Aleksander Łaszek, chief economist at a liberal think-tank Forum Obywatelskiego Rozwoju ( Forum for Civic Development), and Marek Rozkrut, chief economist at EY Poland, held the stage and offered differing accounts of the government record so far and diverged on the matter of forecasting. Their evaluation ranged from discouraging to cautious.
Łaszek started off with a rather gloomy tour d’horizon: China (and especially its economic slowdown), Brexit and the rise of populism in politics are the three key problem areas on the global or pan-European scene. In Poland, growth is increasingly falling at less than twice that of 2004/2005 ( from 5.5 per cent to 2.6 per cent). Demographic changes (falling trends in population) and productivity are showing signs of a slide. In short, Poland is simply not catching up to the Western, especially German levels.
Grey economy – blight of Poland’s economy
Łaszek pointed out that as far as productivity goes, Poland operates with very efficient enterprises co-existing with the very inefficient; especially marked in enterprises employing less than ten persons.
How do they survive – they move into the ‘grey economy’. The grey sector and its reduction were a leitmotif of Łaszek’s and of the seminar as a whole. Small enterprises, fearing uncertain times ahead prefer to exist in this zone and be elastic and responsive. Large companies generate more tax income – the small go into the grey economy.
Public finances – it’s the structure
There is a structural deficit in the budget – one of the largest in the EU. Social security, cutting down on scroungers, debt servicing and education have all been areas of retrenchment since 2007/2008.
Then there is a huge VAT gap, one of the largest in the EU (including the Balkans, Greece, and Italy) that has to be addressed. VAT is a sensitive indicator of falling GDP but the figures for collected revenues lag behind the main indicators. The VAT gap is real and needs to be tightened they agreed, as currently it stands at the seventh highest in Europe at PLN 39bn.
First anniversary review – from cradle to wallet to pension
The government’s flagship child benefits program ‘500+’ as an ambitious redistributive scheme to give to the second and subsequent child PLN500 (EUR116) per month has a negative influence on development, despite the social aspects to help the poorer members of society and to help kick start a falling birth-rate. It will take up a 1,2 per cent increase of GDP.
The lowering of the retirement age (going against the general European grain) will bring 800,000 workers per year more into the pension zone against a backdrop of Poland being one of the fastest- ageing societies in Europe.
According to Łaszek, OECD figures put state intervention as one of the highest in Europe, with the Polish state increasingly reliant on taxing the financial sector (eg. the bank tax) which is still relatively unsaturated. But the presence of State in the financial sector is increasing especially through state-owned companies. The bank tax will penalize medium and small firms as the larger banks will absorb and pass on costs to their customers.
Other projects such as Sunday trading restrictions will favor the least productive whilst penalizing the more productive. Łaszek’s also thinks that there is not enough medium-sized companies, Poland lacks support for family firms, and needs greater access to information about export markets.
Another issue is an amalgamation of PIT and ZUS (personal income tax and social security contributions). It may be more efficient but Łaszek sidestepped the issue of whether the taxpayer would find this a popular move or would this be just another thick layer of state bureaucracy?
There will be an increase in expenditure over the next two years and a tightening in 2018/2019, unlikely as these are election years. This is why Łaszek sees Poland increasing its debt whilst other countries are reducing theirs.
The structural problems will be exacerbated but the ‘500+’ program and the lowering or the retirement age, and the Maastricht threshold may be breached in two years, as may be the constitutional threshold on limiting the level of public debt.
Can two economists agree?
Rozkrut’s comments were less gloomy. Poland had grown 28 per cent since 2005-2105, the largest growth in the EU. Projections to 2020 are still favorable so public debt management is feasible.
The rising deficit 51.3 per cent, 52 per cent, 52.7 per cent of GDP over the past three years is still under EU limits. For the working population the demographic is flat, but nonetheless by 2060 he recognized that Poland will have moved from being one of the youngest to one of the oldest European societies. The main risk as he saw it, is a slowdown due to the slowdown in Poland’s trading partners, ie. Germany.
The switch to a cashless society of 12.4 per cent of GDP in 2014 (from a high of 19 in 2004) was praised by both economists chiefly as means of eliminating the grey economy, but the civil liberties implications were conveniently omitted. Eliminating the grey economy and tightening fiscal revenues were the areas of most agreement.
The two economists argued their cases co-gently and given that FOR is not exactly pro-government, politically dispassionately.
For a full video click here.