The narrowing of the GDP per capita gap to the upper half of OECD countries has gathered pace. Nonetheless, the gap remains substantial and reflects low productivity and labour utilisation.
The long crisis increased income inequality and poverty. Nevertheless, income redistribution in the tax and benefit system ensures a lower disposable income inequality than in most other OECD countries. The strong recovery has enabled income inequality to return to its pre-crisis levels. Greenhouse gas emissions are lower than the OECD average. The population is exposed to particle pollution coming from high levels of road and transit transport, wood stoves and expansion of lignite fired power plants.
The reform momentum has slowed as the government has implemented most of its reform agenda. In late 2018, nearly two-thirds of the largest bank was privatised. Over the longer term, the government intend to keep a 25% stake.
Accelerating and expanding the scope for privatisation would improve corporate governance, further attract foreign investment and improve resource allocation. Labour productivity could be bolstered by better tertiary education outcomes. Further pension reform should aim to encourage older workers to stay in the labour market. This should be combined with increased work incentives for the unemployed, including reforms of unemployment benefits, social assistance and taxes. Moreover, labour shortages call for better allocation of resources through more decentralised wage setting. Such a reform package would enhance long-term growth and improve fiscal sustainability.
