Warsaw, 25^th September 2019

 

POSITION OF THE UNION OF ENTREPRENEURS AND EMPLOYERS ON THE
DRAFT STATE BUDGET FOR 2020

 

The draft budget act for the year 2020 is definitely a historical project. For the first time after 1989, the government proposed a balanced budget, i.e. one in which the sum of revenues is equal to the sum of expenses. The lack of a planned budget deficit is an unprecedented phenomenon that should be assessed definitely positively. Thus far, a deficit amounting to tens of billions of zlotys was an almost certain element of every subsequent state budget. It is admirable, therefore, that with such extensive social policy, the government managed to balance revenues and expenses. This is also important because in the last few years, which were a period of excellent economic situation, subsequent budgets were characterised by relatively small, albeit still deficits.

At the same time, other European countries, such as Germany, were generating budget surpluses. We clearly assess the break up with this kind of “tradition” of having a budget deficit positively, and consider it a great step in the right direction in the general discussion on national financial management. By respecting the rule of expenditure and preparing a budget without a deficit, the government sent a clear signal, also crucial from the point of view of subsequent teams in power, that we should spend as much as we “earn” from taxes and other sources, or at least minimise the deficit. At the same time, at least a few sources of budget revenues that have helped formulate a balanced budget remain dubious. Some aspects of it may be of concern to entrepreneurs.

The planned abolishment of the so-called 30-fold limit has to be assessed negatively. Until now, an employee who generated an income higher than 30 times the forecasted national average remuneration over the course of a year, after reaching this ‘ceiling’, stopped paying social security contributions. This construction has two reasons. First of all, we can assume that people who earn relatively well will be more likely to save their own funds for retirement on their very own. Among other things, the 3^rd retirement pillar in the form of Individual Retirement Accounts or Individual Retirement Security Accounts serves as a tool to realise this potential. The current 30-fold limit allows one to generate a certain amount of funds that can be allocated to private retirement savings. Secondly, this limit is a security measure for the Social Insurance Fund, and indirectly also for the state budget. Under the system which is currently in force, the amount of pension depends on the amount of contributions paid over the years of professional activity to the system and the life expectancy forecasted by the Central Statistical Office. Thus, theoretically, the more someone has paid into the system, the higher their pension should be.

In the case of people earning relatively high sums, such a system, without the 30-fold limit, would be burdened with the risk of having to pay very high pensions in the future. This would be dangerous not only due to the financial condition of the Social Insurance Fund (especially taking into account the current financial forecasts of the Fund), but also the state budget, because in the case in which the funds accumulated in the Social Insurance Fund are not sufficient for the current payment of pensions, the Fund is ‘fed’ by the state budget. Therefore, despite the fact that it is a separate organisational unit, its financial condition has a direct impact on the state of the state itself. Therefore, we assess the abolishment of the 30-fold limit, as we have done it many times in the past, definitely negatively. Potential revenues from the abolition of the limit are estimated at approximately PLN 5 billion. It seems that entrepreneurs would gladly accept a correction of the announcement of a budget without a deficit considering the withdrawal from this idea which is clearly harmful to Poland.

The accumulation of social programs also seems to be dangerous. While the 500+ program significantly reduced the problem of extreme poverty among families with children in Poland, at the moment we are dealing with a multitude of different types of benefits, some of which were included in the draft budget (extension of 500+ to every first child, the “Good start” program which is a sort of a package for school children and adolescents, medication program 75+), some were adopted this year (13^th retirement), and others have just been announced (13^th and 14^th retirement as annual benefits for pensioners). In the current, still good economic situation, the successful implementation of these announcements is not endangered. The danger, however, exists that when the national economy stops growing at an expected pace, the state will be willing to reach deeper into the pockets of taxpayers, counting on primarily entrepreneurs and middle class representatives to finance their proposals. One of these manifestations may be the abolition of the 30-fold limit, which had already been discussed, however, in the context of the proposals contained in the Long-Term Financial Plan, it also seems dangerous to extend the obligation to pay social security contributions for other purposes. Such an increase in labour costs, combined with an increasingly intense wage pressure (especially in the context of an abrupt announcement of a minimum wage increase), must translate into an increase in the prices of products and services, and, consequently, lower competitiveness of Polish companies.

It is not at all possible not to notice that the budget includes a significant reduction in the tax wedge consisting of several elements, i.e. exemptions from PIT for employees up to 26 years of age, a reduction in the basic PIT rate to 17%, as well as an increase in tax deductible costs. This is obviously the desired direction. The Union of Entrepreneurs and Employers has consistently supported every initiative aimed at reducing all taxes and levies resulting in a payroll burden.

It is difficult to predict how realistic the macroeconomic assumptions used by project’s authors to develop a budget remain. The almost 10% revenue increase from VAT, stable revenues from income taxes and excise duties – there is no doubt that these issues were estimated assuming that the Polish economy will not be affected by a significant slowdown. It is impossible to say now whether such optimism was justified. One must, however, take into account the fact that so far the deteriorating sentiment in the German economy has not had a greater impact on the dynamics of Polish growth.

There is no doubt that the first balanced budget after 1989 is a very good piece of information. It is difficult to accept this success be depreciated by emphasising e.g. the one-off nature of some of the funds. Of course – some of them, such as the transformation fee from Open Pension Funds or proceeds from the sale of CO₂ emission permits do not take place on a regular basis. However, we are dealing with such cases very often, from various titles, and so far this has not resulted in creating a budget in which the sum of expenses would be balanced by the sum of revenues. At the same time, criticism should be taken into account, as it would be reasonable to develop a long-term strategy for balancing state finances, taking into consideration many risks – both of temporary and strategic nature – and finding ways to neutralise them. A budget without a deficit (or with a minimal deficit) should not be an exception in the long, multiannual history of state debt, but should become a new target, a kind of a standard that any government should strive for every year.

 

Download the position: Position of the Union of Entrepreneurs and Employers on the draft state budget for 2020

Warsaw, 24^th September 2019

 

The Union of Entrepreneurs and Employers evaluates positively – 
THE ACTIONS OF THE LAW AND JUSTICE GOVERNMENT IN TERMS OF ECONOMY
IN THE PREVIOUS TERM

 

The last four years were a time of unprecedented development for the Polish economy – largely due to the fantastic economic situation in Europe, but one cannot deny the government certain successes of their own. We positively evaluate the actions undertaken by the Law and Justice government in terms of the economy – these are the basic conclusions from the report of the Union of Entrepreneurs and Employers published today.

In the period from 2015 to 2018, we ‘caught up’ to the average European GDP per capita taking into account purchasing power parity by 3.6 percentage points. The average salary increased by 15 percent, and budget revenues, thanks to growing consumption and tightening of the tax system, increased by almost 35 percent.

“These indicators are certainly quite impressive,” says Cezary Kaźmierczak, president of the Union of Entrepreneurs and Employers. “The level of wealth of the Polish people increase over the past four years and that is an undeniable fact. Of course, we experienced the best economic situation in Europe in that period since the times immediately preceding the economic crisis, but the government cannot be denied its merits. The development of the economies of other European countries is a favourable circumstance, but insufficient on its own”.

According to the Union’s experts, within the last four years, one of the objectives set by Law and Justice was achieved: to increase the standard of living of the Polish people. In some respects, however, the summary of their four years in power is slightly worse.

“According to strategic and program documents of the ruling party, the transformation of the Polish economy into an economy based on knowledge and investments was supposed to be the government’s key achievement,” emphasises Marcin Nowacki, vice president of the Union. “Unfortunately, the investment rate in 2018 was significantly lower than in 2015, the share of high technology exports in total exports also decreased. The government talked a lot about the industrial revolution 4.0 and modern re-industrialisation, but the results of hitherto efforts to transform the economy are dissatysfying”.

The Union’s experts point out that it is a difficult task to unambiguously assess how the rule of Law and Justice influenced the regulatory environment for Polish entrepreneurs. Based on international rankings of recognised institutions, it is hard to draw any constructive conclusions – in some rankings, such as Doing Business, our position decreased; in others – such as Paying Taxes, it increased.

“One can say that for every good regulation introduced by the government over the last term, there was one bad regulation,” claims Jakub Bińkowski, the Union’s Secretary of Department of Law and Legislation. “Undoubtedly, adopting the Constitution for Business or subsequent deregulation packages were a success. At the same time, however, provisions closing the market were introduced, such as the ‘pharmacy for a pharmacist’ rule, or increasing the level of fiscal burdens, e.g. solidarity levy establishing a de facto third tax threshold”.

The main conclusion from the report is that Law and Justice managed to achieve their basic goal, i.e. increasing the level of Poles’ wealth, but they neglected modernising the Polish economy. As a result, the threat of the “medium development trap”, which was already mentioned in their political program in 2014, remains valid.

“The indicators speak for themselves: the last four years in terms of the economy were good. An equal number of regulations beneficial and disadvantageous from the business point of view were introduced. The strategic goal of transforming the economy was not achieved, but it is a hard task to execute during only one term. It seems that an adequate assessment of this government’s economic policy is B on a school scale,” sums up Cezary Kaźmierczak.

 

Download the report: 4 years of Law and Justice in power and the economy

Warsaw, 12^th September 2019

 

Entrepreneurs’ evaluation: raising the minimum wage has the greatest impact on business operations

 

The Union of Entrepreneurs and Employers together with Maison & Partners asked Polish entrepreneurs what their evaluation of the government’s individual actions is and how these actions affect their businesses. Entrepreneurs declare that it is the increase in the minimum wage what will among other things impact their businesses the most. At the same time, the government’s actions in this area are among the worst rated. Most importantly, the study was conducted before the ruling party, Law and Justice, made its plans regarding the increase public.

The survey was conducted by the Union of Entrepreneurs and Employers together with Maison&Partners among Polish entrepreneurs. In its first part, Polish companies were asked to present their perception of the impact of the political and economic situation on running business activity.

In spite of the emerging symptoms of the economic slowdown predicted by entrepreneurs (the Union’s “Busometr” survey for the 2^nd half of 2019), companies still perceive the general internal and global economic situation better than specific phenomena appearing on the horizon.

According to Polish companies, the government’s economic policy, and in particular the uncertainty of tax and economic law, have the most significant impact on their functioning. Even more pessimistic, entrepreneurs evaluate poorly the activities executed by the government in this area. Looking at the data gathered, one can also conclude that the Polish business environment is awaiting the results of the coming elections to the Polish parliament. In their opinion, the autumn elections may significantly affect their business operations.

Interestingly though, Polish companies do not perceive the ongoing Brexit process as an important factor that may disrupt their operation. The study showed that there are other changes in the external environment that are seen as more disturbing.

The Union of Entrepreneurs and Employers also asked Polish companies to express their opinion on the legislative changes, both already implemented and only announced, by the Polish government. The greatest impact on the functioning of enterprises would have the simplification of the taxation system and – in a negative way – raising the minimum wage. This last issue has also become extremely important in face of recent announcements of Law and Justice regarding a significant increase in minimum remuneration. One should stress that the Union’s study was conducted in July this year, that is before the announcements of plans for significant changes in this respect were made.

Legislative changes that the government has already implemented in recent years, however, do not seem to have such a significant impact on businesses as expected. The study showed that entrepreneurs did not strongly feel the impact of the amendments introduced, among others the act on payment gridlocks, reducing the CIT rate to 9%, changes in the Open Pension Fund system or introducing Employee Capital Programs. Exemption from Personal Income Tax for persons under 26 years of age is only in force since 1^st August this year, so entrepreneurs during the July survey did not yet feel the impact of these changes on their operations.

Entrepreneurs were also asked about their assessment of legal changes for business. Preferential rates of contributions to the Polish Social Insurance Institution (ZUS) and of Corporate Income Tax are well perceived by Polish companies as well as – despite only a moderate impact on business – the act on payment gridlocks. Companies evaluate every activity intended to simplify the tax system well.

On the other hand, the changes in the Open Pension Fund system, the implementation of Employee Capital Programs, the controversial PIT exemption for selected incomes of people under 26 years of age or plans to abolish the 30-fold limit for social security contributions are evaluated by entrepreneurs badly. The lowest-rated solutions also include raising the minimum wage. At this point, one must again stress that the surveyed entrepreneurs were not yet familiar with the “bold” plans of Law and Justice in this respect.

“Business operations vs the political and economic situation” is a study of the entrepreneurs’ perception and evaluation of new legislative solutions and the impact of the political and economic situation on conducting business operations in Poland. The study is a new project of the Union of Entrepreneurs and Employers and Maison&Partners.

The study was executed using the CAWI (Computer Assisted Web Interviews) method – an online survey panel. Sample size N = 609. The survey was carried out in July 2019.

The survey’s sample structure is representative for enterprises in Poland according to company size (micro, small and medium enterprises).

 

12.09.2019 Survey by the Union of Entrepreneurs and Employers: Business operations vs the political and economic situation

 

Fot. kschneider2991 / pixabay.com

Warsaw, 11^th September 2019

Position of the Union of Entrepreneurs and Employers on the announcement of the introduction of proportionality in Social Insurance Institution contributions for entrepreneurs

Out of all the postulates that were announced at the party convention of Law and Justice (Prawo i Sprawiedliwość) last Saturday, the announcement to make the amount of social security contributions for entrepreneurs depend on their income raised the biggest concern. This would entail a surge in burdens for an enormous number of entrepreneurs in Poland, including relatively well-paid freelancers and other representatives of the still weak middle class. We are therefore very relieved at the explanations of Jadwiga Emilewicz, the Minister of Entrepreneurship and Technology, according to which the proposal to change the rules for determining the amount of contributions to the Social Insurance Institution is only aimed at entrepreneurs with low incomes and currently benefiting from the preferences of the so-called “small social insurance”.

It goes without saying that for developed, well-functioning businesses, the flat-rate “social insurance” is a favourable model. Thanks to this solution, entrepreneurs with higher incomes pay contributions proportionally lower than full-time employees. Its justification is quite obvious – entrepreneurs themselves are responsible for paying the premiums, bear the risk of running their businesses themselves, and are also more willing to save funds on their own or to invest them.

The flat-rate social insurance has so far been a problem for two groups of entrepreneurs. Those who are just starting to run a business constitute the first group. The prospect of paying a fixed premium every month, regardless of whether it was possible to generate any income in a given period, has led many people away from starting their own business, and forced others to close down their business. However, this problem has basically been virtually eliminated, as entrepreneurs can pay social security premiums on preferential terms for 24 months (with a much lower contribution assessment basis), and they do not have to pay any social security at all for the first six months of running their business (they only have to cover health insurance premiums). As a result, newly established companies have two and a half years to reach the level of development that will allow them to pay social security contributions in full. It seems that this is more than enough time to determine whether a given business idea is right in a given market reality.

The second group of companies for whom a flat-rate social security is a problem are enterprises run “to be kept alive”, which by nature generate low income. They include all small services, people running economic activity not because they want to test themselves in business, but as a kind of substitute for a full-time job. The introduction of the so-called “small social insurance” which makes the amount of premiums paid dependent on the revenues generated would be key from their point of view. The Union of Entrepreneurs and Employers was in fact the initiator of the discussion to amend the model of premiums for the smallest companies. According to our original proposal, companies generating low revenues should be taxed with a uniform income-proportional levy covering social security premiums, health premiums and personal income tax. The legislator chose a slightly different and more complicated solution. As part the “small social insurance”, the entrepreneur calculates the average monthly revenue for the previous year and uses a special multiplier announced by the president of the Social Insurance Institution, thus obtaining the amount on which the premium is based. The system is constructed so that the lowest contribution basis is equal to the preferential contribution basis in force for the first 24 months of running the company.

We are relieved that the declaration that the modifications of the social security premiums towards proportional and income-dependent social insurance will concern the smallest activities covered by small social insurance. The social security system for entrepreneurs should be a combination of a lump sum applicable for developed companies with solutions aimed at proportionality of contributions for the smallest of companies. Thus the government’s declared direction of changes is correct.

To sum up, we would like to emphasise that any discussion about proportional social security contributions for all companies is extremely dangerous and potentially connected with a radical increase in levies imposed on Polish companies. It is, therefore, very good that the government is not planning any actions in this direction. At the same time, we share the diagnosis according to which a modification of the small social insurance model is necessary. We believe that in its present form it is imperfect. An unambiguous discussion whether it would be an adequate measure to replace the revenue-based mechanism with an income-based mechanism can only take place when the draft bill is made public. Regardless, we will soon publish our own amendment proposal addressing this area.

 

11.09.2019 Position of the Union of Entrepreneurs and Employers on the announcement of the introduction of proportionality in Social Insurance Institution contributions for entrepreneurs

Warsaw, 9^th September 2019

First symptoms of an economic downturn among entrepreneurs: the worst ever disposition towards investment, further optimism on the labour market

The index measuring entrepreneurs’ mood “Busometr” for the second half of 2019 amounted to 48.8 points (a decrease from 55.6 points in the previous half-year), which means that Polish entrepreneurs’ mood is deteriorating. There is still optimistic sentiment in the labour market segment of the index (57.1 points), but we have a complete decline in investments – 35.4. This is the lowest ever result in the history of the survey (since 2011) carried out by the Union of Entrepreneurs and Employers among entrepreneurs from the small and medium-sized enterprises sector.

Entrepreneurs from the manufacturing and trade sectors show the least worries about the economic situation over the next six months (in their case, the index reached 56.9 points and 50.7 points, respectively). On the flipside, entrepreneurs operating in the service sector show rather pessimistic moods (the value of the index here is 45.8 points).

The overall value of the Busometr Index was influenced, among others, by the “economic situation” component, which currently comes to the level of 49 points – a decrease can therefore be observed compared to the previous half-year when the value of the component was 55.2 points. As many as 31% of entrepreneurs expect the economic situation to worsen, whereas 42% assume that there will be no significant changes. The remaining part (27%) believe that the situation will improve.

“These may – but not necessarily – be the first symptoms of an economic downturn,” says Cezary Kaźmierczak, president of the Union of Entrepreneurs and Employers. “Entrepreneurs’ expectations that the economic situation will deteriorate after the boom we experienced are somewhat natural, especially since the mood indices of our neighbours to the West are getting worse. However, I’d like to emphasise that 69% of entrepreneurs claim the economic situation will not change significantly or even improve. It is therefore difficult to talk about fatalistic moods.”

Regardless of the size, region, sector and seniority of the company on the market, the mood of entrepreneurs in the area analysed within the “labour market” component is at an optimistic level (57.1 points). In the case of “remunerations”, the barometer reached 58 points, with 25% of entrepreneurs declaring an increase in remunerations. In terms of “employment”, 22% of respondents plan to increase it.

However, entrepreneurs’ moods are not that optimistic within the “investment component” – the latest reading is 35.4 points (a decrease by 9.6 points in relation to the previous Busometr survey). As many as 43% of respondents declare that they will invest in the next six months, while 57% do not plan any new investments. Small enterprises and those operating within the production sector are most optimistic about activities in this area. Micro-enterprises are far from making investment plans.

***

Busometr ZPP – the Index of Economic Mood in SME Sector is an economic index showcasing the level of optimism in small and medium enterprises, and their plans for the next six months.

Three components affect the index: (1) the economic situation, (2) labour market (remunerations and employment) and (3) investments.

A value within the range of 0-100 is assigned to each component.

The Union of Entrepreneurs and Employers along with Maison&Partners conduct the research among a representative group of small and medium enterprises (up to 250 employees). Busometr ZPP is published every six months.

The survey is carried out since 2011.

 

09.09.2019 Busometr Index. Forecast for the 2^nd half of 2019

 

Fot. 6689062/pixabay.com