publications/market-reports/Documents/SYNTHESIS\_2014\_Final\_140703.pdf

([48]) In 2012, Slovakia had the fifth highest
energy intensity of the economy in the EU (with 329 kgoe/EUR 1 000 against
an EU average of 143 kgoe/EUR 1 000) and the fifth highest energy
intensity of industry (296 kgoe/EUR 1 000, or more than twice the EU
average).

 In the following analysis, energy
intensity is used as proxy for energy efficiency, under some caveats. Energy
intensity is defined as the amount of energy needed to produce one unit of GDP.
This measure overcomes the effect of economic slowdowns (which automatically
lead to lower energy consumption) and allows a decoupling of energy consumption
and output growth.

([49]) See Commission guidance on the design
of renewable energy support schemes, published in November 2013;
http://ec.europa.eu/energy/node/69.

([50]) Governance, transparency and public
participation in transport infrastructure projects. Risk factors in the
planning and permits for large transport infrastructure projects in the Czech
Republic, Slovakia and Poland, CEE bankwatch network, 2014.

([51]) Digital Agenda Scoreboard (https://ec.europa.eu/digital-agenda/en/scoreboard).

([52]) In 2013, 33 % of Slovaks used the
internet for e‑government services, a decrease from 42 % in 2012
and below the EU average of 41 %. 16 % of citizens sent pre‑filled
forms, down from 17 % in 2012, and below the EU average.

([53]) The user-centric e-government indicator
stood at 44 in 2012-13, well below the EU average of 70. The transparent e-government
indicator was at 17 in 2013, well below the EU average of 49.

([54]) In 2012, 76.7 % of municipal
waste was deposited in landfills.

([55]) http://ec.europa.eu/enterprise/policies/industrial-competitiveness/monitoring-member-states/improving-public-administration/index\_en.htm

([56]) Indicator measuring the quality of
public administration in general, the quality of the regulatory system, its
impartiality and the quality of provided services.

(http://info.worldbank.org/governance/wgi/index.aspx#doc)

([57]) Indicator measuring the application and
quality of the regulatory impact assessments:  "Public Administration
Scoreboard" in Member States' Competitiveness Report 2014.

([58]) http://ec.europa.eu/growth/smes/business-friendly-environment/small-business-act/sme-test/index\_en.htm

([59]) Furnas, A. (2013), Transparency Case
Study: Public Procurement in the Slovak Republic (http://sunlightfoundation.com/blog/2013/08/12/case-study-public-procurement-in-the-slovak-republic)

([60]) In 2014, 88 % of all contract
award notices reported in TED (Tenders Electronic Daily) referred to the lowest
price criterion, as compared with 56 % in European economic area middle‑ranking
countries.

([61]) Slovakia does not publish this, while 40 %
of OECD member countries already do on voluntary basis. See OECD economic
review 2014 – Slovak Republic, p. 64

([62]) In 2014, procurement of medical
equipment, pharmaceuticals and personal care products amounting to
some EUR 250 million represented some 2.5 % of all goods and services
(some EUR 10 billion) procured in Slovakia.  See:        http://tender.sme.sk/en/reports?cut=contract\_date:2014.

([63]) The stock of debt of public and private
hospitals reached EUR 319 million at the end of 2013 (of which EUR 247 million
— roughly 0.35 % of GDP — relate to facilities operated by central
government).

([64]) Given the reported average changes in
final (relative to initial) prices, it is estimated that if all one bid tenders
were made two-bid tenders, aggregate savings could amount to EUR 19  million a
year which signals that appropriate steps to promote competition is missing in
this segment (Source: DANČÍKOVÁ, Zuzana — ZACHAR, Dušan: Meagre
competition in large hospital tenders: Analysis of hospital public procurement
in Slovakia in 2012-2014, Transparency International Slovakia and INEKO,
December 2014.

([65]) Transparency International Slovakia
(2015), Trends in Public Procurement in 2014 (available only in Slovak).

([66]) Allocated funds contracted to projects
as of 31/12/2014, Slovak ITMS financial table.

([67]) Particularly for litigious civil and
commercial cases and for administrative cases. (For more information see the
2015 EU Justice Scoreboard to be published in early March).

([68]) Concerns were expressed both internally
(the Slovak Supreme Court, Judicial Council and more than 500 judges of the
Regional Courts of Bratislava and Kosice) and at European level. See, for
example, comment of the Bureau of the Consultative Council of European Judges;            
https://wcd.coe.int/ViewDoc.jsp?id=2215565&Site=,
Resolution of the European Association of Judges;
http://www.iaj-uim.org/iuw/wp-content/uploads/2014/11/Slovakia-EAJ\_Resolution\_Foz\_nov-2014.pdf.

([69]) World Economic Forum, The Global
Competitiveness Report 2013-14,            http://www3.weforum.org/docs/WEF\_GlobalCompetitivenessReport\_2013-14.pdf.

([70]) Flash Eurobarometer 396, Retailers’
attitudes towards cross-border trade and consumer protection, 2014. Flash
Eurobarometer 397, Consumer attitudes towards cross-border trade and consumer
protection, 2014.

([71]) The reform is in parliamentary stage
(first reading in January 2015) and implementation planned for summer 2016. The
aim is to introduce certain mechanisms (pre-trial hearing, procedural sanctions
for inactivity of the parties, adversarial proceedings, modernisation of the
service of documents) that could speed up proceedings.

([72]) See 2012 special report of Public
Defendant of Rights on unnecessary delays in court proceedings (http://www.vop.gov.sk/files/Sprava\_VOP.pdf).

([73]) The constitutional amendment mostly
affected Title VII dedicated to the Judicial Power. The implementing
legislation entered into force in September 2014.

([74]) In particular the fact that nine
judicial members of the Judicial Council are now elected by their peers, in
accordance with CoE standards Recommendation (2010)12 of the Committee of
Ministers, §27.

([75]) The following categories are used to
assess progress in implementing the 2014 CSRs of the Council Recommendation: No
progress: The Member State has neither announced nor adopted any measures
to address the CSR. This category also applies if a Member State has
commissioned a study group to evaluate possible measures. Limited progress:
The Member State has announced some measures to address the CSR, but these
measures appear insufficient and/or their adoption/implementation is at risk. Some
progress: The Member State has announced or adopted measures to address the
CSR. These measures are promising, but not all of them have been implemented
yet and implementation is not certain in all cases. Substantial progress:
The Member State has adopted measures, most of which have been implemented.
These measures go a long way in addressing the CSR. Fully addressed: The
Member State has adopted and implemented measures that address the CSR appropriately.

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