Poland

   

Economic Policies

#26
Key Findings
With strong growth despite longer-term sustainability concerns, Poland falls into the lower-middle ranks (rank 26) in the area of economic policies. Its score on this measure has improved by 0.3 points relative to 2014.

GDP growth has continued to be strong, showing a gain of about 5% 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, and a Brexit in the United Kingdom, the country’s second-largest export market, is likely to undermine future growth rates.

Unemployment rates have fallen sharply in recent years, reaching 3.9% in 2018. The government has focused on minimum-wage increases rather than on integrating youth, less-skilled workers and women into the labor market, or decreasing the still-widespread use of temporary employment contracts. Regional unemployment-rate variations are large.

A number of new tax changes have been introduced, including a “solidarity tax” for high-income earners, an “exit tax” on companies and wealthy individuals, and a fuel tax. The corporate-income tax rate for small companies has fallen. The deficit has declined below 1.5%, but longer-term fiscal-balance concerns remain. Public and private R&D spending levels remain far below the Europe 2020 target.

Economy

#23

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 5% in 2018, 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 moderate 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. Economic growth rates are likely to suffer somewhat as a result of the upcoming Brexit. Accounting for 6.4% of all exports, the United Kingdom is Poland’s second-largest export market, and a large portion of the remittances from Poles working abroad comes from the United Kingdom.

Citations:
European Commission (2019): Country Report Poland 2019. SWD (2019) 1020 final. Brussels (https://ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-country-report-poland_en.pdf).

Labor Markets

#28

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 3.9% in 2018, a historic low since 2008 and one of the lowest such rates in the EU. The employment rate has slowly but constantly increased during the last years and has now nearly reached the EU-28 average. 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 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. Since the PiS government’s introduction of the generous “500+” child allowance policy, it is estimated that over 100,000 women have withdrawn from the labor market. The government’s main reform project in the field of labor-market policy has been the increase of the minimum wage. Following strong rises in the past, the latter was further increased from PLN 13.70 per hour and PLN 2,100 per month in 2018 to PLN 14.70 and PLN 2,250 in 2019, a rise of more than 7%. 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 shortages have become an increasingly pressing issue, and the decrease in the pension age will contribute to an even lower labor-force participation rate, especially among women. The new EU workers’ directive, which stipulates that posted workers be paid the wages of the sending country after 12 months, has been opposed by the Polish government without success. A total of 22% of all posted workers across Europe come from Poland.

Taxes

#31

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, the extent of red tape and the instability of tax provisions 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 2018, the government adopted a number of diverse tax changes that will take effect in 2019. To start with, it introduced three new taxes: a “solidarity tax” for high-income earners, an “exit tax” on companies and wealthy individuals, and a new fuel tax called an “emission fee.” The revenues from the “solidarity tax” are earmarked for financing the Solidarity Fund for Support of Disabled Persons, which was created after protests by disabled people in May 2018 that drew considerable public attention. The revenues from the new fuel tax are targeted as well, and will be used for combating smog. At the same time, the government adopted some changes related to the withholding tax system and the taxation of profits derived from cryptocurrencies. It additionally lowered the corporate-income tax rate for small companies from 15% to 9%, simplified transfer pricing rules and created new tax incentives.

Citations:
European Commission (2019): Country Report Poland 2019. SWD (2019) 1020 final. Brussels, 20-22 (https://ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-country-report-poland_en.pdf).

Budgets

#32

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 the strong economic growth and higher than expected revenues, former Minister of Finance Mateusz Morawiecki, the current prime minister, succeeded in bringing the general government fiscal deficit down from 2.7% in 2016 to about 1.5% in 2017, a much stronger showing than originally expected. In 2018, the general government fiscal deficit declined further. However, the structural – that is, cyclically adjusted – fiscal balance has remained broadly stable since 2016, and does not meet the medium-term objective of -1% of GDP. There are also concerns about the medium-term budget developments. One reason for this is the strong increase in social spending and the lowering of the retirement age 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.

Research, Innovation and Infrastructure

#25

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 already been significantly restructured since 2010 and has included a move toward more competitive funding. Two R&D agencies respectively for applied and basic research have been created, and efforts have been made 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 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 strong reliance on tax relief has been criticized for a lack of efficiency. According to recent empirical research, such a policy might have a greater impact on the economy, but is 2.5 times more costly than additional government spending on R&D,

In May 2017, Minister of Science and Higher Education Jarosław 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 levels in Poland, in both the public and private spheres, remain far below the EU’s Europe 2020 target, the innovation capacity of the economy is low and the gender bias in the science sector is high. Partnerships between universities and business have grown, but are still highly dependent on EU funds and personal connections. The introduction of the Lukasiewicz Research Network, which began operating on 1 April 2018, and which connects research institutions and aims at commercializing research funding, represents one attempt to improve this situation.

Citations:
Brandt, N. (2018): Strengthening innovation in Poland, OECD Economics Department, Working Paper No. 1479, Paris.
Zawalińska, K., N. Tran, A. Płoszajc (2018): R&D in a post centrally-planned economy: The macroeconomic effects in Poland, in: Journal of Policy Modeling 40(1): 37-59.

Global Financial System

#26

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
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 broadened the mandate of the Financial Stability Committee.
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