The Polish tax system is strong enough to dominate the citizen and too weak in pursuing criminals, but this is slowly changing and Poland’s government has some successes in fighting tax fraud.
The speakers at mBank-CASE seminar were united on one point – the Polish tax system is cumbersome, over-complicated, open to abuse and weak. The private citizen is in fear of a soulless and arbitrary bureaucracy that interprets the tax law in often a capricious and unclear manner leading to higher administrative costs for the citizen. Professor Stanisław Gomułka of the Polish Academy of Sciences said that it is strong enough to dominate the citizen but too weak in pursuing criminals. The problems of the grey economy are well known, as well as the efforts of the tax authorities to plug tax gaps. And the government’s success with VAT fraud are widely recognized.
Professor Gomułka outlined the effects that a deficit in public sector spending and the relationship of public debt to GDP was having on the competitiveness of Poland (negative and long-term). Coupled with low national, personal and household savings levels, low investment levels, a demographic downturn, and a slackening in employment activity (a lower retirement age for instance), these factors may conspire against Poland and its hope for economic development in the medium to long term: the most likely outcome in the next 10-15 years would be Poland not meeting its fiscal criteria to enter the Eurozone.
Since the fall of communism, he continued, despite the many amendments in the tax law one thing has remained – a deficit in public finances averaging 4 per cent of GDP. This constant factor has led to the lowering of national savings and investment levels. The deficit policy, ProfessorGomułka stated, ran right through the 1970s and 1980s and necessitated defensive measures such as renegotiation of the national debt in the period 1991-94, as well as the more recent OFE (private pension fund) appropriation in 2013. The latter was posited as a debt repayment but financed the governments redistributive policies. In the 1990s this was not that critical since GDP rose as well, but it leaves the government, any government, with no room for anything when times get rough.
Poland largely escaped the Global Financial Crisis of 2008 because it was not exposed to the Western banking system as much as other countries. But the economists were in agreement that such a time may come, and then Poland may not be as lucky.
Remedies: Good Housekeeping and a Holistic Approach
Professor Gomułka treats fiscal policy as a whole, and it cannot be detached from other policies such as redistribution, health or education. Health and pension reform are vital and a new constitution could in future be written to allow co-financing or partial privatisation of the health services.
“Policy should be formulated to encourage the citizen to be rational,” Professor Gomułka continued. “At present, for instance, it is rational for the citizen to take the lower retirement age and burden the state. In the future, the retirement age could be abolished altogether if, for example, the citizens are encouraged by the formation of their personal retirement accounts or reform of tributions- social engineering in other words.”
Forcing People to be Rational?
Should pension savings be made compulsory and what should be the level of compulsion in a free state? The panellists advocated using a mixture of regressive and progressive taxation to achieve policy goals. Fiscal policy should be a handmaiden of social policy rather than an end in itself.
Professor Gomułka argued that it is important to learn from others: sales taxes American style could be handled on a voivodship (regional) level. Property taxes, as in the UK, could be administered by local municipalities. Green taxes, the London’s congestion charge model, could be introduced.
Jacek Neneman of Warsaw’s Łazarski Institute and Michał Myck of the Centre for Economic Analysis proposed further chyanges, such as merging private tax contributions with social security payments, reforming or even abolishing the tax exemptions for farmers by allowing them to utilise farm buildings for business purposes and then to levy a tax on that, which would be a more efficient way to bring in an income, they argued.
The panellists agreed that paying taxes may never be cool or sexy but there is a need of better economic education. Then there is a chance that Poles would become active citizens who are willing to pay taxes as their subscription to civilisation.