Recommendation for a
on the 2022 National Reform Programme of Ireland and delivering a Council opinion on the 2022 Stability Programme of Ireland
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, and in particular Article 5(2) thereof,
Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances, and in particular Article 6(1) thereof,
Having regard to the recommendation of the European Commission,
Having regard to the resolutions of the European Parliament,
Having regard to the conclusions of the European Council,
Having regard to the opinion of the Employment Committee,
Having regard to the opinion of the Economic and Financial Committee,
Having regard to the opinion of the Social Protection Committee,
Having regard to the opinion of the Economic Policy Committee,
(1)Regulation (EU) 2021/241 of the European Parliament and of the Council, which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. It contributes to the economic recovery and to the implementation of sustainable and growth-enhancing reforms and investment, in particular to promote the green and digital transition, while strengthening the resilience and potential growth of the Member States’ economies. It also helps strengthen sustainable public finances and boost growth and job creation in the medium and long term. The maximum financial contribution per Member State under the Recovery and Resilience Facility [was] updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241.
(2)On 24 November 2021, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2022 European Semester for economic policy coordination. It took due account of the reaffirmed joint commitment of the Porto Social Summit of May 2021 to further implement the European Pillar of Social Rights proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The European Council endorsed the priorities of the 2022 Annual Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Ireland as one of the Member States for which an in-depth review would be needed. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was adopted on 5 April 2022 by the Council, as well as the proposal for the 2022 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights, which was adopted by the Council on 14 March 2022.
(3)Russia’s invasion of Ukraine, in the wake of the global pandemic, has significantly altered the geopolitical and economic context. The impact of the invasion on Member States’ economies has been felt for example through higher energy and food prices and weaker growth prospects. The higher energy prices weigh particularly on the most vulnerable households experiencing or at risk of energy poverty. The EU is also seeing an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, the Temporary Protection Directive was triggered for the first time, granting displaced persons from Ukraine the right to legally stay in the EU, as well as access to education and training, labour market, healthcare, housing and social welfare.
(4)Taking account of the rapidly changing economic and geopolitical situation, the European Semester resumes its broad economic and employment policy coordination in 2022, while evolving in line with the implementation requirements of the Recovery and Resilience Facility, as outlined in the 2022 Annual Sustainable Growth Survey. The implementation of the adopted recovery and resilience plans is essential for the delivery of the policy priorities under the European Semester, as the plans address all or a significant subset of the relevant country-specific recommendations issued in the 2019 and 2020 Semester cycles. The 2019 and 2020 country-specific recommendations remain equally relevant also for recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241, in addition to any country-specific recommendations issued up to the date of submission of the modified plan.
(5)The General Escape Clause has been active since March 2020. In its Communication of 3 March 2021, the Commission set out its view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative criterion. Heightened uncertainty and strong downside risks to the economic outlook in the context of war in Europe, unprecedented energy price hikes and continued supply chain disturbances warrant the extension of the general escape clause of the Stability and Growth Pact through 2023.
(6)Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability Programme, the fiscal stance is currently best measured as the change in primary expenditure (net of discretionary revenue measures), excluding COVID-19 crisis-related temporary emergency measures but including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other EU funds, relative to medium-term potential growth. Going beyond the overall fiscal stance, in order to assess whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions, attention is also paid to the evolution of nationally financed primary current expenditure (net of discretionary revenue measures and excluding COVID-19 crisis-related temporary emergency measures) and investment.
(7)On 2 March 2022, the Commission adopted a Communication providing broad guidance for fiscal policy in 2023, aiming at supporting the preparation of Member States’ Stability and Convergence Programmes and thereby strengthening policy coordination. The Commission noted that, based on the macroeconomic outlook of the 2022 winter forecast, transitioning from an aggregate supportive fiscal stance in 2020-2022 to a broadly neutral aggregate fiscal stance would appear appropriate in 2023, while standing ready to react to the evolving economic situation. The Commission announced that the fiscal recommendations for 2023 should continue to differentiate across Member States and take into account possible cross-country spillovers. The Commission invited the Member States to reflect the guidance in their Stability and Convergence Programmes. The Commission committed to closely monitor the economic developments and adjust its policy guidance as needed and at the latest in its Semester spring package of late May 2022.
(8)With respect to the fiscal guidance provided on 2 March 2022, the fiscal recommendations for 2023 take into account the worsened economic outlook, the heightened uncertainty and further downside risks, and the higher inflation compared to the winter forecast. Against these considerations, the fiscal response has to expand public investment for the green and digital transition and energy security, and sustain the purchasing power of the most vulnerable households so as to cushion the impact of the energy price hike and help limit inflationary pressures from second round effects via targeted and temporary measures; fiscal policy has to remain agile so as to adjust to the rapidly evolving circumstances, and be differentiated across countries depending on their fiscal and economic situation, including as regards the exposure to the crisis and the inflow of displaced persons from Ukraine.
(9)On 28 May 2021, Ireland submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines of Annex V to that Regulation. On 8 September 2021, the Council adopted its Decision on the approval of the assessment of the recovery and resilience plan for Ireland. The release of instalments is conditional on a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that Ireland has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed.
(10)On 4 May 2022, Ireland submitted its 2022 National Reform Programme and, on 29 April 2022, its 2022 Stability Programme, in line with the deadline established in Article 4 of Regulation (EC) No 1466/97. To take account of their interlinkages, the two programmes have been assessed together. In accordance with Article 27 of Regulation (EU) 2021/241, the 2022 National Reform Programme also reflects Ireland’s bi-annual reporting on the progress made in achieving its recovery and resilience plan.
(11)The Commission published the 2022 country report for Ireland on 23 May 2022. It assessed Ireland’s progress in addressing the relevant country-specific recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of Ireland’s implementation of the recovery and resilience plan, building on the Recovery and Resilience Scoreboard. Based on this analysis, the country report identified gaps with respect to those challenges that are not addressed or only partially addressed by the recovery and resilience plan, as well as new and emerging challenges, including those emerging from Russia’s invasion of Ukraine. It also assessed Ireland’s progress on implementing the European Pillar of Social Rights and on achieving the EU headline targets on employment, skills and poverty reduction, as well as progress in achieving the UN’s Sustainable Development Goals.
(12)The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Ireland and published its results on 23 May 2022. The Commission concluded that Ireland no longer is experiencing imbalances related to high private, government and external debt. Important progress has been made in reducing government and private indebtedness as well as net external liabilities, both before and since the pandemic.
(13)On 20 July 2020, the Council recommended Ireland to take in 2020 and 2021 all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended Ireland to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. In 2021, based on data validated by Eurostat, Ireland’s general government deficit fell from 5.1% of GDP in 2020 to 1.9% in 2021. The fiscal policy response by Ireland supported the economic recovery in 2021, while temporary emergency support measures declined from 3.3% of GDP in 2020 to 2.7% in 2021. The measures taken by Ireland in 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 were mostly temporary or matched by offsetting measures. Based on data validated by Eurostat, general government debt stood at 56.0 % of GDP in 2021.
(14)The macroeconomic scenario underpinning the budgetary projections in the 2022 Stability Programme is realistic. The government projects real GDP to grow by 6.4% in 2022 and 4.4% in 2023. By comparison, the Commission’s 2022 spring forecast projects a lower real GDP growth of 5.4% in 2022 and a similar GDP growth of 4.4% in 2023, mainly due to lower personal consumption and lower exports projections in 2022. In its 2022 Stability Programme, the government expects that the headline deficit will decrease to 0.4 % of GDP in 2022 and will turn to a surplus of 0.2 % in 2023. The decrease in 2022 mainly reflects strong growth in economic activity and the unwinding of most emergency measures. According to the Programme, the general government debt-to-GDP ratio is expected to decrease to 50.1% in 2022, and to decline to 46.3% in 2023. Based on policy measures known at the cut-off date of the forecast, the Commission 2022 spring forecast projects a government deficit of 0.5% of GDP for 2022 and a surplus of 0.4% of GDP in 2023. This is in line with the government balance projected in the 2022 Stability Programme. The Commission 2022 spring forecast projects a similar general government debt-to-GDP ratio, of 50.3% in 2022 and 45.5% in 2023.
Based on the Commission spring 2022 forecast, the medium-term (10-year average) potential output growth is estimated at 6.6%. However, this estimate does not include the impact of the reforms that are part of the Recovery and Resilience Plan and can boost Ireland’s potential growth.
(15)In 2022, the government phased out the majority of measures taken in response to the COVID-19 crisis, such that the temporary emergency support measures are projected to decline from 2.7% of GDP in 2021 to 0.6% in 2022. The government deficit is impacted by the measures adopted to counter the economic and social impact of the increase in energy prices, which in the Commission spring 2022 forecast are estimated at 0.2% of GDP in 2022 and 0.0% of GDP in 2023. These measures mainly consist of social transfers to poorer households and cuts to indirect taxes on energy consumption. These measures have been announced as mostly temporary. However, in case energy prices remain elevated also in 2023, some of these measures could be continued. Some of these measures are not targeted, notably the payment to all domestic electricity accounts and across the board cuts in excise duties. The government deficit is also impacted by the costs to offer temporary protection to displaced persons from Ukraine, which in the Commission 2022 spring forecast are projected at 0.1% of GDP in 2022 and 0.1% in 2023.
(16)On 18 June 2021, the Council recommended that in 2022 Ireland pursues a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserves nationally-financed investment. It also recommended Ireland to pursue, when economic conditions allow, a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term, and at the same time, to enhance investment to boost growth potential.
(17)In 2022, based on the Commission’s 2022 spring forecast and including the information incorporated in its 2022 Stability Programme, the fiscal stance is projected to be supportive at -0.3% of GDP, as recommended by the Council. Ireland plans to provide continued support to the recovery by making use of the Recovery and Resilience Facility to finance additional investment as recommended by the Council. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to remain stable compared to 2021. Nationally-financed investment is projected to provide an expansionary contribution to the fiscal stance of 0.3 percentage points in 2022. Therefore, Ireland plans to preserve nationally financed investment, as recommended by the Council. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide a broadly neutral contribution of 0.0 percentage points to the overall fiscal stance. This includes the additional impact of the measures to address the economic and social impact of the increase in energy prices (0.2 % of GDP).
(18)In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at 1.8% of GDP on a no-policy change assumption. Ireland is projected to continue using the grants from the Recovery and Resilience Facility in 2023 to finance additional investment in support of the recovery. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to remain stable compared to 2022. Nationally-financed investment is projected to provide a neutral contribution to the fiscal stance of 0.0 percentage points in 2023. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2023 is projected to provide a contractionary contribution of 1.8 percentage points to the overall fiscal stance. This includes the impact from the phasing out of the measures addressing the increased energy prices (0.2 % of GDP).
(19)In the 2022 Stability Programme, the general government balance is expected to reach a surplus of 1.2% of GDP in 2024 and 1.4% by 2025.The general government deficit is thus planned to remain below 3% of GDP over the programme horizon. These projections assume a cap to core expenditure growth at 5% per year. According to the Programme, the general government debt-to-GDP ratio is expected to decrease by 2025, specifically with a decrease to 43.8% in 2024, and a decline to 40.7% in 2025. Based on the Commission’s analysis, debt sustainability risks appear low over the medium term.
(20)The overall deficit of the pension system is expected to grow in the long term as a result of pension expenditure rising from 4.6% of GDP in 2019 to 7.6% in 2070. An independent pension commission made several recommendations to shore up the fiscal sustainability of the state pension system.
(21)In accordance with Article 19(3), point (b), and Annex V, criterion 2.2, to Regulation (EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. These help address all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Ireland by the Council in the European Semester in 2019 and 2020, in addition to any country-specific recommendations issued up to the date of adoption of a plan. In particular, the plan focuses on reforms and investments that facilitate the green and digital transition, as well as on active labour market integration support and upskilling. The investments also help front-load mature public investment projects, promote private investment and use more direct funding instruments to stimulate research and innovation. Furthermore, the plan commits to reforms in the areas of social and affordable housing, pensions, healthcare and regulatory barriers to entrepreneurship, while also introducing measures that are expected to partly address challenges related to anti-money laundering and aggressive tax planning.
(22)The implementation of the recovery and resilience plan of Ireland is expected to contribute to making further progress on the green and digital transition. Measures supporting the climate objectives in Ireland account for 42% of the plan’s total allocation, while measures supporting digital objectives account for 32% of the plan’s total allocation. The fully fledged implementation of the recovery and resilience plan, in line with the relevant milestones and targets, will help Ireland swiftly recover from the fallout of the COVID-19 crisis, while strengthening its resilience. The systematic involvement of social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond the plan, to ensure broad ownership of the overall policy agenda.
(23)Ireland has not yet submitted the Partnership Agreement and the other cohesion policy programming documents. In line with Regulation (EU) 2021/1060 of the European Parliament and of the Council of 24 June 2021, Ireland shall take into account the relevant country-specific recommendations in the programming of the 2021-2027 cohesion policy funds. This is a prerequisite for improving the effectiveness and maximising the added value of the financial support to be received from cohesion policy funds, while promoting the coordination, complementarity and coherence between these funds and other Union instruments and funds. The successful implementation of the Recovery and Resilience Facility and cohesion policy programmes also depends on the removal of bottlenecks to investment to support the green and digital transition and balanced territorial development.
(24)Beyond the economic and social challenges addressed by the recovery and resilience plan, Ireland faces a number of additional challenges related to the circular economy and waste water. Waste generation in Ireland is almost 25% higher than the EU average, making it the fifth largest generator of municipal waste per capita in the EU. Progress made on increasing recycling rates has slowed over recent years, while incineration has significantly increased. The circular use of materials in Ireland was 1.8% in 2020, well below the EU average of 12.8%. More incentives and investment are needed for Ireland to implement a more ambitious waste and circular economy strategy, while avoiding the creation of excessive incineration capacity. Greater efforts are needed to support circular business models that cover the entire life cycle of materials in order to reduce waste and lower resource consumption. While some progress has been made in facilitating investment in waste water management, less than 50% of waste water in Ireland is treated in compliance with EU law. The most significant impediment to surface water quality in Ireland stems from excessive nutrients from both untreated waste water and agriculture. Significant upgrades in infrastructure are needed, as is a more robust approach to controlling water contamination from agricultural activities. An appropriate waste water infrastructure is also key to improving the quality of life and health conditions of the general public. Moreover, adequate waste water infrastructure helps improve regional development, generates sustainable growth and jobs, and is beneficial for tourism.
(25)In response to the mandate by the EU Heads of State or Government set out in the Versailles Declaration, the REPowerEU plan aims to phase out the European Union’s dependence on fossil fuel imports from Russia as soon as possible. For this purpose, the most suitable projects, investments and reforms at national, regional and EU level are being identified in dialogue with the Member States. These measures aim to reduce overall reliance on fossil fuels and shift fossil fuel imports away from Russia.
(26)According to 2020 data, Ireland does not import crude oil and gas from Russia. Ireland’s dependence on Russian coal (22% of coal imports) is lower than the EU average, in a context where also the weight of solid fossil fuels in the energy mix (7.6%) is lower than in the EU average. While having a more limited exposure to Russian oil and gas than the EU average, the current geopolitical situation and high energy prices increase the urgency for Ireland to step up its efforts to meet the renewable targets laid down in the national energy and climate plan. Ireland’s climate action plan includes the ambitious goal of transforming the country’s energy system by 2030. This will enable Ireland to achieve a 51% reduction in total greenhouse gas emissions between 2018 and 2030. The necessary reforms and the magnitude of this transformation will be considerable, from securing the necessary public and private investment, to delivering commitments on time. A comprehensive upgrade of Ireland’s energy infrastructure is required to benefit fully from renewable energy sources and achieve Ireland’s climate objectives. Creating an investment framework conducive to facilitating and incentivising investment in the green energy transition will be key to reducing dependence on fossil fuels. For renewables, challenges persist in the planning and permit system, particularly on the long duration of planning permission procedures and the lengthy and costly appeal procedures. Improving the efficiency of the planning and permit system by ensuring that appropriate resources are available at all stages of planning processes and by streamlining the overall framework could speed up large-scale developments, thereby accelerating the green transition. In addition, expanding and reinforcing the electricity grid and supporting infrastructure at key locations will be pivotal to reducing congestion. In particular, new electricity transmission interconnectors to neighbouring countries will support greater security of energy supply. Increased storage capacity and the mass roll-out of electric car charging points will also be needed. In addition, the development of a national renewable hydrogen strategy would also help diversify the energy mix.
(27)Energy efficiency measures will play a key role in reducing energy consumption. High energy savings are necessary to achieve not only Ireland’s climate objectives, but also the EU-wide target of reducing net greenhouse gas emissions by 55%. While the climate action plan is on the right track, Ireland has so far lagged behind in terms of greenhouse gas emission reductions. By applying the ‘energy efficiency first’ principle and pursuing deep energy savings in buildings, Ireland could reduce its dependence on energy imports. Higher levels of electric vehicles could take advantage of domestic electricity generation rather than relying on fuel imports. As the climate action plan includes a target of one million electric cars on Irish roads by 2030, a significant rollout of electric charging points is needed. Further increase in ambition for reducing greenhouse gas emissions and increasing renewables and energy efficiency will be needed for Ireland to be in line with the ‘Fit for 55’ objectives.
(28)While the acceleration of the transition towards climate neutrality and away from fossil fuels will create significant restructuring costs in several sectors, Ireland can make use of the Just Transition Mechanism in the context of cohesion policy to alleviate the socio-economic impact of the transition in the most affected regions. In addition, Ireland can make use of the European Social Fund Plus to improve employment opportunities and strengthen social cohesion.
(29)In the light of the Commission’s assessment, the Council has examined the 2022 Stability Programme and its opinion is reflected in recommendation (1) below.
(30)In view of the close interlinkages between the economies of euro area Member States and their collective contribution to the functioning of the Economic and Monetary Union, the Council recommended that the euro area Member States take action, including through their recovery and resilience plans, to implement the recommendation on the economic policy of the euro area. For Ireland, this is reflected in particular in recommendations (1) and (2) below.
HEREBY RECOMMENDS that Ireland take action in 2022 and 2023 to:
1.In 2023, ensure that the growth of nationally-financed current expenditure is in line with an overall neutral policy stance, taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Stand ready to adjust current spending to the evolving situation. Expand public investment for the green and digital transition and for energy security, including by making use of the RRF, RePowerEU and other EU funds. For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions. Address the expected increase in age-related pension expenditure by ensuring the fiscal sustainability of the state pension system.
2.Proceed with the implementation of its recovery and resilience plan, in line with the milestones and targets included in the Council Implementing Decision of 8 September 2021. Submit the 2021-2027 cohesion policy programming documents with a view to finalising their negotiations with the Commission and subsequently starting their implementation.
3.Focus efforts on boosting the circular economy. In particular, develop both infrastructure and policies to prevent waste and increase reused and recycled content, and develop a more effective system for the separate collection of recyclable waste, including biodegradable waste. Promote safer and cleaner waste water circuits.
4.Reduce overall reliance on fossil fuels. Accelerate the deployment of renewable energy, in particular offshore wind, including by introducing reforms to improve the efficiency of the planning and permit system, particularly by reducing the duration of procedures. Upgrade energy infrastructure, including for storage. Ensure the fast implementation of deep building retrofits. Accelerate the electrification of transport, including by installing charging facilities.
Done at Brussels,
For the Council