Improving activation and training policies is a top policy priority, as the pandemic especially affected sectors where many with weaker labour market attachment work. This can also help meet firms’ demand for skills. Reforming the tax and welfare system to remove high effective tax rates will boost participation and employment.
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2021 Structural Reform Priorities
After suffering a sharp fall in activity during 2020, the economy is projected to recover in 2021 and expand at over 4% in 2022. Positive contributions to growth from the external sector mask domestic weaknesses, particularly in investment. Public support for employees and businesses is helping to hold up domestic demand while the authorities grapple with bringing the coronavirus under control. As recently imposed and possible future sanitary restrictions are lifted, with an effective vaccine being rolled out, and uncertainty about future trading relations is clarified, domestic demand is set to strengthen gradually. Faced with the ongoing pandemic and the prospect of a hard Brexit, policy needs to remain supportive and be ready to cushion further shocks until sanitary restrictions and trade uncertainty are eased. Fiscal measures have rightly become more targeted. Helping unemployed workers back into employment, while facilitating the reallocation of resources across the economy, will minimise the persistence of the shock to households.