The budget deficit was 0.7% of GDP in 2018 and is projected to increase to 1.5% of GDP by 2020, with fiscal policy providing modest support to economic activity in 2019 and 2020. As public debt remains high, it is important that the government adheres to its medium-term fiscal targets to ensure a steady reduction of the debt-to-GDP ratio. To further improve the structural balance, greater efficiency in public spending should be encouraged. To boost economic growth and job creation, the authorities have developed the National Pact for Strategic Investments, with approximately 150 billion euros of investment envisaged in the areas of digital transformation, education, health care, energy and transport.
To better leverage productivity gains from digitalisation, the dissemination of intermediate ICT skills should be supported through adult education and training, and by generalising access to ICT as a minor/secondary field of study for all tertiary education students. Productivity would also benefit from increased competition, innovation and business dynamism. Ensuring that appropriate financing tools are available for young and innovative firms to scale up and further streamlining public support for R&D and innovation are of particular importance. Regulatory barriers to firm entry and exit should also be reduced and the insolvency regime reformed.
To make growth more inclusive, the labour market performance of immigrant, low-skilled and older workers should be enhanced. Ensuring firms comply with federal legislation to provide workers with at least five working days of education and training per year would help. As the tax wedge on labour earnings remains one of the highest in Europe, labour taxes should be further reduced. Implementation of congestion charges, extending the company car scheme to other means of transport and allowing employees to substitute company cars for cash, improving public transport infrastructure and further reducing transaction taxes on housing would all help to make growth greener.
