Intelligence

The Polish Government’s Mid-Term Report: Must Do Better

Front of finance ministry in Warsaw Poland with a fountain framing the entrance. Could be used for images about Euro currency problems

Half way through its term, how economically successful has Poland’s government been?

“Perversely, the biggest success of this government is that the Law and Justice Party (PiS) has not carried out certain promises made during the election campaign,” Professor Stanisław Gomułka, former deputy minister of finance and now chief economist of the Business Centre Club (BCC), told INN: Poland.

Two of these broken promises could seriously damage the economy: exchanging loans taken in Swiss francs (mainly mortgages) for złotys at their original rates, and increasing the amount which can be earned before tax is paid. According to most estimates, the first proposal would cost the banking sector many billions of złotys. The latter promise ended up being applied only in the case of those with the lowest income who had paid little or no income tax before.

BCC’s Professor Gomułka also believes that lowering the retirement age two years after the government came took office, and not immediately after, gave the economy more time to adjust.

“More detrimental to the economy are the burdens and regulations entrepreneurs need to bear,” ascertains Andrzej Sadowski, president of the Adam Smith Centre and a member of President Andrzej Duda’s National Development Council. “People will not just start relying only on the funds they receive from the state. They will continue working. And some of them will get social security.”

“Lowering the retirement age is a very bad idea. Perhaps the worst one this government came up with,” Marcin Luziński, an analyst at BZWBK, tells INN: Poland.

The Morawiecki Plan

Economists believe that fast GDP growth — the Ministry of Economic Development and Finance is expecting the rate to exceed 4 per cent in 2017 — as well as the decreasing unemployment rate — 6.8 per cent in September, down by 0.2 per cent compared to August — are the result of the global economic situation rather than any measures taken by the government. They claim that the Morawiecki Plan (named for its architect, Mateusz Morawiecki, deputy prime minister and minister of economic development and finance) which is meant to show the direction in which the economy should develop, is in principle a success.

“Whether we agree with the plan or not, and whether it is being implemented and we have seen any specific results from it are two different things,” Mr Zuber added.

According to Professor Gomułka, Morawiecki’s strategy was mainly based on encouraging businesses to invest. And that has failed.

“The government’s biggest problem is a serious fall in domestic investment, a dip even. So far in 2017, [the government] hasn’t been able to find an antidote to the losses of 2016,” economist Marek Zuber told the Polish Press Agency (PAP). “Those investments are not in place and without them economic growth cannot continue in mid- or long-term.”

Professor Gomułka says the government’s policy towards multinational corporations — from what has been called repolonisation to the merging of state-owned companies with the intention that they dominate the market could be seen as another failure.

“History shows, especially in Poland, that if the government tries to manage companies, the results are very poor,” says BZWBK’s Mr Luziński. “This refers to both their business condition and malpractice, such as the handing out of political sinecures,” he added.

According to Mr Zuber, a destabilised economic environment is another serious problem. “This mainly appeared in 2016, with various ministers coming up with ideas related to changes in the tax system, then changing their minds — we don’t know what’s going to happen,” Mr Zuber added.

“I remember the first speech made by Deputy Prime Minister Morawiecki, when he compared the situation of entrepreneurs in Poland and neighbouring countries, saying that the latter had it better. Since then nothing has changed,” the Adam Smith Centre’s Mr Sadowski says. ‘There is no economic policy in Poland, just slogans before elections, and new barriers after them.”

Euro cash and Zloty on one photo.

Tax & Spend

The Morawiecki Plan has not gone away. Economists are more positive, however, about improving the efficiency of the collection of VAT and other taxes.

“There has been a lot of propaganda proclaiming great success, but no one can deny that the measures taken by Deputy Prime Minister Morawiecki in the fight against tax evaders are bringing results,” says BZWBK’s Mr Luziński.

Professor Gomułka confirms the measures have brought additional budget revenues of about 20 billion złotys. “Firstly, in the election campaign, PiS spoke of 50-70 billion złotys. Secondly, it is a one-off: in next year’s budget there is no sign of improved VAT collection,” adds Professor Gomułka.

Mr Zuber says social programmes might be regarded as the government’s main success. “Certainly, the 500 Plus [family benefit] programme, which has lowered poverty in Poland, is a success, although we do not know if it has increased the birthrate,” he adds.

Mr Sadowski says 500 Plus should be referred to as a tax cut and not a family benefit. “It is an interesting process of lowering taxes of quite a weak structure. Not only is the government giving away money, it could have been introduced in a more efficient way. Currently, people who do not have any financial problems have access to the programme. It also pushes women out of the labour market,” BZWBK’s Mr Luziński concludes.

According to the most recent CBOS polls, 47 per cent of Poles would vote for Law and Justice if new elections were to be held.

(source: PAP, INN: Poland)