Fiscal Policy Predictability in CEE — It’s Time for Change

General government deficit/surplus
as percentage of GDP in 2015

Fact box

Austria -1.2
Belgium -2.6
Bulgaria -2.1
Croatia -3.2
Cyprus -1.0
Czech Republic -0.4
Denmark -2.1
Estonia +0.4
Finland -2.7
France -3.5
Germany +0.7
Greece -7.2
Hungary -2.0
Ireland -2.3
Italy -2.6
Latvia -1.3
Lithuania -0.2
Luxembourg +1.2
Malta -1.5
Netherlands -1.8
Poland -2.6
Portugal -4.4
Romania -0.7
Slovenia -2.9
Slovakia -3.0
Spain -5.1
Sweden 0.0
United Kingdom -4.4
source: Eurostat

Grzegorz Poniatowski

About Grzegorz Poniatowski

Grzegorz Poniatowski is Director of Fiscal Policy Studies at the Centre for Social and Economic Research (CASE). As a CASE expert he has led several projects for governmental and EU institutions on structural reforms, fiscal policy, taxation and financial markets. Currently, he is a task leader on the H2020 project FIRSTRUN – Fiscal Rules and Strategies under Externalities and Uncertainties. He also analyses investment determinates in emerging markets in a study for the International Finance Corporation, World Bank Group.

In this world nothing can be said to be certain, except death and taxes. Apparently these words, attributed to Benjamin Franklin, cannot be applied to all tax systems.

Since 2008, there have been more than three amendments to the Polish law on personal income tax; more than two amendments to corporate income tax and on average another two amendments to VAT each year. During the same time, the excise rates on tobacco products have changed eight times and those for alcoholic beverages were amended two times. There have also been a number of changes in the rates for all other important levies, namely VAT, CIT and PIT. In addition to this, new taxes, specifically: a tax on the mining sector, a retail tax and a financial sector levy have been introduced or will be implemented soon. 

Conversely expenditure in public finance has been equally variable. Government expenditure fluctuated and was driven by a political cycle rather than and economic one. During the past eight years, fiscal deficits in Poland have ranged from PLN 47 billion to PLN 109 billion, which constituted between 2.6 to 7.5 per cent of GDP. 

Obviously, there is a lot of instability and (as changes are discretionary) uncertainty concerning taxes and, in a broader sense, around fiscal policy. The question is: are instability and uncertainty the cause or the outcome? In other words, are the frequent changes in fiscal policy a result of the turbulent times, the economic cycle and aggressive tax fraud and tax avoidance? Perhaps, it is the opposite and the frequent changes and instrumental treatment of fiscal policy are what are causing the unpredictability and triggering the economic cycles and aggressive tax fraud and avoidance?

No matter what the answer is, fiscal policy could be simpler and more credible, flexible and predictable if it had the proper institutional backup. However, policy-makers’ actions in this area tend to be quite contradictory. As Ronald Reagan once said, governmental approach to economy can be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidise it. 

Instrumental and short-sighted public fiscal policy generally tends to have a serious impact on the economy. Some simple figures demonstrate how important fiscal policy is for the corporate sector and for the entire economy. In Poland, the total tax rate amounts to around 40.3 per cent of the commercial profit and it takes 271 man/hours to comply with taxes for a medium-sized company. Moreover, public sector expenditure is around 46 per cent of GDP and, together with taxes, is used as a tool for income redistribution. 

Inefficiencies in fiscal policy can be measured in billions. EU Member States lose around €160 billion each year in VAT non-compliance alone and another 0.5 per cent of their GDP disappears because of the administrative and compliance costs for VAT. Welfare costs for business cycle fluctuations are no smaller and effectively are neutralised by government expenditure. 

Therefore, the debate over the predictability of fiscal policy must step up. There are several methods of improving fiscal policy without making it inflexible or inefficient. The future would be more predictable and dependable if governments followed fiscal frameworks that were overseen by fiscal councils. For instance, policy makers could introduce strict and workable budgetary rules that focus on the same paths as government activities.

Other tools for ensuring predictability are long term tax plans and moratoria. When the planned paths for tax rate changes are communicated over longer time horizons, it is much easier for the corporate sector to make their own investment decisions.  Furthermore, governments should introduce modern tax compliance measures, to increase economic stability and the buoyancy of tax revenue.



Fiscal policy predictability in the CEE will be discussed in its many perspectives and dimensions, during the discussion panel ‘Fiscal Policy: Moving towards Predictability’ at the  Economic Forum, which will be held from the 6th to the 8th of September, 2016 in Krynica, Poland. Emerging Europe is a media partner of the Forum. Click here to register for the Krynica Forum.


The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.


How Will Trump’s Visit Affect Polish Politics?

Donald trump

Only a United Opposition Can Defeat Poland’s Ruling Law and Justice Party

Classical building of Polish parliament. Warsaw in Poland.

Azerbaijan: The Rich Get Richer and the Poor Get Nothing


When Neutrality Isn’t an Option

President of the Russian Federation Vladimir Putin

Regional Relations in the Western Balkans: Moving Beyond Folklore

Bosnia and Herzegovina flag with Serbia flag, 3D rendering

The Czech Republic Is On the Way To Become a Fully Developed Economy

European Volatility Makes Economic Development Slower for Ukraine

Big Fish, Small Fish, Where to Fish? On the Eve of the Fourth Industrial Revolution

We, the Post-Communist Generation, Have the Skills to Rid of the Past And Create Our Own Future

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

Old Fashioned Skulduggery Overshadows the Elections in Moldova

Where’s My Cheese? – The GREAT British Food Tour 2014

Cheese Shop

A Bosnian Referendum Shows Russia’s Influence in the Balkans—As Well As Its Limits

Examining How a Strong Swiss Franc Could Single-Handedly Topple Poland’s Economy

PiS Uses Media Control to Bring Poland to Heel

Jaroslaw kaczynski pis emerging europe

Is the CEE Region About to Steal the Outsourcing Crown From India?

Amazing view on the Taj Mahal in sunset light with reflection in water. The Taj Mahal is an ivory-white marble mausoleum on the south bank of the Yamuna river. Agra Uttar Pradesh India.

Poland Needs to Cling to the Eurozone

zloty euro emerging europe

Can Armenia Keep a Foot in Both Camps?

European union armenia russia emerging europe

What Is the Post-Brexit Future of Foreign Direct Investment in Central and Eastern Europe?

E-lifestyle and Cyber Security: Some Views From Estonia

Cyber Security Protection Firewall Interface Concept

Global Expansion in the Digital Age

Outsourcing in Germany: Stop Talking at and Start Talking to

How strong is V4?

Viktor Orban

History as Destiny? Institutional Erosion in Ukraine and Poland

The Right to Water: Who Can Change Today’s Situation?

Partnership is the Key to CEE-Indian Business

Adam Smith’s Warning for Poland

International Women’s Day — Let’s Take Action And Then Celebrate

Are There Differences Between How Tax Regulations in Poland and IAS Treat Intangible Assets?

Poland Challenges the European Identity

Poland emerging europe

Digitalisation Is Keeping CEE Top 500 Companies on Top And Competitive

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

How Will Poland Approach the Brexit Negotiations?

LGBT in CEE — A New Acceptance Is Being Born From Migration

Czech Own Currency Insures Against Euro Losses

Euro Czech republic emerging europe

Will the New Five-day Visa-free Regime Encourage More Visitors to Belarus?

Are Labour Shortages Driving Economic Growth?

Will Poland Leave the European Union?


Europe Needs To Be More Proactive In Embracing Armenia

The Voice of European Business Must Be Heard Loud and Clear by Brexit Negotiators

People Power Reminds the Government of the Rule of Law

China: A Giant That Is Hard to Crack

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

Is there any prospect of ‘Polexit’?

poland european union polexit

Good Match But Unlikely Marriage

Brexit: Let’s Learn the Lesson and Hope a Better Europe Will Arise

Hungary’s Nationalist Assault on Free Enquiry

victor orban ceu

Poland: Is it Ready, and is it Time to Adopt the Euro?

Macedonia’s Controversial Coalition Government

SKOPJE MACEDONIA emerging europe

The Morawiecki Plan Promises a Brighter Future for Poland

January Kicks Off an Exciting Year for Emerging Europe

CEE Competing to Pick Up the Brexit Fall-Out

Polish Tax Laws — Fighting a Winning Battle Against Tax Evaders

Political Tensions Rise As Croatia Allegedly Breaks the Dublin III Refugee Regulation

croatia migrants

Swimpassing Dniester Without Prejudice To Democracy

Parliament of the republic of moldova in chisinau, national flag, stefan cel mare street, spring time with blue sky

Albania’s Election Apathy

tirana albania

The Long Tail of Global Expansion

The Capital Markets Union: a New Beginning in the European Financial Sector?

The Sharing Economy Could Bring New Business Models to CEE

CEE Countries Are on Their Way to Create Their Own ‘Silicon Valleys’

Breaking With Imitations of the Past

Belarusian Journalists Still Face Huge Problems

Impact of Brexit on EU-CEE Not Overstated

theresa may brexit

Hungary and Israel: the Collision of Past and Present

Budapest synagoge

Romania Surviving the Waves of Recent Political Tsunamis in Europe

EU-CEE Is Still Growing at a Healthy Rate

Prague emerging europe

Europe at Odds over OPAL and Nord Stream 2

Slovenia’s Presidential Election: Pahor Expected to Romp Home

Slovenia flag against blue sky waving in wind

A New Division Between Eastern And Western Europe?

Krynica: Mapping the Road to Central and Eastern Europe — 26 Years On

The GREAT London Food Scene

Bakery in London

Moving Forward Together Guarantees a Bright Future for CEE

Poland’s Capital Saturation Lower Than the Czech Republic’s

deloitte fdi poland

The EU’s Choice: Fundamental Reform Or Disintegration

Resignation in Ukraine: War, Revolution, Crisis — Some Things Never Change

Why Hungary’s New NGO Law Is Harmful for Business

Budapest, Hungary. Aerial view of the old city Budapest, Hungary with river and Parliament Building with cloudy blue sky

Changing Perspectives and Showing That True Romania is a Vibrant Innovative Country

After Its Significant Rise the Georgian Economy May Now Fall

Panorama of Tbilisi, Georgia in sunset rays. Vivid, saturated, splittoned image.

Is the Level of Foreign Ownership a Problem in Emerging Europe?

Flags of European countries flying from their capital cities. Viewed from the South.

CEE-Benefits and Disadvantages of Joining the Eurozone

forint zloty euro

A Positive and Modern View of Entrepreneurship

Prepare for a New Europe

2018 Elections — Vital Decisions for Hungary’s Future

Victor Orban energing europe

Could the West At Least Help Ukraine To Insure FDI Against Political Risks?

Poland’s Drift Away From Democracy

Czech Republic Renaming Has Real Economic Costs

Bulgaria Needs a Reform-Oriented Government to Take Full Advantage of its EU Membership

bulgaria emerging europe

Measuring Growth of Societies with GDP Alone Shows an Incomplete Picture

Central and Eastern European Consumers Are Joining the Global Trends for Change

CEE — Do We Need a Launch Pad For Our On-Site Tech Intelligence in the Silicon Valley

Emphasising the Incongruence Between the V4 Countries

Macron emerging europe

The Competitive Edge in Central and Eastern Europe

SOFIA BULGARIA - MAY 5: View of the Ivan Vazov National Theatre in Sofia on May 5 2016. Sofia is the largest city and capital of Bulgaria.

Governments Across CEE Introduce New Regulations to Unleash the Region’s Full Potential

Belarus 2020: Turning the Vicious Circle Into an Upward Spiral

Poland’s Confusing GDP Growth

Ex-Transition Economies’ FDI Recovery

dollar euro fdi

Will a Two-speed European Union Side-line the Visegrad Four?

Nagorno-Karabakh Conflict Moves from Frozen to Kinetic


Serbia’s New PM Is Cut From a Familiar Cloth

Serbian flag emerging europe

Poland’s Unicorn, Slovakia’s Flying Car and the Future of Europe

Stuck in Neutral: Georgia’s Constitutional Reforms

Tbilisi Parliament Georgia

The Netherlands’ Objection to the Ukraine-EU Association Agreement could be Costly to Europe

CEE Countries Expect Brexit to Result in More Opportunities for the Region

United or Divided? Europe in the Face of the Challenges of Tomorrow

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

Under Promise, Over Deliver: Prospects for the EU’s Eastern Partnership in 2018

Eastern partnership

Not All Quiet on the Eastern Front

Let’s Stop Wasting Time Redefining our Place in Europe

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

The EU’s Benign Neglect Of Eastern Europe

The Global Outsourcing Industry — the Rise of the Phoenix

EU Visa-Liberalisation Strengthens Georgia’s Pro-Western Path

georgia emerging europe eu

Defending EU Values in Poland and Hungary

Eu hungary poland

Moldova Falls Victim to Politicising

moldova emerging europe

Leave a Reply

Your email address will not be published. Required fields are marked *