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European Commission - Fact Sheet

Opinions on the 2016 Draft Budgetary Plans and Decisions taken under the Stability and Growth Pact

Brussels, 17 November 2015

The European Commission has completed its assessment of the Draft Budgetary Plans (DBPs) that were submitted by the euro area Member States by 15 October.

What has the European Commission adopted?                                                                     

The European Commission has completed its assessment of the Draft Budgetary Plans (DBPs) that were submitted by the euro area Member States by 15 October.

These Opinions are backed by detailed staff working documents, which present a more in-depth analysis of each of the DBPs. Based on these DBPs, the Commission is also presenting a Communication with an assessment of the budgetary outlook and fiscal stance for the euro area as a whole.

In the light of its recent Autumn forecast, the Commission has also adopted several steps under the Stability and Growth Pact related to some Member States' public finances.

Taken together, today's decisions represent a clear set of guidance and priorities for the euro area and other EU economies.

  1. Key questions on the assessment of Draft Budgetary Plans for the Euro area Member States

1.1 Why are there 15 and not 19 Opinions for all euro area Member States?

Euro area Member States must submit their draft budgetary plans for the forthcoming year to the Commission and to the Eurogroup by 15 October. To avoid them having to report several times, EU Regulation No 473/2013 (part of the so-called 'Two Pack') explicitly makes exceptions for Member States subject to macroeconomic adjustment programmes (currently Greece and Cyprus). They already provide the budgetary information in the framework of the programmes. However, these countries still have to comply with the common timeline by presenting their Draft Budgetary Plans by 15 October and completing the adoption of their budgets by 31 December.

The Spanish government submitted its DBP on 11 September, well before the
15 October deadline. The Commission adopted its Opinion on the Spanish DBP for 2016 on 12 October, so that it could be available during the parliamentary process prior to the national elections in December.

Portugal did not submit a DBP by 15 October.The Commission urges Portugal to submit a DBP as soon as possible. It recalls that this procedure aims to improve economic policy coordination in the Economic and Monetary Union and therefore requires the participation of all euro area Member States.

1.2 What is the legal basis for submitting Draft Budgetary Plans?

The legal basis for this is EU Regulation No 473/2013, the so-called 'Two Pack' on "common provisions for monitoring and assessing Draft Budgetary Plans and ensuring the correction of excessive deficit of the Member States in the euro area". It entered into force on 30 May 2013 and further strengthens budgetary policy coordination for the euro area.

1.3 What is a Draft Budgetary Plan? What information does it contain?

A Draft Budgetary Plan is not the same as a draft national budget. A draft national budget is a national legislative act that ‒ annually and according to national procedures ‒ proposes the nature, amount and allocation of the resources of the state. A Draft Budgetary Plan is a document based on a draft national budget that presents the main aspects of the budgetary situation of the general government and its sub-sectors for the year ahead. It outlines budgetary targets, detailed measures to reach those targets, and the macroeconomic assumptions underlying the budget. According to the 'Two Pack', draft budgets must be underpinned by independent macroeconomic forecasts. A Draft Budgetary Plan has to be consistent with the Stability and Growth Pact (SGP), including with the Council recommendations issued in the context of an Excessive Deficit Procedure and fiscal country-specific recommendations issued in the context of the European Semester.

1.4 What is the "Excessive Deficit Procedure" (EDP)?

If Member States breach either the deficit or debt criteria, they are placed in an Excessive Deficit Procedure, where they are subject to extra monitoring and are set a deadline for correcting their deficit. The Commission checks compliance throughout the year, based on regular economic forecasts and Eurostat data. The Commission can request more information or recommend further action from those at risk of missing their deficit deadlines.

1.5 What is meant by "independent macroeconomic forecast"?

According to the 'Two Pack', draft budgets and national medium-term fiscal plans must be based on independent macroeconomic forecasts, which are produced or endorsed by independent bodies. Accordingly, Draft Budgetary Plans include the main assumptions of these independent macroeconomic forecasts that underpin budget planning.

"Independent bodies" means bodies that are independent or autonomous vis-à-vis the budgetary authorities of Member States. They should be underpinned by national laws that ensure a high degree of autonomy and accountability.

1.6 What is the focus of the Opinions on the Draft Budgetary Plans?

The Commission's Opinion on a Draft Budgetary Plan offers a comprehensive assessment of the budgetary situation.

This assessment is based on the Autumn 2015 Economic Forecast and takes into account:

- the Commission's view of the macroeconomic outlook,

- the assessment of measures taken, and

- risks to budgetary implementation.

The Opinion focuses on compliance with the Stability and Growth Pact. This means that for euro area Member States under the preventive arm of the Stability and Growth Pact, i.e. not under the Excessive Deficit Procedure (EDP), the Commission's Opinion looks at whether the Member State concerned is making sufficient progress towards their medium-term objective MTO[1] (or, if it is already at its medium-term objective, whether it adheres to it or deviates from it). For Member States in EDP, the Commission's Opinion assesses compliance with the Council's recommendation issued as part of the EDP. The Opinions highlight whether any additional or replacement measures will be needed to ensure compliance with the Pact.

1.7 Do Member States have a legal obligation to follow the Commission's Opinion?

The 'Two Pack' does not give the Commission the right to change draft national budgets. Nor does it oblige Member States to strictly follow the Commission's Opinion – even though it is clearly in the interest of Member States to comply with the rules they agreed on within the Stability and Growth Pact.

1.8 Can a Member State be asked to present a revised Draft Budgetary Plan?

In cases where the Commission identifies "particularly serious non-compliance with the budgetary policy obligations laid down in the Stability and Growth Pact", the European Commission can ask for a revised plan within two weeks of the DBP's submission.

Since the first full implementation of the 'Two Pack' in Autumn 2013, no cases of particularly serious non-compliance have been identified.

1.9 What is the added value of this exercise?

The added value lies in the increased transparency that it introduces to the budgetary procedure. It gives all actors concerned in the national budgetary process the information they need before making their final decision on the budget. Economic and budgetary policies pursued in individual euro area Member States also affect the euro area as a whole. It is therefore important that fiscal plans of Member States are assessed by the Commission together and discussed at an early stage among euro area Finance Ministers, before national budgets are adopted. This practice also facilitates a dialogue between the Commission and Member States, as national parliaments (and the European Parliament) can invite the Commission to come and present its Opinion.

Overall, it is an important follow-up to the budgetary recommendations issued as part of the European Semester, which takes place during the first half of the year. It sets a milestone against which to assess whether the measures set out in the Stability Programmes (which euro area Member States submit to the Commission) are taken.

1.10 Has the Commission taken account of the budgetary costs linked to the refugee crisis?

The budgetary impact of the exceptional inflow of refugees is mentioned in a few DBPs. Other Member States may also be concerned in the meantime or might be in the future. The flexibility embedded in the SGP allows accommodating the incremental spending in a given year linked to unusual events outside the control of the government, both under the preventive and the corrective arm of the Pact. The Commission is willing to use these provisions. It will monitor the situation closely on the basis of observed data as provided by the authorities of the concerned Member States to determine eligible amounts. This information will be used when assessing (ex post) possible temporary deviations from the SGP requirements for 2015 and 2016. This means that deviations deriving only and directly from the net extra costs of the refugee crisis will not lead to any stepping up in the procedures. This applies also to the opening of an Excessive Deficit Procedure provided that the general government deficit remains close to 3% of GDP in case of a breach of that threshold.

1.11 What happens next?

The Opinions on the Draft Budgetary Plans will be discussed by the Eurogroup on 23 November. The Commission can also present its Opinion to the parliament of the Member State concerned and/or to the European Parliament if invited to do so. In line with the common budgetary timeline introduced by the 'Two Pack', budgets have to be adopted by national parliaments by 31 December each year.

  1. Outcome of the assessment

2.1      Euro area overview

The Draft Budgetary Plans facilitate an assessment of the budgetary situation in the euro area as a whole, as set out in today's Communication.

After falling significantly from 2.4% of GDP in 2014 to reach 1.9% of GDP in 2015, the aggregate budget deficit for the 16 euro area countries that submitted a DBP should decline further to 1.7% of GDP in 2016. The Commission’s own assessment, based on the Autumn Economic Forecast, points to a slightly larger reduction of 0.3 percentage points, from 2% of GDP in 2015 to 1.7% in 2016.

Based on the DBPs, the aggregate debt ratio for the euro area in 2016 should also decrease slightly from an estimated 91% in 2015 to just below 90% of GDP for 2016. This is largely in line with the Commission's Autumn Economic Forecast, which projects a slight decrease, from 91.6% in 2015 to 90.5% in 2016[2].

In terms of structural budgetary adjustment, the Commission's assessment points to the continuation of a broadly neutral fiscal stance (neither tightening nor loosening) in 2016 for the euro area. This should be assessed against the twin objectives of long-term sustainability of public finances and short-term macroeconomic stabilisation, namely the need to ensure a rotation from external to domestic sources of growth. In these terms, the expected neutral aggregate euro area fiscal stance for next year appears broadly appropriate in light of historically low interest rates and high external surplus existing in the euro area. At the same time, debt ratios remain at very high levels and are decreasing only slowly, implying the need to vigorously resume consolidation once the recovery takes hold.

Policy actions taken to reduce the tax burden on labour are steps in the right direction in the composition of public finances However, the composition of expenditure shows limited progress towards being more growth–friendly.

2.2 Country specific overview

No DBP for 2016 has been found in particularly serious non-compliance with the requirements of the SGP

2.2.1 Regarding the twelve countries in the preventive arm of the Stability and Growth Pact:

The preventive arm of the Stability and Growth Pact aims to ensure sound budgetary policies over the medium term by setting parameters for Member States' fiscal planning and policies during normal economic times, while taking into account the ups and downs of the economic cycle.

Estonia

The Commission is of the opinion that the Draft Budgetary Plan of Estonia, which is currently under the preventive arm, is compliant with the provisions of the Stability and Growth Pact.

Germany

The Commission is of the opinion that the Draft Budgetary Plan of Germany, which is currently under the preventive arm of the Stability and Growth Pact and subject to the debt rule, is compliant with the provisions of the Stability and Growth Pact. Germany's favourable budgetary situation should also provide scope to further increase public investment in infrastructure, education and research recommended by the Council in the context of the European Semester, as well as to cover additional expenditure that may result from the strong inflow of asylum seekers but could not yet be fully factored into the budget plans.

The Commission is also of the opinion that Germany has made limited progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and thus invites the authorities to accelerate progress.

Luxembourg

The Commission is of the opinion that the Draft Budgetary Plan of Luxembourg, which is currently under the preventive arm, is compliant with the provisions of the Stability and Growth Pact.

The Commission is also of the opinion that Luxembourg has made limited progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and thus invites the authorities to accelerate progress.

The Netherlands

The Commission is of the opinion that the Draft Budgetary Plan of the Netherlands, which is currently under the preventive arm and subject to the (transitional) debt rule, is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to rigorously implement the 2016 budget.

The Commission is also of the opinion that the Netherlands has made some progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and invites the authorities to make further progress.

Slovakia

After taking into account the additional information provided by the Slovak authorities, the Commission is of the opinion that the Draft Budgetary Plan of Slovakia, which is currently under the preventive arm, is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to implement the 2016 budget rigorously.

The Commission is also of the opinion that Slovakia has made limited progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and thus invites the authorities to accelerate progress.

Belgium

The Commission is of the opinion that the Draft Budgetary Plan of Belgium, which is currently under the preventive arm and subject to the (transitional) debt rule, is broadly compliant with the provisions of the Stability and Growth Pact. In particular, according to the Commission 2015 autumn forecast, there is a risk of some deviation from the required adjustment towards the MTO. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that Belgium has made some progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance (including the pension system, the fiscal framework and the tax system) and invites the authorities to make further progress.

Finland

The Commission is of the opinion that the Draft Budgetary Plan of Finland, which is currently under the preventive arm, is broadly compliant with the provisions of the Stability and Growth Pact. In particular, there is a risk of some deviation from the required adjustment towards the MTO in 2015 and 2016. The Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that Finland has made limited progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and thus invites the authorities to accelerate progress.

Latvia

The Commission is of the opinion that the Draft Budgetary Plan of Latvia, which is currently under the preventive arm, is broadly compliant with the provisions of the Stability and Growth Pact. In particular, according to the Commission 2015 autumn forecast, there is a risk of some deviation from the required adjustment towards the MTO. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

Malta

The Commission is of the opinion that the Draft Budgetary Plan of Malta, which is currently under the preventive arm and subject to the debt rule, is broadly compliant with the provisions of the Stability and Growth Pact. In particular, according to the Commission 2015 autumn forecast, there is a risk of some deviation from the required adjustment towards the MTO. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that Malta has made some progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and invites the authorities to make further progress.

Austria

The Commission is of the opinion that the Draft Budgetary Plan of Austria, which is currently under the preventive arm and subject to the (transitional) debt rule is at risk of non-compliance with the provisions of the Stability and Growth Pact. In fact, the Commission autumn forecast point to a risk of significant deviation from the MTO in 2016. However, in case the current estimate of the budgetary impact of the exceptional inflow of refugees was excluded from the assessment, the projected deviation would no longer be significant. The Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that Austria has made limited progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and thus invites the authorities to accelerate progress.

Italy

The Commission is of the opinion that the Draft Budgetary Plan of Italy, which is currently under the preventive arm and subject to the transitional debt rule, is at risk of non-compliance with the provisions of the Stability and Growth Pact. In particular, according the Commission 2015 autumn forecast there is a risk of significant deviation from the required adjustment path towards the MTO in 2016. The Commission will continue to closely monitor Italy's compliance with the obligations under the SGP, notably in connection with the assessment of the next Stability Programme. In the context of the 'overall assessment' of a possible deviation from the adjustment path towards the MTO, the Commission will take into account the above considerations on Italy's possible eligibility for flexibility under the SGP. Particular attention will be paid to whether a deviation from the adjustment path is being effectively used for the purposes of increasing investments; to the existence of credible plans for the resumption of the adjustment path towards the MTO; and to progress with the structural reform agenda, taking into account the Council recommendations. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that Italy has made some progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and thus invites the authorities to make further progress. A comprehensive assessment of progress made with the implementation of the CSRs will be made in the 2016 Country Reports and in the context of the Country Specific Recommendations adopted by the Commission in May.

Lithuania

The Commission is of the opinion that the Draft Budgetary Plan of Lithuania, which is currently under the preventive arm, is at risk of non-compliance with the provisions of the Stability and Growth Pact. According to the Commission 2015 autumn forecast, the required adjustment towards the MTO is not projected to be delivered and a significant deviation from the MTO is to be expected in 2016. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the Stability and Growth Pact. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the Stability and Growth Pact.

The Commission is also of the opinion that Lithuania has made limited progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and thus invites the authorities to accelerate progress.

2.2.2 Regarding the five countries under the corrective arm of the SGP

The corrective arm of the Stability and Growth Pact (SGP) ensures that Member States adopt appropriate policy responses to correct excessive deficits by implementing the Excessive Deficit Procedure (EDP). 

Spain (opinion adopted on 12 October)

The Commission is of the opinion that the Draft Budgetary Plan of Spain, which is currently under the corrective arm, is at risk of non-compliance with the provisions of the Stability and Growth Pact. The improvement in the headline budgetary deficit planned in the Draft Budgetary Plan towards correction of the excessive deficit in 2016, the deadline set in the 2013 EDP recommendation, mainly relies on revived nominal GDP growth, with somewhat optimistic underlying growth assumptions in 2016; expenditure restraint also plays a role but some of the planned savings are not yet underpinned by specified measures. Based on the ad-hoc Commission forecast, Spain is not expected to ensure compliance with the budgetary headline targets set in the 2013 EDP recommendation. The Commission therefore invites the authorities to strictly execute the 2015 budget and take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the Stability and Growth Pact.

The Commission is also of the opinion that Spain has made some progress towards compliance with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and invites the authorities to make further progress.

Opinions presented today:

France

The Commission is of the opinion that the Draft Budgetary Plan of France, which is currently under the corrective arm, is broadly compliant based on the headline deficit target although the fiscal effort is projected to fall significantly short of the recommended level, according to all metrics. The budgetary strategy is based on the better-than-expected deficit outcome in 2014 and improving cyclical conditions, which puts at risk compliance with the Council recommendation of 10 March 2015. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that France has made some progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and invites the authorities to make further progress.

Ireland

The Commission is of the opinion that the Draft Budgetary Plan of Ireland, which is currently in the corrective arm and could become subject to the preventive arm from 2016 if a timely and a sustainable correction of the excessive deficit is achieved, is broadly compliant with the provisions of the Stability and Growth Pact. In particular, according to the Commission forecast, there is a risk of some deviation from the expenditure benchmark in 2016. Moreover, the Commission notes that the extra government spending announced for the last three months of 2015 comes at a time when the Irish economy is already growing at exceptionally strong rates. The Commission therefore recalls earlier guidance as provided in the Council Recommendation under the Excessive Deficit Procedure of 7 December 2010 and in the context of the European Semester to use windfalls to accelerate debt reduction and invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that Ireland has made some progress with regard to the Country Specific Recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and invites the authorities to make further progress.

Slovenia

The Commission is of the opinion that the Draft Budgetary Plan of Slovenia, which is currently in the corrective arm and could become subject to the preventive arm from 2016 if a timely and sustainable correction of the excessive deficit is achieved, is broadly compliant with the provisions of the Stability and Growth Pact. In particular, there is a risk of some, but close to significant, deviation from the adjustment path towards the MTO in 2016. The Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the SGP.

The Commission is also of the opinion that Slovenia has made some progress with regard to the country-specific recommendations issued by the Council in the context of the 2015 European Semester relating to fiscal governance and invites the authorities to make further progress.

Portugal did not submit a plan as required by the legislation. This has not happened before and should not be repeated. Even a no-policy change DBP, which is considered acceptable in case of elections, provides valuable and transparent information on underlying budgetary trends, which facilitates a collective examination of the overall fiscal stance in the euro area and ensures equal treatment across Member States.

 

Overview of individual Commission Opinions on the Draft Budgetary Plans – Member States under the preventive arm of the SGP

Country

Overall compliance of Draft Budgetary Plan with Stability and Growth Pact

Overall compliance with the fiscal-structural reforms suggested in 2015 CSRs

Overall conclusion based on the Commission's autumn 2015 forecast

Compliance with the preventive arm requirements in 2015-16

Overall conclusion on progress with regard to CSRs related to fiscal governance

 

Main measures in DBP to address tax wedge CSRs

BE[3]

Broadly compliant

2015: some deviation from the adjustment path towards the MTO

2016: some deviation from the adjustment path towards the MTO

Some progress

- Increase of tax-free allowance, further increase in standard deductible amount for professional expenses. Further increase of the 'work bonus', tax credit for low income earners.

- Abolition of the 30% bracket and raising of the threshold for the second highest personal income tax bracket.

- Further reduction of employee social security contributions for low-income earners. Phased reduction of employer social security contributions, partly through the absorption of existing wage subsidies, partly through additional reductions for low and medium wages.

- Extension of the exemption of employer social security contributions for first employees hired by SMEs.

DE

Compliant

2015: MTO overachieved; compliance with the debt benchmark

2016: MTO overachieved; compliance with the debt benchmark

Limited progress

- Increase in the minimum income tax free allowance.

- Increase in child allowances.

- Adjustment of income tax brackets for fiscal drag.

EE

Compliant

2015: MTO overachieved

2016: MTO overachieved

n.a.

- Increase in tax free allowance.

- Introduction of an income tax refund for low-wage earners.

IT[4]

Risk of non-compliance

2015: some deviation from the adjustment path towards the MTO

2016: significant deviation from the adjustment path towards the MTO

Some progress

- Reduction by 40%, for an overall duration of two years, of employer social security contributions paid for new permanent employees hired in the course of 2016. This prolongs a previously enacted full exemption for three years for new personnel hired under open-ended contracts in the course of 2015.

LT

Risk of non-compliance

2015: no deviation from the adjustment path towards the MTO

2016: significant deviation from the adjustment path towards the MTO

Limited progress

- Increase in the tax free allowance.

- Increase in tax free allowance for parents and disabled people.

LV

Broadly compliant

2015: no deviation from the adjustment path towards the MTO

2016: some deviation from the adjustment path towards the MTO

Some progress

- Increase in tax free allowance.

- Introduction of progressivity in tax free allowance.

- Introduction of solidarity tax for high-income earners.

LU

Compliant

2015: MTO overachieved

2016: MTO overachieved

Limited progress

No related measures.

MT

Broadly compliant

2015: some deviation from the adjustment path towards the MTO; compliance with the debt benchmark

2016: some deviation from the adjustment path towards the MTO; compliance with the debt benchmark

Some progress

- Increase in tax free allowance.

- Reduction of income tax rate for low-income earners.

NL

Compliant

2015: no deviation from the MTO; compliance with the debt benchmark

2016: no deviation from the MTO; compliance with the debt benchmark

Some progress

- Increase in tax credit for employed persons for incomes up to EUR 50.000.

- Reduction of second and third income tax rates.

- Raising of threshold for highest income tax bracket.

- Increase in tax credit for parents.

- Phasing out of the general tax credit.

AT

Risk of non-compliance

2015: no deviation from the adjustment path towards the MTO; compliance with the debt benchmark

2016: significant deviation from the adjustment path towards the MTO; compliance with the debt benchmark

Limited progress

- Increase in the number of tax brackets, reduction of the entry tax-rate from 36.5% to 25% up to EUR 18.000 of annual income.

- Threshold for the 50% tax rate increased from EUR 60.000 to 90.000.

- A temporary 55% tax rate is envisaged for annual income above EUR 1 million.

- The reimbursement of half of social security contributions for very low income earners.

SK

Compliant

2015: no deviation from the adjustment path towards the MTO

2016: no deviation from the adjustment path towards the MTO

Limited progress

No related measures.

SI**

Broadly compliant

2015: in EDP

2016: some deviation from the adjustment path towards the MTO; compliance with the debt benchmark

Some progress

No related measures.

FI[5]

Broadly compliant

2015: some deviation from the MTO

2016: some deviation from the adjustment path towards the MTO

Limited progress

- Adjustment, in 2016, of tax brackets to reflect the rise in earnings and inflation.

- The highest income tax bracket in the central government tax scale (solidarity tax) will remain in effect until 2019 and the threshold from which it applies is lowered for the years 2016 and 2017.

- Increase of tax credit for work income.

- Increase in the unemployment insurance contribution by 1pp.


 

Overview of individual Commission Opinions on the Draft Budgetary Plans – Member States under the corrective arm of the SGP, i.e. in Excessive Deficit Procedure

Country

 Overall compliance of Draft Budgetary Plan with Stability and Growth Pact

 

Overall compliance with the fiscal-structural reforms suggested in 2015 CSRs

Overall conclusion based on the Commission's autumn 2015 forecast

Compliance with the Excessive Deficit Procedure in 2015-16

Overall conclusion on progress towards fiscal-structural reforms

 

Main measures in DBP to address the tax wedge

ES[6]

Risk of non-compliance

2015: headline target not met, fiscal effort falls significantly short of the recommended level, putting at risk compliance

2016: timely correction by 2016 at risk; fiscal effort falls significantly short of the recommended level, putting at risk compliance

Some progress

- Reduction of tax rates across the income spectrum and introduction of exemptions, lowering the effective tax rate of primarily low-income earners. Introduced in two phases, 1 January and 1 July 2015, respectively.

- Temporary flat rate in social security contributions until March 2015. Replaced by temporary exemption from social security contributions for the first 500 euros per month for new permanent hires under certain conditions (expires third quarter 2016).

FR

Broadly compliant based on the headline deficit target

2015: headline target met, fiscal effort falls significantly short of the recommended level, putting at risk compliance

2016: headline target met, fiscal effort falls significantly short of the recommended level, putting at risk compliance

Some progress

- Reduction of employer social security contributions for wages between 1.6 and 3.5 times the minimum wage.

- Reduction of personal income tax for low-income households by a tax rebate ('décote') for low-income households.

IE[7]

Broadly compliant

2015: in EDP

2016: some deviation from the adjustment path towards the MTO; compliance with the debt benchmark

Some progress

- Increase in the tax free allowance for the universal social charge as well as a raising of the threshold for the middle bracket and a reduction of the rate in the three lowest brackets.

PT

No DBP submitted yet

 

 

 

SI[8]

Broadly compliant

2015: in EDP

2016: some deviation from the adjustment path towards the MTO; compliance with the debt benchmark

Some progress

No related measures.

 

 

 

3 Key questions on the Steps under the Excessive Deficit Procedure

3.1 Which procedural steps under the Excessive Deficit Procedure has the Commission taken?

The Commission prepared reports on Bulgaria, Denmark, Finland, under Article 126(3) of the Treaty on the Functioning of the European Union (hyperlink to the article) analysing the breach of the deficit and, for Finland, the debt criterion as well. In all three cases the reports conclude that the deficit and, debt criterion of the Treaty are considered as currently complied with. The Economic and Financial Committee will provide its opinion on the reports within two weeks.

The report for Bulgaria. The Commission adopted a report under Article 126(3) of the Treaty for Bulgaria. Whilst the government debt remains below the 60 % of GDP reference value, the general government deficit in Bulgaria reached 5.8 % of GDP in 2014, above the 3% of GDP reference value. However, the excess over the reference value can be qualified as exceptional and temporary within the meaning of the Stability and Growth Pact. After considering relevant factors notably the cyclical conditions and the development of public investment, as well as broad compliance with the requirements of the Preventive Arm of the Pact, the report concluded that the deficit criterion should be considered as currently complied with.

The Report for Denmark. The Commission adopted a report under Article 126(3) of the Treaty for Denmark. Whilst government debt remains below the 60 % of GDP reference value, the general government deficit in Denmark is planned to reach 3.3 % of GDP in 2015, above but close to the 3 % of GDP reference value in the Pact. The estimated excess over the Treaty reference value can be qualified as exceptional and temporary in the sense of the SGP. The report also examined the relevant factors. It concludes that the deficit criterion should be considered as currently complied with.

The report for Finland. The Commission adopted a report under Article 126(3) of the Treaty for Finland. Concerning the deficit criterion, the government deficit in Finland is expected to fall below the 3 % of GDP reference value of the Treaty in 2016. On this basis, the current excess over the 3 % of GDP reference value of the Treaty (notified at 3.3 % of GDP in 2014 and planned at 3.4 % in 2015) can be considered close and temporary, and it can be qualified as exceptional in 2014. As regards the debt criterion the Commission forecasts the Finish government debt to be 62.5 % of GDP in 2015 and 64.5 % in 2016. The Commission assessed the relevant factors, notably finding that Finland is expected to broadly comply with the required adjustment path towards the MTO in 2015 and 2016 and on that basis concluded that the debt and deficit criteria are considered as currently complied with. Given the rising debt-to-GDP ratio, the swift adoption and implementation of structural reforms is important to improve fiscal sustainability.

The Commission also adopted a Communication on action taken by the United Kingdom in response to the Council Recommendation of 19 June 2015 (LINK). As the UK is compliant with the recommended headline deficit targets and the underlying improvements in the structural balance over both 2015-16 and 2016-17, the Commission considers that the procedure can be put in abeyance. This means that the procedure is ongoing, but is not stepped up since the Commission considers that the UK has taken effective action in line with the Council recommendation.

3.2 What are the next steps in assessing Member States' compliance with the Excessive Deficit Procedure?

The Economic and Financial Committee will provide its opinion on the 126 (3) reports for Bulgaria, Denmark and Finland within two weeks.

Compliance with the requirements under the Stability and Growth Pact for all Member States will be assessed on an ongoing basis within the European Economic Governance framework.

For further information:

IP: Commission Opinions on the 2016 Draft Budgetary Plans and Decisions under the Stability and Growth Pact

Press release: European Commission adopts Opinion on Spain's 2016 Draft Budgetary Plan

DBPs of euro area Member States, Commission Opinions and Staff Working Documents

Specifications on the implementation of the 'Two Pack' and Guidelines on the format and content of draft budgetary plans, economic partnership programmes and debt issuance reports

Vade Mecum on the Stability and Growth Pact

Timeline: The Evolution of EU Economic Governance in Historical Context

EU economic governance

[1] [1] The country-specific medium-term objective (MTO) corresponds to the structural budgetary position that Member States should achieve, and maintain, over the cycle, in order to ensure sustainable public finances and provide room to safeguard respect of the Treaty reference values for the deficit and the debt at times of negative output gaps. (see Vade mecum on the Stability and Growth Pact, European Commission Occasional Papers 151, May 2013)

[2] Please note that the figures on deficit and debt refer to the aggregate of the 16 Member States that submitted a draft budgetary plan.

[3] The report under Art. 126 (3) TFEU of 27 February concluded that the debt criterion should be considered as complied with at that time.

[4] The report under Art. 126 (3) TFEU of 27 February concluded that the debt criterion should be considered as complied with at that time.

[5] As the notified deficit for 2014 and the planned deficit and debt for 2015 were above the Treaty reference values, the Commission issued a report under Art. 126 (3) TFEU on 16 November 2015, concluding that both the deficit and the debt criterion should be considered as complied with.

[6] The Commission adopted an Opinion on Spain’s DBP on 12 October.

[7] The country is currently under the corrective arm, but could move to the preventive arm from 2016 if a timely and sustainable correction is achieved.

[8] The country is currently under the corrective arm, but could move to the preventive arm from 2016 if a timely and sustainable correction is achieved.

MEMO/15/6068

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