Poland

   

Economic Policies

#28
Key Findings
Despite policymakers’ effective response to the challenges of the pandemic, Poland falls into the lower-middle ranks (rank 28) in the area of economic policies. Its score on this measure has improved by 0.2 points relative to 2014.

Poland’s economy fared reasonably well under COVID-19. Real GDP fell by just 2.5% in 2020, and recovered strongly in 2021. Government stimulus measures and accommodating monetary policies helped mitigate the output decline. Inflation has accelerated since 2021.

The unemployment rate did not increase in 2020, though regional variations persist. The minimum wage has been raised substantially. Labor shortages have become a pressing issue. Pandemic-era spending pushed state debt up sharply, to above 57% of GDP. Deficits are again on the decline.

A new tax policy went into force on 1 January 2022. The reform was overcomplex, and was amended frequently, leading to chaotic implementation and turning into a PR disaster. Many low-income employees’ net incomes dropped. Tax incentives for R&D and startups have been expanded, but innovation capacity remains comparatively low.

Economy

#34

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
6
In the years before the COVID-19 pandemic, the Polish economy was characterized by high and stable rates of GDP growth. Economic growth was largely driven by growth in personal consumption, which was boosted by a strong increase in social transfers, good labor market conditions, low lending rates and moderate inflation. When the COVID-19 pandemic hit, the Polish government reacted quickly and comprehensively in order to limit the economic fallout. From March to December 2020, it adopted a series of six “Anti-Crisis Shields.” The government’s stimulus measures, along with the Polish National Bank’s accommodating policies, helped mitigate the output decline. Real GDP declined by a mere 2.5% in 2020, much less than in most OECD and EU countries, and recovered strongly in 2021. As elsewhere, inflation has accelerated since 2021.

In May 2021, the Morawiecki government presented a new economic reform package (Richter 2021). The “Polish deal” (Polski Ład) has envisaged a comprehensive tax reform, new family benefits, increased spending for the healthcare sector and additional public investment. Aimed at attracting voters ahead of the 2023 parliamentary elections, the package has been criticized for the massive additional spending commitments, the higher tax burden for entrepreneurs and the middle class, and the vague investment plans (Richter 2021). The controversies over the package have intensified the rifts within the governing coalition, and led to the sacking of minister of economic development, labor and technology, and Deputy Prime Minister Jarosław Gowin in August 2021. The implementation of the new tax rules in early 2022 resulted in chaos (Makowski 2022). Already in November 2021, the government reacted to soaring inflation by announcing a first anti-inflation shield, consisting of tax and excise reductions on fuels and electricity, and vouchers for lower income households.

Citations:
Makowski, M. (2022): The Polish Deal: how a landmark tax reform has turned into a PR disaster for the government, in: Notes from Poland, January 23 (https://notesfrompoland.com/2022/01/23/the-polish-deal-how-a-landmark-tax-reform-has-turned-into-a-pr-disaster-for-the-government/).

Richter, M.M. (2021): Konsum, Konservatismus und Staats-Kapitalismus - die PiS beschließt die sozio-ökonomische “Polnische Ordnung”, in: Polen-Analysen, Nr. 284, 2-6 (https://www.laender-analysen.de/polen-analysen/284/PolenAnalysen284.pdf).

Labor Markets

#25

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 since 2013. Unlike in most other OECD and EU countries, the unemployment rate did not increase in 2020. However, regional variations in (un-)employment, both between and within regions (voivodships), have been strong and persistent. Temporary employment contracts represent another problem, as Poland still has the highest rate of such agreements in the European Union. The PiS government has done little to foster the labor market integration of young people (unemployment disproportionately affects 15–24 year olds), lower-skilled workers, and women. The tax exemptions for young people who earn below PLN 85,528 per year, introduced in 2019, have not turned the tables and the government’s generous “500+” child allowance policy has even contributed to the withdrawal of over 100,000 women from the labor market.

The government’s main labor market reform project aims to increase the minimum wage. Following strong rises in the past, the minimum wage was further increased from PLN 2,250 per month (PLN 14.70 per hour) in 2019 to PLN 2,800 per month in 2021. 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.

As a result of the COVID-19 pandemic, the labor shortages in some parts of the country and for some professions have become an even more pressing issue. A huge influx of people from Ukraine and Belarus, who have received work visas in order to fill low-skilled job vacancies in sectors where there is a shortage of domestic workers, cannot fully compensate for this gap. In October 2021, around 634,000 Ukrainians were registered with the Social Insurance Institution. This is more than five times more than in 2015. It is estimated that another 1.5 million Ukrainians work illegally in Poland. For Belarussian citizens, the second-largest group of foreign workers in Poland, around 16,500 working permits were issued in the first half of 2021.

Taxes

#31

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

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
5
The PiS government’s tax policy has followed a political logic and has sought to favor those groups which PiS considers to be their loyal voters, especially pensioners, households with lower incomes and families. This also applies to the comprehensive, but poorly prepared tax reform that was adopted as a key element of the “Polish Deal” in May 2021 and went into force on 1 January 2022 (Harper 2022; Makowski 2022; Richter 2021).

The adopted measures have included a substantial increase of the tax-free income tax allowance up to PLN 30,000 (€7,000), a reduction in the lower personal income tax rate from 18% to 17% and an increase in the threshold for the higher personal income tax rate of 32% from PLN 85,528 to PLN 120,000. However, the lowering of the income tax burden associated with these measures has been partly compensated for by changes in the treatment of contributions to the health insurance scheme. Before the reform, the bulk of these contributions, which reach 9% of gross income, were deductible from the income tax. From 2022, this will no longer be possible. As a result, the actual personal income tax burden will increase for people who earn more than PLN 13,000 per month.

The new tax treatment of health insurance contributions has also led to a higher tax burden for the self-employed. To limit the additional tax burden, the government has adopted a number of patches that have further increased the already high complexity of the Polish tax system. The same applies to the newly introduced 1% minimum tax on revenues of large enterprises, which is supposed to enter into the health insurance fund but does not include all enterprises. Energy, aviation and mining companies (i.e., sectors in which state-owned enterprises dominate) are exempt.

As the tax reform has been amended frequently, often at short notice, its implementation at the beginning of 2022 has ended in chaos and has turned into a PR disaster for the government (Makowski 2022). Accountants have faced the slog of interpreting shifting rules and the net income of many low-income employees in fact dropped rather than rose in January.

Poland has relatively high environmental taxes, as compared to other EU member states. A fuel tax called an “emission fee” has been used to combat smog. However, only a small proportion of revenue from environmental taxes is used to promote environmentally friendly behavior. Most environmental taxes are energy-related, but energy-intensive industries benefit from exemptions. In 2019, the excise duties on energy were lowered and energy prices administratively controlled, with the state compensating energy producers for potential losses.

Citations:
Harper, J. (2022): Polish populists go progessive on tax, Deutsche Welle, January 31 (https://www.dw.com/en/polish-populists-go-progessive-on-tax/a-60552805).

Makowski, M. (2022): The Polish Deal: how a landmark tax reform has turned into a PR disaster for the government, in: Notes from Poland, January 23 (https://notesfrompoland.com/2022/01/23/the-polish-deal-how-a-landmark-tax-reform-has-turned-into-a-pr-disaster-for-the-government/).

Richter, M.M. (2021): Konsum, Konservatismus und Staats-Kapitalismus - die PiS beschließt die sozio-ökonomische “Polnische Ordnung”, in: Polen-Analysen, Nr. 284, 2-6 (https://www.laender-analysen.de/polen-analysen/284/PolenAnalysen284.pdf).

Budgets

#20

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
Benefiting from strong economic growth and higher-than-expected revenues, the PiS government succeeded in bringing down the general government fiscal deficit from 2.7% in 2016 to 0.2% in 2018. Despite strong revenues, the fiscal stance slightly deteriorated in 2019 with the deficit climbing to about 1,0% as a result of spending increases in the run-up to the 2019 parliamentary elections. The government’s budgetary response to the COVID-19 pandemic and the resulting increase in public debt were substantial. The revised 2020 central budget, approved by the government on August 20, targeted a central government deficit of 4.9% of GDP and a general government deficit of 12% of GDP, compared with a balance in the original budget. The 2021 budget, as adopted in December 2020, still assumed a general government deficit of 6% of GDP. At the end, however, borrowing needs turned out to be lower. The 2022 draft budget foresaw a decline in the general government fiscal deficit to 2.8% of GDP (Pogorski 2021).

The government’s budgetary response measures have suffered from a lack of transparency. First, the various anti-crisis shields have been amended several times. Second, the government has stuck to its strategy of channeling an increasing proportion of spending through special funds outside of the official budget. Many of the anti-crisis measures have been off budget, financed by the state development bank Gospodarstwa Krajowego (BGK) and the Polish Development Fund (Polski Fundusz Rozwoju, PFR). Third, Poland’s fiscal framework has remained 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 member states, still does not have an independent fiscal council.

The medium- and long-term fiscal outlook is clouded by the strong increase in social spending and the lowering of the retirement age under the PiS government. Moreover, the government strongly banks on massive EU transfers, which might decrease if cuts in transfers are embraced by the European Commission as a penalty for violating EU law.

Citations:
Pogorzelski, K. (2021): The 2022 Polish budget is less expansionary than expected. ING, (https://think.ing.com/articles/the-2022-buget-bill-less-expansionary-than-expected/).

Research, Innovation and Infrastructure

#26

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 PiS government has continued the restructuring of Polish R&I, which had begun under the previous government in 2010 (Fabijańska 2021; Stasik et al. 2020; Fabijańska 2021). Jarosław Gowin, the minister of science and higher education from 2015 to 2020, sought to strengthen university-led research through his “constitution for science” and an initiative to promote research-oriented universities. Ten universities were selected and awarded a 10% increase in funding for 2020–2026. The Łukasiewicz Research Network has bundled 39 institutes that lead research in applied industrial development and commercialization. Under the PiS government, the increase in public R&I spending has continued (Fabijańska 2021: 4). The PiS government has also expanded tax incentives for R&D and startups, and simplified patent procedures. The amount of tax-deductible R&D spending has increased to 30–50%, depending on the size of the company. In addition, the period in which companies may deduct these costs has been expanded from three to six years.

The COVID-19 pandemic has further underlined the importance of R&I. The government’s direct measures to tackle the pandemic in 2020 focused on the promotion of telemedicine and the development of two apps, one for contact-tracing (ProteGO Safe), one for checking quarantine behavior (Kwarantanna Domowa). The government has also sought to accelerate the digitalization of the country. In July 2021, Przemysław Czarnek, the minister for science and education since October 2020, launched the program “science for society,” which aims to promote the collaboration of universities and research institutes. It provides funding for projects between PLN 100,000 and PLN 2 million for a duration of two years.

Despite these measures and some improvements, the innovation capacity of the Polish economy has remained relatively low. In the European Commission’s European Innovation Scoreboard, Poland still ranks in the lowest category (“emerging innovator”) and continues to trail most other EU member states, including regional peers such as Czechia, Hungary, Lithuania and Slovakia (European Commission 2021).

Citations:
European Commission (2021): European Innovation Scoreboard: Innovation performance keeps improving in EU Member States and regions, Brussels, June 21 (https://ec.europa.eu/commission/presscorner/detail/en/IP_21_3048).

Fabijańska, A. (2021): Organization of R&I and Higher Education in Poland. Paris (https://www.euro-case.org/wp-content/uploads/Eurocase/PDF/platform_poscovid/platform-post-covid_100921_AFabijanska.pdf).

Stasik, A., A. Dańkowska, N. Kobza (2020): Responsible Research & Innovation in Poland. dia-e-logos, Discussion Paper 03/2020. Barcelona (http://dia-e-logos.eu/Papeles/RRIL-IO-1%20Report_RRI%20in%20Poland.pdf).

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 System
5
Poland has not been an agenda-setter concerning the regulation of international financial markets and this has not changed with the PiS government. Since Poland is not a G20 member and initiatives to include the so-called emerging economies, such as the G22 or G33 groups, did not prevail for long, the country is not a big player on the international level. In the EU realm, the PiS government opposes the idea of a European banking union due to its nationally oriented stance of monetary policy. However, the country’s financial sector has remained stable, despite the rapid expansion, as various stress tests have demonstrated. The Financial Stability Committee is in charge of macroprudential supervision since 2015.
Back to Top