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Republic of Estonia Action Plan for Growth and Jobs 2008 – 2011 for the implementation of the Lisbon Strategy Tallinn October 2008 CONTENTS CONTENTS...................................................................................................................................................2 INTRODUCTION.........................................................................................................................................3 1. BRIEF ANALYSIS OF THE COMPONENTS OF ECONOMIC GROWTH..........................................6 2. MACROECONOMIC ENVIRONMENT..........................................................................................10 OBJECTIVE 1: ENSURE A STABLE MACROECONOMIC ENVIRONMENT ...........................................................14 OBJECTIVE 2: DEVELOP A TAX SYSTEM THAT STRONGLY PROMOTES ECONOMIC GROWTH ..........................17 OBJECTIVE 3: ENSURING THE LONG-TERM SUSTAINABILITY OF FISCAL POLICIES.........................................20 3. COMPETITIVE BUSINESS ENVIRONMENT...............................................................................26 OBJECTIVE 4: INCREASE THE INTERNATIONAL COMPETITIVENESS OF RESEARCH AND DEVELOPMENT ACTIVITIES .................................................................................................................................................26 OBJECTIVE 5: INCREASE THE PRODUCTIVITY AND INTERNATIONAL COMPETITIVENESS OF ENTERPRISES ......37 OBJECTIVE 6: DEVELOP A BUSINESS ENVIRONMENT FAVOURABLE TO ENTERPRISE AND ENTREPRENEURSHIP 47 OBJECTIVE 7: ENSURE THE SECURITY OF ENERGY SUPPLY AND DEVELOP A COMPETITIVE AND ENVIRONMENTALLY-FRIENDLY ENERGY SECTOR ..........................................................................................56 4. EDUCATION AND LABOUR MARKET..........................................................................................67 OBJECTIVE 8: IMPROVE THE SKILLS OF THE LABOUR FORCE.......................................................................69 OBJECTIVE 9: INCREASE THE FLEXIBILITY OF THE LABOUR MARKET AND IMPROVE THE QUALITY OF WORKING LIFE............................................................................................................................................................87 APPENDICES..............................................................................................................................................95 APPENDIX 1: THE COMPOSITION OF THE WORKING GROUP CO-ORDINATING THE ESTONIAN ACTION PLAN FOR GROWTH AND JOBS 2008 – 2011.................................................................................................................95 APPENDIX 2: FINANCIAL PLAN BY MEASURES FOR THE ESTONIAN ACTION PLAN FOR GROWTH AND JOBS 2008–2011.................................................................................................................................................97 2 INTRODUCTION The Action Plan for Growth and Jobs 2008 – 2011 is the Government strategy for increasing the competitiveness of the economy. The plan sets goals to increase the Estonian work force to 80% of the European Union average, to increase scientific and development activities up to 2% of GDP and the growth of overall employment to 70.5%. The Action Plan for Growth and Jobs 2008 – 2011 helps implement the European Union’s growth and jobs strategy. In 2005, the Government approved the Action Plan for Growth and Jobs 2005 – 2007. When compiling the new plan, the effectiveness of the measures applied during the last period and the current status of the main areas influencing Estonian competitiveness were thoroughly analysed. The Estonian Government together with European Commission has analysed the components supporting Estonian economic growth compared to other European Union Member States. The results of the analyses are the basis for setting the main goals and emphasises of the measures in the plan. In addition, the recommendations by the European Commission1 regarding Government policy for economic competitiveness and the conclusions of the European Council competitiveness summit2 that took place in the spring of 2008 were taken into account when compiling the plan. In general, both the analysis of the components of economic growth and the conclusions of the commission show that Estonia has developed rapidly in recent years and the overall level of competitiveness is good. At the same time, both external and internal risks have increased significantly. In order to maintain and increase the competitiveness of the Estonian economy it is necessary to take several new steps (incl. first of all to increase export capacity and develop the skills of workers) and adopt sound policy to develop the economy. The Government sets 9 central objectives and 29 sub-objectives in the plan for the year 2011, and plans the measures, a timeline of activities and the funds necessary to achieve them. European Council conclusions from spring 2008 and “points-to-watch” streamlined in the Commission’s 2007 Annual Progress Report form the basis of the NRP. Main objectives set and measures undertaken are directly responding to the Commission assessment. As all the objectives are measurable and measures are listed with concrete timetable and financial allocation, there was no need to compile separate action plan for “points-to-watch” implementation. In line with the new three years cycle, brand new NRP is developed. Therefore, separate reporting of ‘old measures’ is not enclosed. Relevant information on main concrete actions in 2007 and 2008 as well as status of implementation of main measures is broadly covered in situation analysis sub- chapters of the NRP and more concretely under each sub-objective. The financial plan of the Action Plan for Growth and Jobs is in compliance with the State Budget strategy for 2009 – 2012, the 2008 State Budget Act and the draft 2009 State Budget Act presented to the Parliament by the Government. Implementation of some measures enclosed to the reform plan does not have direct budgetary implications (for example development and enforcement of legislation), in those cases finances are not foreseen in the financial plan. There 1 The European Commission brought up 6 points that the Estonian Government should pay more attention to when developing a competitiveness policy. The suggestions and recommendations were made to all the states in the report issued in December 2007 by the Commission of European Communities (http://ec.europa.eu/growthandjobs/pdf/european-dimension-200712- annual-progress-report/200712-countries-specific-recommendations_et.pdf). Estonia was one of six Member States that the European Commission did not offer official recommendations, only drew attention to certain issues. 2 The conclusions of the European Council are available at the following website: http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/et/ec/99426.pdf 3 are cases where final financing decisions are not yet made by the government (impact assessment is on-going), in those cases relevant columns in the financial plan are left empty and will be complemented after decisions are made. Financial costs of the measures include EU funds and are cash-based. Therefore, yearly costs are indicative and can undergo minor annual adjustments based on implementation results. Costs for the years 2010 and 2011 could be revised during annual budgetary processes. Financial plan of the NRP covers finances need for the implementation of measures in years 2008-2011, even when the implementation period of measure is longer. Preparing the plan has involved close cooperation between Ministries and the active involvement of Government partners and experts. The completion of the Action Plan for Growth and Jobs was coordinated by the competitiveness working group3 in several Ministries put together by the Secretary of State. The State Chancellery started coordinating the compiling the new Action Plan for Growth and Jobs in January of 2008. In the first phase, there were discussions with partners in order to map out key issues and possible solutions in the areas of macro-economics, the competitive business environment as well as education and the labour market. The timeline for the plan, initial priorities and main emphasis were introduced to the Economic Affairs Committee, Cultural Affairs Committee and Social Affairs Committee during the discussions of the opinions of the European Council in spring. After meeting with partners, the descriptions of problem areas were prepared for each goal of the Action Plan for Growth and Jobs based on the current status of the area and the issues brought up by the partners, and measures were defined in order to find solutions. After thorough discussions and agreeing upon the key activities necessary for achieving the goals, the Action Plan for Growth and Jobs 2008 – 2011 was discussed at the Government meeting on May 22, 2008. In June, the discussion of the action plan took place at the European Union Affairs, Social Affairs, Financial Affairs and Cultural Affairs Committee and in September at the Economic Affairs Committee. The plan, followed up by the suggestions of Parliamentary committees, was sent to the ministries and partners for a final revision. From July 1 to August 17, the Action Plan for Growth and Jobs was opened for public discussion at the participation portal4. During the completion of the action plan several new ideas were raised for increasing Estonian competitiveness – implementing those ideas would not be rational without a thorough analysis
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