Warsaw, 23^rd April 2021

 

European minimum wage – smothering the EU economy
at a key moment in overcoming the crisis

 

The Directive on adequate minimum wages in the European Union will have detrimental effects on the European labour market and economy. Furthermore, the directive may worsen the situation of the most vulnerable workers, make it more difficult for the EU to recover from the ongoing crisis, and disrupt well-functioning collective bargaining systems. These are the main reasons why the Union of Entrepreneurs and Employers, together with SME Connect and the European Enterprise Alliance, co-hosted a Round Table on the European Minimum Wage on 23^rd April.

The round table constituted a platform for the exchange of experiences and opinions for Polish and European as well as global organisations that helped shed new light on the proposals of the European Commission. The negative impact on companies affected by the crisis, the marginalisation of the most vulnerable of workers, and the growing number of people employed on the basis of other forms than a contact are merely a few of the actual effects of the directive, which are being downplayed by the Commission. That is also why the discussion covered the aspect of the Commission’s competences in the field of remuneration, the issue of the lack of a minimum wage in individual EU countries, or the impact of the directive on the competitiveness of the European economy on world markets.

Over the course of the event, a letter to EU authorities on the European Minimum Wage was published. It was addressed to the President of the European Commission Ursula von der Leyen, President of the European Parliament David Maria Sassoli and President of the European Council Charles Michel. The signatories of the appeal who object the proposal of a European minimum wage are 25 Polish and European institutions, including employers’ organisations, associations, and think tanks.

The authors of the letter firmly stressed that the European Union should remain a place of freedom and cooperation, where practices of one EU member states are not imposed in other member states. The signatories also drew attention to the fact that the proposal for adequate minimum wages in the European Union is focused on achieving political goals and fails to take into account the real effects of the regulations introduced, which will – first and foremost – negatively affect those whom the directive was supposed to help, that is, those who earn the least.

 

See more: 23.04.2021 Letter on the European Minimum Wage

Warsaw, 15^th April 2021

 

Over 30 business organisations and think tanks appeal to the government: yes to a tax wedge reform, no to choking the middle class

 

As many as 33 organisations signed an appeal to the government regarding the planned amendment of the labour taxation model. The authors of the document emphasised the necessity of a rational debate regarding the tax wedge and drew attention to the threats arising from some of the directions of changes that were postulated. Among the signatories of the appeal, there are five representative employers’ organisations, four think tanks, over a dozen industry organisations and numerous local employers’ organisations. The appeal was initiated by the Union of Entrepreneurs and Employers.

What prompted the development of the appeal were the announcements of tax changes to be included in “Nowy Ład” (“The New Order”), a strategic economic programme, the publication of which was postponed in March due to the pandemic. Among those announcements, there were an increase of the tax wedge for higher earners, along with a decrease for lower earners.

The signatories of the appeal see the need for a bold reform of the tax wedge in Poland, but stress the fact that the current model of relatively low wage taxation constituted a significant competitive advantage for our economy, and increasing the level of burden on the middle class may lead to an outflow of specialists, whose numbers are already insufficient, from the Polish labour market.

 

The full text of the appeal is presented below:
Organizations’ appeal on labour taxation

Warsaw, 19^th April 2021

 

Digital Markets Act Round Table by the Union of Entrepreneurs and Employers: how to make the DMA a “scalpel” and not a “road roller”?

 

The Digital Markets Act is a proposal presented by the European Commission for a regulation imposing additional restrictions, obligations, and bans on a group of digital companies referred to in the DMA as “gatekeepers”. Participants of the round table hosted by the Union of Entrepreneurs and Employers, which took place on Thursday, 8^th April 2021, discussed the Polish government’s position regarding the regulation, the challenges related to its possible future application, as well as the doubts related to its practical effects.

The following guests participated in the debate:

• Olga Semeniuk, Undersecretary of State at the Ministry of Development, Labour and Technology,
• Tomasz Bagdziński, Director of the Competition Protection Department at UOKiK (Office of Competition and Consumer Protection),
• Katarzyna Szymielewicz, President of the Panoptykon Foundation,
• Tomasz Wróblewski, President of the Foundation Warsaw Enterprise Institute,
• Marcin Krasuski, Government Affairs and Public Policy Manager at Google Polska.

The round table debate was chaired by Jakub Bińkowski, Director of the Law and Legislation Department of the Union of Entrepreneurs and Employers. Before the discussion began, Bińkowski gave a short presentation reflecting the Union’s approach to regulating digital markets and containing key questions regarding the DMA itself.

„We see the DMA as part of a wider regulatory landscape for the digital sector in the European Union,” said Jakub Bińkowski. “Recently, we have been observing a lot of legislative initiatives concerning this part of the economy. We doubt whether further regulation and increasing restrictions are a good direction for the development of European companies.”

In the course of the discussion, many matters were addressed, including the issue of the actual effects of the DMA on the functioning of companies from the digital sector and the usefulness of individual services, the role of national competition and consumer protection authorities in the application of regulations, or the significance of regulatory dialogue with business to clarify the content of individual obligations and restrictions included in the regulation. Cross-sectional issues were also discussed: the effectiveness of existing regulations affecting digital platforms, such as the GDPR, the approach of the European legislator to building a strong digital market, and finally, the issue of an effective regulatory framework for the management of users’ personal data.

 

The round table debate was recorded and can be viewed at your leisure. It can be viewed at: https://tiny.pl/r8vb5.

Warsaw, 6^th April 2021

Memorandum of the Union of Entrepreneurs and Employers: A uniform 5% VAT rate – rescue for the food services industry and small cost for the budget

For months, the Union of Entrepreneurs and Employers has been proposing to introduce a uniform 5% VAT rate for the entire food catering industry. Contrary to public opinion, the essence of this change is not the idea to increase the demand for these services by lowering prices. A lower VAT rate would benefit restaurateurs whose activities would become much more profitable after re-opening, which would in turn enable them to recover in spite of a lower turnover.

We believe that the discussed instrument might not only prove effective, but also – in terms of expenditure to save the economy – cheap. The estimated costs of its introduction quoted at the level of PLN 1.2-1.5 billion in the ongoing discussion refer to budget revenues from VAT in this industry in 2019, therefore this value is at present completely aberrant. With this in mind, we prepared our own econometric analysis of the real cost of implementing this highly particular reform. Depending on the assumed turnover decrease in the food services industry in 2020 (official data has not yet been published), this cost may range from PLN 350 to 700 million, with the average value being approximately PLN 500 million. Our detailed analysis is presented below.

To measure the additional positive macroeconomic effects of the reduction and unification of the VAT rate on food catering services, we propose a dynamic Keynesian, open-economy model, with two sectors – extended by distinguishing food catering services from other consumer goods. The input for the volume of revenues in the former sector are the data of Statistics Poland (Poland’s central statistical office), Local Data Bank, and revenues from activity related to food services in 2019 (Chart 1). On their basis, VAT revenues and the weighted effective VAT rate were estimated, taking into account the revenue from the sale of commercial goods, the revenue from catering production, the revenue from the sale of alcoholic beverages and tobacco products, as well as other activities.

The forecasted scenario is a shock to the effective VAT rate for catering services imposed in mid-2021.

The effects of introducing a uniform 5% VAT rate

Increase in sales of food catering services: +6,62%

Average change in gross price of food catering services: –4,36%

GDP growth: +0,10%

Household consumption: +0,16%

Budget revenues from VAT for catering services annually: PLN –0.713 billion (assuming a 40% decrease in revenues in 2020) / PLN –0.534 billion (assuming a 55% decrease in revenues in 2020) / PLN –0.356 billion (assuming a 70% decrease in revenues in 2020)

A reduction of the VAT rate, being an element of mitigating the negative sectoral effects caused by the decrease in sales caused by the lockdown and deteriorating consumer sentiment, impacts the economy in three ways. First of all, in 2022, consumption and GDP rise (0.16% and 0.10% respectively) as a direct effect of the decrease in the gross price of food catering services by 4.32% and the increase in sales of catering services by 6.62% annually. Next, the negative effects of the crisis on employment in food catering services are mitigated which is particularly important from the perspective of maintaining a relatively good economic situation. The VAT reduction proposed in the analysis raises the level of employment in the catering services sector by 4.85% in 2022 (Chart 1). And lastly, the income effect. It results from surplus cash available to households, as taxation on their consumption decreases. As a consequence, we observe an increase in consumption of other goods and an increase in household savings, which later translate into a slight increase in investment in the economy (0.01%).

Chart 1. Dynamic presentation of the impact on macroeconomic variables induced by the introduction of a uniform 5% VAT rate for food catering services from mid-2021 [Percentage changes in variables compared to the reference level].

Observing the dynamics of these variables over the course of the first years of the shock, we see a strong increase in employment and sales of food catering services. They are a result of the relatively high flexibility of the demand for such services. This value ranges from 0.8 to 1.5, and the value for Poland adopted for the purposes of the analysis is 1.157 (cf. Grotkowski, 2018).

As a result, in this particular sector, the proposed VAT reduction is a very effective tool in the short-term fight against the decline in demand due to the lockdown and deterioration in consumer sentiment. In the longer term, the average gross price of food catering services starts to rise, and then stops at a lower level than before. We see the reflection of the subsequent price increase in the subsequent upward trend following the decline in VAT revenues from the sale of food catering services.

Furthermore, it is rather noteworthy that the unification of the VAT rate will also contribute to the simplification of the whole VAT system and will positively affect it in terms of simplicity and transparency. This in turn will significantly contribute to the improvement of business conditions in the food catering services sector, which are an important group of micro-, small and medium-sized entrepreneurs. Taxing all catering services with a uniform VAT rate will facilitate the use of tax law and the correct application of its provisions in economic practice, and will thus eliminate possible abuse in this area.

 

See more: 06.04.2021 Memorandum of the Union of Entrepreneurs and Employers: A uniform 5% VAT rate  – rescue for the food services industry and small cost for the budget

Warsaw, 14 April 2021

 

The Union of Entrepreneurs and Employers’ position on the digital levy

We welcome the European Commission’s consultation on the digital levy. The consultation document recognizes the progress made thanks to digitization while highlighting the need for regulation of the digital world and placing it within the context of other EU’s initiatives. At the same time, the consultation document implies that digital companies do not contribute their fair share in taxation. Furthermore, the initiative does not provide much detail about the construction of the future tax and enumerates three potential approaches, namely a top-up tax on corporate income aimed at digital companies, a tax on revenues and a tax on digital business-to-business (B2B) transactions. There is a number of fundamental problems related to this initiative.

The first relates to the lack of a clear definition of what constitutes a digital business. According to the OECD, ‘[b]ecause the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes.’^[1] The lack of a commonly agreed definition also means that the precise scope of the future digital levy is unclear. While EU’s initiative aims at creating a level-playing field for the European companies, a tax on digital activities is very likely to burden a vast majority of them and further deteriorate their ability to compete globally. The scope of a possible digital levy should be based on a thorough economic impact analysis and not target digital companies without justification.

The second issue concerns the fact that the fairness argument is based on incorrect assumptions. In 2017, the EC has referred to a PWC and ZEW report showing that the effective average rate of digital companies is three times lower than that of traditional ones.^[2] Nevertheless, PWC has published a special note explaining that the data presented did not reflect the actual tax rate of specific companies, but only the rates tax rates on returns from investments in intangible assets, and hence they cannot be used to compare the level of taxation of digital and traditional companies.[3] Furthermore, dr. Matthias Bauer from ECIPE has researched the effective tax rates of digital and traditional corporations, which found that the traditional corporations paid slightly less tax than the digital ones (26.8% vs. 27,1%).[4]

The third point, which is in our opinion highly problematic, is the introduction of the digital levy during the ongoing crisis. The health and economic crisis caused by the pandemic of coronavirus is far from over. Regardless of its’ final construction, the digital levy will increase the costs of the digital services, which have become the primary means of work for many across the globe. Moreover, the Copenhagen Economics study has shown taxes on digitization and innovation effectively burden the SMEs and other end-users[5] Finally, it is important to note that the Commission sees digitization as an important motor of a post-pandemic recovery, while increasing the costs of digital services will slow down the recovery process.

Another pertinent point is the consistency of digital levy with other EU’s strategic objectives. The first and most important concern in this regard relates to the EU’s commitment to multilateralism. The OECD work on the digital taxation is ongoing. Particularly since the new US administration has re-engaged in the discussions, the EU’s unilateral introduction of the digital levy would undermine the OECD efforts and possibly lead to trade tensions. The second mismatch exists between the digital levy and the Tax Action Plan. The EU has pledged to create a simple tax environment to reduce obstacles for businesses in the Single Market. The digital levy, which will add a new layer to an already overly complicated system (which includes digital service taxes imposed by some countries), stands in opposition to this idea.

Finally, in our view, the three approaches to the digital levy have certain important limitations. First, a top-up tax on corporate income would have to be compatible with a variety of corporate tax systems across the EU, to including varying tax rates and deductions. Second, the tax on revenues will lead to double taxation. Introducing a tax on revenues, which have already been subject to a corporate income tax in a country where the users and merchants are based, amounts to levying an additional value added tax or excise duty. Tax on revenue can be also harmful to less profitable European businesses. Generating revenue is not equal to generating profit, hence such tax is discriminatory towards companies with smaller margins as they will bear a greater burden of the tax. Third, the tax on digital business-to-business transactions is likely to create negative effects for all market participants – digital companies selling within the EU, SMEs and consumers in particular. It is important to keep in mind there is a number of reforms in the field of digital B2B transitions already underway and putting forward digital levy would further complicate the system.

In brief, the EU should support reaching a globally agreed solution at the OECD to reform the international tax framework. A proposal for a European digital tax should be put forward only in case if the OECD negotiations break down. In that event, the proposal should include solutions proposed on the OECD level as to minimize any potential tensions. Alternatively, when a consensus on the OECD level is reached, Member States, which have implemented digital taxes, should withdraw then as to prevent a fragmented and multilayered taxation. Finally, we suggest a holistic approach to the digital levy. Not only ongoing OECD works but also existing tax rules related to online activities (inc. eCommerce VAT Directive and Proposal for DAC 7 Directive, currently finalized) should be taken into account.

 

See more: 14.04.2021 The Union of Entrepreneurs and Employers’ position on the digital levy

 

***

[1] https://www.oecd-ilibrary.org/docserver/9789264218789-en.pdf?expires=1617886901&id=id&accname=guest&checksum=193CF9B4B724F6041E9291393EB34E0A

[2] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017DC0547&from=PL p. 6

[3] https://www.pwc.com/us/en/press-releases/2018/understanding-the-zew-pwc-report.html

[4] https://ecipe.org/wp-content/uploads/2018/02/ECI_18_OccasionalPaper_Taxing_3_2018_LY08.pdf

[5] https://www.copenhageneconomics.com/publications/publication/the-impact-of-an-eu-digital-service-tax-on-german-businesses

 

Fot. New Africa / Adobe Stock

Warsaw, 12th April 2021 

 

EESC Activities Report no. 2/21

 

Marcin Nowacki, President of the European Enterprise Alliance and Vice-President of the Union of Entrepreneurs and Employers, and Tomasz Wróblewski, President of the Warsaw Enterprise Institute, are members of the European Economic and Social Committee (EESC), an EU advisory body which represents employers’ and employees’ organisations in the EU lawmaking process. We present a summary of their activities in February 2021.

On February 24-25, the EESC plenary session held a debate on the conference on the future of Europe with the participation of Dubravka Šuica, Vice-President of the European Commission for Democracy and Demography. In addition, Committee members adopted a resolution “Organized civil society involvement in national recovery and resilience plans – what works and what does not?”  according to which that it is important to ensure that the real challenges of public health and economic and social recovery are at the heart of decisions and policies for growth.

On February 18, 2021, a first meeting of the study group for offshore renewable energy strategy was held. The rapporteur for the EESC opinion on this strategy is Marcin Nowacki. The main element of the meeting was the discussion on the working document on the EU Strategy aimed at using the potential of marine renewable energy for a climate-neutral future. Furthermore, in its opinion, the EESC expressed its disappointment in the lack of specific measures and instruments for financing offshore wind energy projects. The Committee also indicated that each investment in offshore wind farms should contribute to the greatest possible extent to the socio-economic development of regions in the immediate vicinity of a given investment, by supporting participation in a given project, the so-called local content factor.

Regulatory activity

Tomasz Wróblewski became the rapporteur for the EESC opinion on the European economic and financial system: fostering openness, strength and resilience.

The aim of the proposed strategy is to strengthen the role of Europe in the global financial system, as well as to strengthen the resilience of EU economies against currency crises, reduce dependence on other currencies and ensure lower transaction costs, financing and risk management, while protecting the EU against unfair practices and abuses.

Useful links:

• OPINION ECO/544
• European economic and financial system: fostering openness, strength and resilience

Marcin Nowacki also took part in the 9th meeting of the EU-Ukraine Civil Society Platform, which was devoted to a debate on the assessment of the implementation status of the EU-Ukraine Association Agreement.

Moreover, the proposal for an opinion on the support and cooperation of the European Union with Belarusian entrepreneurs, workers and civil society, which was proposed by Nowacki in January, was accepted by the EESC Bureau, which decided to prepare its own opinion on this matter.

More information about the EESC

What is EESC?

The European Economic and Social Committee (EESC) is an EU advisory body comprising representatives of employers’ and workers’ organisations and other interest groups. It issues opinions on EU issues to the European Commission, the Council of the EU and the European Parliament, thus acting as a bridge between the EU’s decision-making institutions and EU citizens.

What does the EESC do?

It gives the interest groups a formal say on EU legislative proposals. Its three key tasks are to:

• Ensure that EU policy and law are reflect to economic and social conditions in the Member States.
• Engage in dialogue with employers’ and workers’ organizations from all member states.
• Promote European integration and participatory democracy.

What is the EESC composition?

The EESC has 329 Members from all EU Member States, who are appointed for a renewable five-year term of office. Members are nominated by national governments and appointed by the Council of the European Union. They are independent and perform their duties in the interest of all EU citizens. The number of Members per country is in proportion to the country’s population.

How does the EESC work?

The EESC is consulted by the European Parliament, the Council of the EU and the European Commission on a variety of subjects. It also issues opinions on its own initiative.

Members work for the EU, independently of their governments. They meet 9 times a year. Opinions are adopted by a simple majority vote.

Meetings are prepared by the EESC’s specialized sections and the consultative commission on industrial change. The EESC’s specialist think-tanks (known as ‘observatories’) track the progress of EU strategies.

The EESC keeps in touch with regional and national economic and social councils throughout the EU – mainly to share information and discuss particular issues.

 

Fot. rustamank / Adobe Stock