Poland

   

Economic Policies

#26
Key Findings
Showing numerous positive signs despite recent policy reversals, Poland falls into the lower-middle ranks (rank 26) in the area of economic policies. Its score on this measure has improved by 0.4 points relative to 2014.

GDP growth has continued to be strong, showing a 4.6% gain in 2017. Personal consumption is a main driver, boosted by increased social transfers, improving labor market conditions, low lending rates and low inflation. Private investment rates have declined.

Unemployment rates have fallen markedly in recent years, reaching 6.8% in 2017. The government has focused on minimum-wage increases rather than on integrating youth, less-skilled workers and women into the labor market. Regional unemployment-rate variations are large.

After reducing the corporate tax for small taxpayers, and increasing personal income-tax allowances, the government has focused on fighting tax evasion and fraud. The deficit has been brought down more than expected, to about 1.5% in 2017. A new program provides tax incentives for R&D.

Economy

#22

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
7
The Polish economy is still on a strong footing. With real GDP up by about 4.6% in 2017, it has continued to grow well above the EU average. Boosted by a strong increase in social transfers, improving labor market conditions, low lending rates and low inflation, it is still largely driven by the growth of personal consumption. By contrast, uncertainty over the PiS government’s economic policy and the general development of the country has led to a decline in private investment, denounced by PiS chairman Jarosław Kaczyński as a deliberate attempt to weaken the PiS government by the part of the business community allegedly connected to the former government. At the same time, the government has interpreted the strong increase in outward investment of Polish firms as a sign that the Polish economy is maturing. In order to compensate for the decline in private investment, the government, within the framework of its Strategy for Responsible Development, has expanded its own investment programs and increased the utilization of EU funds.

Citations:
European Commission (2018): Country Report Poland 2018. SWD (2018) 219 final. Brussels (https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-poland-en_1.pdf).

Labor Markets

#27

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
6
Poland’s favorable overall economic record has been associated with a marked decline in unemployment. The unemployment rate has fallen further and reached 6.8% in September 2017, a historic low since 2008. The employment rate has slowly but constantly increased during the last years, but is still below the EU-28 average of 70.1%. Regional variations in (un-)employment, both between and within regions (voivodships), have been strong and persistent. Temporary employment contracts represent another problem, as Poland has the highest rate in the European Union. The PiS government has done little to foster the integration of youth, less-skilled workers and women in the labor market, who still earn 17% less than men, and to increase the share of regular employment contracts. Its main reform project in the field of labor market policy has been the increase of the minimum wage. Following a strong rise in 2016, the latter was further increased from PLN 13 to PLN 13.50 per hour and PLN 2,000 to PLN 2,080 per month in June 2017. While these politically popular moves have improved the financial situation of low-wage earners, they have raised concerns about negative employment effects and a rise in the shadow economy. In some parts of the country and for some professions, labor shortage has become an increasingly pressing issue.

Taxes

#26

To what extent does taxation policy realize goals of equity, competitiveness and the generation of sufficient public revenues?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
6
Poland’s tax system is characterized by a personal-income tax with two rates: 18% up to an income of PLN 85,528 and 32% for those who are above this level. Moreover, the system features a standard corporate-income tax of 19%, a relatively high standard VAT rate (23%) and high social-insurance contributions. Compared to other East-Central European countries, the corporate tax burden and the extent of red tape as well as frequent temporal changes associated with the taxation of enterprises have been relatively high. In its first year in government, the PiS government reduced the corporate-income tax rate from 19% to 15% for small taxpayers and taxpayers in their first year of existence and increased the tax-free allowance for personal income tax, a measure that went into effect at the beginning of 2017. In its second year in office, the PiS government largely focused on fighting tax evasion and tax fraud, which have been comparatively high. In March 2017, the government created the National Revenue Administration by merging tax administration, fiscal control and customs service. Moreover, tax auditors were given more authority to prevent and fight fraud through electronic controls, and harsher penalties were introduced. These changes contributed to stronger revenues in 2017. The government’s plan to raise the petrol taxes by about 6% was controversial. Justified as a means to mobilize resources for renovating local roads, this plan was widely perceived as breaking an election promise and was abandoned by the government because of mass protests.

Citations:
European Commission (2018): Country Report Poland 2018. SWD (2018) 219 final. Brussels (https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-poland-en_1.pdf).

Darasz, J. (2017): Fighting VAT fraud brings a substantial increase in Poland’s budget revenues, in: Central European Financial Observer, September 18, 2017 (https://financialobserver.eu/poland/fighting-vat-fraud-brings-a-substantial-increase-in-polands-budget-revenues/).

Topińska, I. (2017): Revision of personal income tax in Poland: increase in the tax-free allowance for the lowest earners. European Social Policy Network, Flash Report 2017/13, Brussels.

Budgets

#33

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
6
Poland was able to exit the European Union’s excessive deficit procedure one year ahead of schedule in 2015 and to cancel its €8.24 billion two-year precautionary Flexible Credit Line (FCL) with the International Monetary Fund in 2016. In winter 2016 – 2017, the Sejm crisis and the occupation of its building by opposition members of parliament delayed the passing of the 2017 budget. Benefiting from the strong economic growth and higher than expected revenues, however, Minister of Finance Mateusz Morawiecki succeeded in bringing the general government fiscal deficit down from 2.7% in 2016 to about 1.5% in 2017, much stronger than originally expected. Though there are still strong concerns about the medium-term development of the budget. One reason for concern is the strong increase in social spending under the PiS government. A second risk is related to EU transfers under the Common Agricultural Policy, and from the structural and cohesion funds. These transfers will shrink due to improved regional development and might decrease further if cuts in transfers are embraced as a means to sanction the violation of EU law. Finally, Poland’s fiscal framework is weak. Its credibility has suffered from the modification of the official expenditure rule in December 2015 and the fact that the country, contrary to almost all other EU countries, still does not have an independent fiscal council.

Citations:
European Commission (2018): Country Report Poland 2018. SWD (2018) 219 final. Brussels (https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-repor t-poland-en_1.pdf).

Maurice, E. (2017): Poland ready to be EU budget net contributor, in: EU Observer, October 12, 2017 (https://euobserver.com/economic/139415).

Research and Innovation

#24

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
6
The Polish system for research and development (R&D) has been significantly restructured since 2010. Science and higher-education reforms in 2010 and 2011 spurred significant changes, including a move toward more competitive funding, the creation of two R&D agencies respectively for applied and basic research, and efforts to tackle fragmentation by focusing funding on the best-performing institutions. In July 2012, the first six national leading scientific centers (KNOW) were selected. In its first year in office, the PiS government initiated further measures to foster research at Polish universities and stimulate cooperation between universities and business. In its second year, the government’s focus rested on expanding tax incentives for R&D and startups, and on simplifying patent procedures. The amount of tax-deductible R&D spending was has increased to 30-50% depending on the size of the company. In addition, the period in which companies may deduct these costs was been expanded from three to six years. In May 2017, Minister of Science and Higher Education J. Gowin announced the creation of a National Institute of Technology (NIT), which will bundle the work of 35 existing research institutes. Despite these changes, R&D spending in Poland, both public and private, is still relatively low. Partnerships between universities and business have grown, but are still highly dependent on EU funds and personal connections.

Global Financial System

#28

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial Markets
6
Poland has not been an agenda-setter with regard to the regulation of international financial markets and this has not changed with the current government. Poland’s previous PO-PSL government supported the idea of a financial-transaction tax, but opposed that of an EU banking union, PiS has a similar or even more nationally oriented stance in this respect. Poland’s financial sector has remained stable despite rapid expansion, as various stress tests have demonstrated. A new act on macro-prudential supervision over the financial system went into effect in November 2015 that widens the mandate of the Financial Stability Committee.
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