Warsaw, 30^th June 2021

 

Position of the Union of Entrepreneurs and Employers on the assumptions for the draft state budget for 2022

 

• The forecast of the most important macroeconomic indicators included in the “Assumptions to the state budget for 2022” is definitely more conservative than the values presented in forecasts of other institutions. This allows for a more conservative forecast of budget revenues and expenditures for the next year, while slightly distorting the overall picture of the forecast of the economic situation in Poland.
• When interpreting the values of macroeconomic indicators included in the budget assumptions for 2022, one must be aware of the strong base effects resulting from the crisis-related anomalies of 2021. Part of the real GDP growth in 2022 is only the effect of the recovery from post-crisis declines in demand.
• Linking a significant part of budget expenditure to the level of GDP poses a challenge to the sustainability of the public finance sector.
• Bearing in mind that the Stabilising Expenditure Rule (SER) does not cover all revenues and expenditures of the public finance sector, it should be positively assessed that the budget assumptions allow for the return to the application of the SER in the original formula as early as 2022. There are, however, many risk factors that may adversely affect the level of budget revenues and expenditures.

Chart 1. List of selected macroeconomic indices included in the “Assumptions to the state budget for 2022” compared with forecasts of selected institutions
Forecasted growth dynamics in 2022 y-o-y
GDP                      CPI inflation                     BAEL unemployment rate (registered)               Investments/GDP

The forecasts of the major macroeconomic indices presented in the “Assumptions to the state budget for 2022” are more conservative in relation to the values forecasted by other institutions: the European Commission, the OECD and the National Bank of Poland. This allows for a more conservative forecast of budget revenues and expenditures for the next year, while slightly distorting the overall picture of the forecasted economic situation in Poland. This is the result of both maintaining the assumptions regarding the external environment of the Polish economy, taken from the (now obsolete) forecast of the European Commission of February this year, and the failure to take into account the impact of the National Recovery and Resilience Plan (Krajowy Plan Odbudowy i Zwiększenia Odporności – KPOiZO) and the effects of the Polish New Deal on the economy in the forecast.

When interpreting the values of macroeconomic indices included in the budget assumptions for 2022, one must be aware of the strong base effects resulting from the crisis-related anomalies of 2021. Part of the real GDP growth in 2022 will only be the effect of the recovery from post-crisis declines in household consumption demand and public consumption. Therefore, GDP growth of 4.3% in 2022 is a largely conservative assumption. However, given the existence of many risk factors, such as the uncertainty regarding the further spread of the COVID-19 virus, we believe that this value – although it differs in minus from the forecasts of other centres – is a safe assumption.

The forecast of an increase in CPI inflation in 2021 by 3.1% and in 2022 by 2.8% also seems to be highly underestimated in relation to the inflation data published in the first half of this year and the forecasts of other institutions. We would like to point out that lowering the inflation rate generates an underestimation of not only budget revenues from VAT or excise duty, but also budget expenses that will be necessary to cover, among other things, the statutory minimum in terms of next year’s pension indexation. Therefore, the inflation rate forecast should be revised accordingly.

The assumptions predict a moderate improvement on the labour market and further decline in the unemployment rate down to 5.8% related to it. This is a safe assumption, especially considering the uncertainty accompanying fears of the autumn wave of disease associated with subsequent mutations of the virus reaching Europe. Although the unemployment rate in Poland in May 2021 amounted to 6.1%, the situation on the labour market is not so unequivocally positive – the comparison of the number of job vacancies with the number of the unemployed is a source of concern. As a result of the mismatch between the supply structure and the demand on the labour market, we are currently dealing with a strong wage pressure, especially when it comes to highly qualified specialists. Furthermore, high inflation also affects the growth rate of wages.

In the case of investments in 2022, the forecast of the Ministry of Finance is significantly underestimated due to the fact that it does not take into account the inflow of funds from the National Recovery and Resilience Plan. In 2022, the direct effect of this programme is to be an increase in investment outlays by PLN 22.9 billion, which will result in approx. 5.8% increase in investments, representing the excess 0.9% of GDP. On the other hand, preliminary estimates of Statistics Poland on growth components for Q1 2021 have positively surprised in terms of investment. Despite the fact that in Q1 2021 there was a decline in GDP (-0.9%) caused by a decrease in the dynamics of the trade balance, we were dealing with an increase in investments by 1.3%. Other factors that will positively affect the level of investment in 2022 include the increase in household income driven by high wage growth as well as the increase in imports of our products by countries of the eurozone. However, all of the above-mentioned factors can be effectively neutralised by regulatory uncertainty, which is one of the key barriers to investment in Poland.

The statutory algorithm of linking a significant part of budget expenditure to the level of GDP will pose a challenge to the sustainability of the public finance sector in 2022. The basis for calculating health expenditure in 2022 will be the level from 2020 when we dealt with a 2.8% decline in GDP. The real drop in health care expenditure, due to the high forecasted inflation, may be much higher. The combination of this decline with high inflation will also generate additional pressure on wage growth in this sector. With regard to national defence spending, the opposite will be the case. The “Act on restructuring and technical modernisation of the Armed Forces and their financing” sets the minimum expenditure on national defence in 2021-2023 at the level of 2.2% of the forecasted GDP for a given year, as included in the assumptions of the draft budget. The rapid recovery of the economy in relation to the crisis anomaly of the previous year will be challenging for the state budget in this context.

In 2020 and 2021, we used the so-called general exit clause from the fiscal rules introduced by the European Commission. The Commission kept in force the application of the exemption from these rules for 2021-2022 arguing that during this period all member states should remain able to pursue fiscal policies without restrictions on the pace of expenditure growth. Bearing in mind that the Stabilising Expenditure Rule (SER) in force in Poland does not cover all revenues and expenditures of the public finance sector, it should be positively assessed that the budget assumptions allow for the return to the application of the SER in its original formula as early as 2022. There are, however, many risk factors which may adversely affect the level of budget revenues and expenses.

 

***

 

[1] Ministry of Finance, Assumptions to the state budget for 2022, Warsaw, June 2021, online: „Założenia projektu budżetu państwa na rok 2022” – Chancellery of the Prime Minister – Portal Gov.pl (www.gov.pl)

[2] Economic Forecast of the Union of Entrepreneurs and Employers 2021/2022, Warszawa, 10^th June 2021: online: Prognoza Ekonomiczna ZPP 2021/2022 – ZPP

[3] European Commission, Spring 2021 Economic Forecasts for Poland, Luxembourg, May 2021, online: Economic forecast for Poland | European Commission (europa.eu)

[4] Organisation for Economic Co-operation and Development, Economic Forecast Summary, May 2021, online: Poland Economic Snapshot – OECD

[5] National Bank of Poland, Projection of inflation and economic growth of the National Bank of Poland based on the NECMOD model, Warsaw, 8^th March 2021, online: Projekcja inflacji i wzrostu gospodarczego Narodowego Banku Polskiego na podstawie modelu NECMOD (nbp.pl)

 

See more: 30.06.2021 Position of the Union of Entrepreneurs and Employers on the assumptions for the draft state budget for 2022

Warsaw, 17^th June 2021

 

Memorandum of the Union of Entrepreneurs and Employers on inflation

 

Synthesis

Poland has been facing one of the highest inflation rates in the EU for many months. The realisation of deferred household demand associated with the reopening of the economy, as well as the need to utilise huge resources from the Recovery Funds will undoubtedly contribute to further fuelling the increase in price pressure in the near future. We note that certain inflationary factors are factors to which the state is able to respond with regulation.

Currently, one of the key pro-inflationary factors is the rise in fuel prices, which accounted for more than a third of inflation in May this year.

In order to curb further increases in inflation, attention could be given to those areas where price increases are de facto stimulated by regulation and can therefore also be effectively contained by regulation. For example, consideration could be given to scrapping taxes that have an impact on price increases while generating little direct revenue to the budget, modifications to excise taxes on fuel, and sensible, non-parafiscal communal waste management reform.

Introduction

The topic of rapidly rising inflation is attracting more and more attention in the public debate. According to the Central Statistical Office, CPI inflation amounted to 4.7% in May and 4.3% in April 2021. Eurostat data is worse, showing that Poland’s HIPC inflation in April reached 5.1%, the highest level in 20 years. The last time HIPC inflation exceeded 5% was in June 2001, when Poland was emerging from a period of high inflation.[1]

Although inflation is clearly rising across the EU, Poland remains one of the leaders among EU member states in this regard. In April 2021, the annual inflation rate in the EU stood at 2%, 3 percentage points higher than in March.[2] Poland achieved the second highest result, just behind Hungary, where inflation was only one percentage point higher. This is poor consolation, however, when you consider that Poland remains in first or second place in the EU on inflation since September 2020, and the domestic inflation rate is more than twice as high as the EU average.[3]

Figure 1: Inflation in April in the EU
Source: Eurostat

Rising inflation reduces the disposable income of Poles and depletes savings. The recovery from the coronavirus pandemic is generating new and additional pro-inflationary factors, such as the realisation of deferred household demand for food services and hotels, but also for products such as clothing. So we can expect inflation to accelerate further as the economy continues to open up and the holiday season begins.

What is important, in the longer term we will have to deal with a new, exceptionally important pro-inflationary factor, i.e. a significant fiscal impulse in the form of the EU Recovery Fund. In the new budget perspective, Poland will receive EUR 160 billion from EU funds, of which EUR 57 billion will come from the Recovery Fund.[4] For comparison, during the 16 years of its membership in the EU, Poland received around EUR 181 billion. The Recovery Fund is an important element of helping the economy out of the crisis, but the ‘helicopter money’ policy also has long-term consequences. The need to manage such large-scale funds in a relatively short period of time may provoke price increases and certainly will not slow down inflation.

Probably the only actor that does not suffer from rising inflation is the government. In formulating the 2021 budget, the government has assumed an inflation rate of 1.8 %.[5] Thus, budget revenues and expenditures have been calibrated according to this parameter. An increase in prices means an increase in budget revenue from VAT, one of the main sources of government revenue. For example, in 2019, VAT receipts amounted to more than PLN 180 billion, almost half of the total tax revenue collected that year.[6] More than twice the expected inflation rate means a significant increase in revenue to the state treasury and a better balance at the end of the year.

Figure 2: State budget revenues in 2019.
Source: Tax Portal of the Ministry of Finance, Revenues and expenditure

A significant interest rate increase seems unlikely in the near future, and even if it were to happen, it would also entail some negative consequences for businesses and consumers.

Inflation in Poland and UE

In May 2021, inflation in Poland rose by 4.7% year-on-year, with transport prices, including fuels, accounting for 1.65% of the increase, housing prices, including energy carriers for 1.32%, communications prices for 0.32 %, recreation and culture, and restaurants and hotels for 0.22%.

Inflation in May 2021, relative to the previous month, increased by 0.30%, with the largest contributors to this increase being, in turn, increases in food prices (0.16%), housing use, including energy carriers (0.10%). Negatively contributing to the index were decreases in the prices of transport (0.04%) and communications (0.05%).

Figure 3: CPI growth and contribution of major categories of goods and services y-o-y
Source: Own calculations based on Statistics Poland – US, Macroeconomic Data Bank, Price indices

Figure 4: CPI growth and contribution of main categories of goods and services m-o-m
Source: Own calculations based on Statistics Poland – US, Macroeconomic Data Bank, Price indices

By comparison, among eurozone countries, fuel prices are also the most volatile component included in the HICP. The fall in transport prices in November 2020 contributed -0.55% to the change in the eurozone HICP measured year-on-year to account for 0.70% of the 1.60% increase in the index in April 2021. After rising transport prices, the next largest contributor to eurozone inflation in April this year was a 0.52% increase in housing maintenance prices, a 0.12% increase in alcohol and tobacco prices, a 0.06% increase in recreation and culture prices, and a 0.5% increase in the price of food.

On the other hand, the high April increase in HICP inflation for Poland showed that the structural features of our economy and the model of recovery from the pandemic crisis, which relies more on generating consumer demand than stimulating investment, put Poland on the path of stronger price increases than among the eurozone countries. Under current market conditions, the service sectors in Poland are more freely imposing higher prices on their products to compensate for the cost of fuel price increases.

Main stimulants of inflation – factors not sensitive to interest rates

In its announcements, the Monetary Policy Council stressed that the March and April 2021 increases in inflation were caused by factors that are not sensitive to interest rates. These are, above all, the prices of fuel raw materials determined on global markets, energy prices determined by the high rate of CO₂ emission allowances and prices regulated administratively by local governments, such as the price of waste collection services.

International experience shows that attempts to administratively limit price increases are ineffective. This also turned out to be the case in Poland, where the government decided to temporarily freeze energy prices in 2020, so that they could rise with double force in the year of recovery from the crisis. Hence, the increase in the price of housing and premises contributed to a 1.24% rise in the CPI with regard to April 2020.

Indirect taxes can be a tool to influence the price level. Based on Figure 2, we can conclude that fuel prices are the most volatile factor influencing monthly fluctuations in the level of inflation. Therefore, it is worth considering a modification of excise tax on fuel which, while respecting the minimum values set by Directive 2003/96 restructuring the Community framework for the taxation of energy products and electricity, would allow for a reduction in fuel prices. Another important factor is the price of such services as waste disposal. Work is currently underway to implement important EU waste management projects, including extended producer responsibility and the so-called SUP Directive. Sensible reform of a not a parafiscal character is necessary in this area. Ultimately, recently introduced taxes that have driven up prices while generating little direct revenue to the budget should be reduced, suspended collection or even abandoned. The sugar tax is an example of such a levy. Expanding such levies to new product categories should also be avoided.

Another significantly price-influencing channel is the policy of responsible minimum wage formation. Since wage-price adjustments occur over a longer period of time, the public usually does not perceive a direct link between wages and prices. A 15% increase in the minimum wage has little effect on the 0.1% increase in household consumption, while we could see it to a greater extent in the increase in prices of services, starting from January 2020.

Conclusions

High inflation is a hidden form of tax, which will be distributed partly to businesses and partly to consumers, generating higher budget revenues. High price levels in Poland hit industrial sectors in particular, causing a decline in the competitiveness of Polish exports. These sectors are unable to impose a price on their products, unlike the service sectors, and foreign demand for Polish products depends on the competitiveness of our goods abroad. Meanwhile, exports are one of the most important growth factors for the Polish economy.

In order to avoid further inflationary growth and weakening of the Polish economy, we propose to discuss how we can curb price increases by limiting costs resulting from regulation. In the face of rising raw material prices, a modification of the fuel excise tax seems to be a worthwhile idea. At the same time, taxes that have an impact on price increases, such as the sugar tax, should be abolished and levies on new product categories should be avoided. A sensible reform of a non-parafiscal nature of waste management is also necessary.

***

 

[1] Bankier.pl, Eurostat: Inflation in Poland above 5%. Higher only in Hungary, available at: https://www.bankier.pl/wiadomosc/Eurostat-inflacja-w-Polsce-w-kwietniu-2021-r-powyzej-5-proc-8115788.html.

[2] Eurostat, Annual inflation up to 1.6% in the euro area, available at: https://ec.europa.eu/eurostat/documents/2995521/11563095/2-19052021-AP-EN.pdf/6bd163f8-7551-3b07-a874-ddc78c9ad93d?t=1621412809290.

[3] Rekin Finansów (Finance Shark), Eurostat: Inflation in Poland reaches 5.1%, highest in 20 years, available at: https://rekinfinansow.pl/najwyzsza-inflacja-od-20-lat-polska/.

[4] Union of Entrepreneurs and Employers, The effects of the introduction of the retail tax from 1^st January 2021, available at: https://zpp.net.pl/wp-content/uploads/2021/01/12.01.2021-Raport-ZPP-Skutki-wprowadzenia-podatku-od-sprzeda%C5%BCy-detalicznej-od-1-stycznia-2021-r..pdf.

[5] Forsal, 4% GDP increase and 1.8% inflation. Government adopted the assumptions for the draft budget for 2021, available at: https://forsal.pl/gospodarka/pkb/artykuly/7784463,budzet-2021-wzrost-pkb-4-proc-inflacja-18-proc-rzad-przyjal-zalozenia-do-projektu-budzetu-na-2021-rok.html.

[6] Tax Portal of the Ministry of Finance, Revenues and expenditure, available at: https://www.podatki.gov.pl/z-twoich-podatkow/dochody-i-wydatki-z-twoich-podatkow/.

 

See more: 17.06.2021 Memorandum of the Union of Entrepreneurs and Employers on inflation

Warsaw, 22^nd June 2021

Opinion on demography of the Chief Expert of the Union of Entrepreneurs and Employers on Political Economy

It has been known for more than a dozen years that Poland is at risk of a demographic tsunami. Pursuant to that, the Union of Entrepreneurs and Employers has touched upon this subjects numerous times. The drastic decrease in fertility rate and the (quite obvious) dramatic decrease in the number of births accompanying it began in the final years of the Polish People’s Republic and lasted at least until the beginning of the 21^st century. This decrease and the subsequent stabilisation of the number of births translate into the fact that nowadays almost 2 times fewer children are born than in the early 1980s and approximately 30% less than at the threshold of the economic transformation. The time of the pandemic has shown how important a factor influencing the decision to parentage today is the issue of confidence and security. That period of uncertainty at the beginning of the pandemic brought about a sharp – though probably temporary – drop in births (an interesting case that remains to be seen is whether the next waves of the pandemic or how the right to abortion was exploited in the current political disputes will also affect the number of births this autumn).

Furthermore, the high migration wave after the accession to the EU brought about serious consequences. Although Poland has almost always been a region people migrated away from, the last wave of emigration has contributed to the deepening of the growing birth crisis. For a short period, politicians accepted it with a feeling of relief, as it resolved tensions on the labour market at the beginning of the 20^th century. This way, however, a significant part of the last numerous generation of Poles decided to leave the country forever, and often also to have kids abroad.

The declining pressure on the labour market, as well as the decreasing burden on the education system were viewed as benefits, or at least not as threats. After the problems on the labour market from the 1990s, Poland entered a period when it simultaneously benefited from European integration and a demographic premium (a decrease in the demographic dependency ratio resulting from decreasing cohorts of children and still small cohorts of retirees). The outflow of migrants helped further, relieving another of the costly welfare state systems: unemployment benefits. Economic growth was fuelled by the inflow of European development funds and the unchanging relatively low labour costs. However, as time passed, that demographic premium began to lose its significance and the cost of functioning of the state began to rise. Today, it is evident that we are on the verge of a major demographic crisis.

It is also worth adding that the actual fertility rate in Poland is difficult to determine – which is surprising, because the knowledge of what it really is should be the foundation of modern evidence-based policy (EBP). The above-mentioned wave of pre- and post-accession emigration is not properly registered in official statistics. As a result, in the calculation of the total fertility rate (TFR), we do not know the precise divisor. Many women aged 18-30 left Poland between 2004 and 2011, most probably never to come back. This generation still determines the Polish TFR. A fertility rate, in which the absence of a significant group of women in Poland is ignored, is certainly underestimated. And who knows by how much – is it 5, 10 or more percent? (Independent estimates put that number between 5 and 10%.) In fact, the administration, as well as all of us, are not able to compare the fertility level of Poland and – for example – Hungary, Slovakia or Austria. We only know what the situation looks like superficially.

And the situation of Poland is not an exception to the rule – a decline in the TFR below replacement-level fertility is a problem for the entire developed West, and Europe in particular. And some countries begin suffering from it too early, or at least quicker than the developed countries of the West – before they become wealthy enough and stabilise their prosperity. This is being said about China, but Poland and South Korea are equally good examples. Economic success translates into a decline in fertility rates, and the demographic premium is replaced by growing burdens from the growing cohorts of retirees. Labour costs followed by a workforce shortage grow regardless of productivity increases (because the labour market becomes unequivocally and fully the employee’s market). If there are no good solutions, the demographic crisis will translate into a decline in labour supply (actually, the symptoms of this problem are already visible, see below) and – with a high probability – a loss of competitiveness, and, consequently, a slowdown in economic growth and convergence processes with Western economies. One may hope that the increase in productivity will compensate for the decline in workforce, but this is most probably a false hope.

The economy is already feeling the falling labour supply. Admittedly, ministers are proud to report that we have passed the pandemic crisis safe and sound also with regard to unemployment. But I believe that the very low unemployment at the end of a deep crisis is not so much due to great aid and anti-crisis programmes, but rather is a serious warning bell that problems with labour supply are on the rise. The still low productivity of the Polish economy is compensated by the low level of wages and the availability of a (cheap) labour force. It looks like this model of economy is coming to an end, but unfortunately the structure of the economy changes more slowly than the demographic structure. This is due to one unexpected factor.

In recent years, Ukrainians and Belarusians have come to aid the Polish economy, seeking, like we had a few years earlier, a better life and a more normal world. They turned out to be a bit of an unexpected rescue – for employers, for the economy, for economic growth, and therefore (indirectly) for the government. However, unlike in the case of policies of many Western countries, it is difficult to indicate any action of government to encourage them to stay. All the while these are immigrants who are culturally close to us, who will potentially easily integrate with us, and are competent and educated. Many speak Polish well. It will be difficult to find “better” migrants in the future…

For the past dozen or so years, since the future consequences of growing demographic programmes have become more and more obvious, increasingly bold attempts have been made to remedy them. Tax breaks for parents as well as a large family card were introduced. The last of these attempts is the 500+ project, a financial support mechanism for people with children, which is also intended to be a stimulus to have children. However, quite quickly, even in official statements, the goal of this project began to evolve – and it became a symbol of the effective(?) social policy of the ruling party, Law and Justice. The topic of demographic or pro-family policy has been returning several times, for example when extending the 500+ programme to the first child. Thus far, regardless of official propaganda, all attempts have produced moderate results. The increase in the number of births after the introduction of 500+ from today’s perspective should be interpreted as an effect of accelerating the decision to have a child, and only to a small extent as an actual increase in the number of births. However, in order to find out the actual effects of the programme and the current fertility rate, it would be necessary to determine the actual number of women of childbearing age – hopefully the ongoing Census will help (and if it does not help, why do we need one at all?).

And only in this context, one must look at the new ideas of demographic policy in the Polish Deal. Unfortunately, they often boil down to promises regarding pro-family policy – as unwise as they are often redundant or long late considering the current situation on the labour market (such as incentives to create nurseries in each gmina, or commune). Basically, however, financial incentives (caring capital) are to be supplemented and a few privileges are to be added, which raises the question of why they are addressed only to families with children. Maybe the amount of 500+ will also be indexed.

Up until now, similar instruments have worked poorly (although no one intends to seriously conduct evidence-based policy and check which instruments are truly effective and only then support them). Perhaps, then, we need to look more actively for better solutions? Interestingly, politicians see the low effectiveness of the current policy and accept it with a certain amount of indifference or melancholy.

If we want the “golden age” of Poland’s development to last for the next years and decades (and this is what Law and Justice politicians are promising us), then we need an effective pro-family policy. And apart from the costly, but important and necessary (as long as they are properly designed) demographic policy programmes, we are also in need of a well-thought-out emigration policy. Two promises were made in the New Deal with regard to this. One empty and devoid of content: Poland will become an attractive country for specialists, thanks to government support mechanisms. And these specialists will pay taxes in Poland, not because it will be financially attractive, but because we will offer a better quality of life, conditions for integration, and security. The current level of salaries in Poland, the quality of public institutions (compared to our Western neighbours), and often the manner of conducting internal and international policies do not add any credibility to these words. Especially if it were to be supplemented with the second idea from the New Deal: a tax relief for returning emigrants (most probably, it will not have extravagant results either). And if, from their perspective, returns need to be made more attractive, then how can we expect that the same legal and tax order will be attractive for immigrants?

Much criticism has been directed towards “the gang in power”. I do not agree with all of it. However, one of their greatest sins will be the neglect of policies on family, demographics, and migration, because they may (though hopefully not) weigh on the next decades of Poland’s development.

Piotr Koryś, Ph.D.
Chief Expert of the Union of Entrepreneurs and Employers on Political Economy

See more: 22.06.2021 Opinion on demography of the Chief Expert of the Union of Entrepreneurs and Employers on Political Economy

Warsaw, 24^th June 2021

ZPP Report: Proposals of measures to end the abuse of pre-trial detention in Poland

In many countries, including Poland, the abuse of pre-trial detention is a severe problem. At any given moment, over 3 million people are held in pre-trial detention centres around the world. Disgracefully, in terms of the number of pre-trial detainees, Poland is among the leaders of this ranking. Per 100,000 citizens, there are 195 pre-trial detainees in Poland, while the EU average amounts to approximately 100. At the same time, there are three times as many people detained on a pre-trial basis in Poland than in Sweden, Finland or the Netherlands.

According to Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers: “Pre-trial detention should be limited to high-risk crimes involving violence only. Such a solution will bring great benefits to our society, and as the political struggle intensifies, this issue should also be in the interest of all politicians.”

The Union of Entrepreneurs and Employers (ZPP) published a report dedicated to the analysis of the legal systems of six selected European countries. Therein, the Union proposes a number of recommendations that would put an end to the abuse of pre-trial detention in Poland. Amongst the most important recommendations, there are the idea to limit pre-trial detention to high-risk violent crimes and the introduction of a statutory limitation of the maximum duration of pre-trial detention, with various maximum periods for minor and major offenses.

“Following the example of Finland, we propose to introduce of a burdensome system of fines based on the income of a given person as well as the so-called “summary penal fee”, which allows you to convert the sentence of up to 6 months imprisonment for minor offenses into a pecuniary penalty,” adds Kamila Sotomska, Deputy Director of the Department of Law and Legislation at the Union of Entrepreneurs and Employers.

The abuse of pre-trial detention violates fundamental rights and causes enormous harm to both the wrongful detainee and society as a whole. The proposed solutions will help curb this problem.

Find out more: 24.06.2021 Report by the Union of Entrepreneurs and Employers: The abuse of pre-trial detention

Warsaw, 15^th June 2021

ZPP Report: Through administrative practices, protectionist regulations on the domestic market, and a smear campaign against Polish companies France makes it difficult for Polish entrepreneurs to operate

The problems faced by Polish entrepreneurs in France are enormous. Polish companies are harassed by excessive controls and fines. At the same time, French law contains provisions that openly violate the freedoms of the single market, while a slanderous media campaign creates a climate in which it is easy to justify additional controls and restrictions.

According to Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers (ZPP): “France has a difficult time with accepting Polish entrepreneurs in a role other than cheap subcontractors. What we are dealing with are various repressions against Polish companies, and we believe that the Polish authorities are not fighting this phenomenon with enough spirit. If we want to change something in these matters, it is necessary to appropriately treat contractors from Western Europe who operate in Poland.”

The Union of Entrepreneurs and Employers published a report which collects entrepreneurs’ stories and recounts their problems related to running a business in France. While the report was being created, the Union encountered severe methodological limitations. In fear f repercussions from the French authorities, numerous entrepreneurs chose not to discuss their problems or asked for confidentiality and anonymity. Fear is therefore an important factor limiting the availability of data.

The story of FructoFresh is testament to how the French administration allows domestic companies to build their economic position while in direct violation of European law – to the detriment of both consumer safety and the integrity of the single market. The French labour inspection intimidated the representative of Aterima Work to such a degree that he gave up running business operations in France. And the case of the unlawful impound of a vehicle owned by a Polish transport company shows just how painful the inactivity of the authorities can be in the face of problems of Polish companies.

“Moreover, applying the notion of social dumping stigmatises posted workers. The very concept is based on comparing the illegal practice of marketing products below their production price with the perfectly legal practice of carrying out work at a more competitive rate. It also suggests that working in another member state is something forbidden, when in fact it is one of the foundations of the single market,” adds Kamila Sotomska, the Union’s Deputy Director of the Department of Law and Legislation.

See more: 15.06.2021 Report by the Union of Entrepreneurs and Employers Problems of Polish entrepreneurs in France

Warsaw, 7^th June 2021

 

The Polish “New Deal” should make the country’s tax system more attractive;
CIT Payers Forum on fiscal policy in Poland

 

How can the Polish economy compete with European tax havens? What should the Polish tax system look like to become a magnet attracting new companies? What fiscal instruments can help the Ministry of Finance effectively enforce corporate tax obligations? These are just some of the questions answered by the participants of the “CIT Payers Forum” organised by the Union of Entrepreneurs and Employers and attended by representatives of the Ministry of Finance, largest CIT payers in major industries, as well as experts on economy and taxes.

Ministry of Finance: good regulations do not exist without dialogue with business

The Ministry of Finance has for ages openly been admitting that it is not possible to shape tax regulations without having a dialogue with the market, the world of business, and the consultancy industry. During the “CIT Payers Forum” (“Forum Płatników CIT”), representatives of the Ministry assured they would further pursue the policy of a close dialogue with business, seeing it as an opportunity to draw on the experience of companies in the area of legislation.

“The views of entrepreneurs are like a compass allowing us to navigate perilous reefs during the journey the Polish economy is on following the changing pandemic reality. The fact that it relatively well survived three subsequent waves of the epidemic and three lockdowns is the result of the short distance between business and the economic regulator and tax authorities. It is the result of constant mutual trust building and co-created solutions, the result of us talking. Now is the time we should plan scenarios for the reboot of the Polish economy. I strongly believe that in the second half of the year we will see a rebound that will mark the beginning of post-pandemic recovery. We want to implement a number of tax projects aimed at supporting Polish business, for example through pro-investment reliefs which would be available to companies as early as January next year,” said Jan Sarnowski, Undersecretary of State at the Ministry of Finance.

The Ministry of Finance emphasises that without such cooperation it would not be possible to implement the financial shield or introduce tax amendments favourable for entrepreneurs. Within the latter group, the Ministry names, among others, the extension of the scope of application of the 9% CIT rate or changes in the area of lump sum on recorded revenues by increasing 8-fold the income limit entitling to take advantage of this solution.

Representatives of the Ministry also assure that further legislative solutions aimed at strengthening and rebuilding entrepreneurship in Poland are waiting to be implemented this year. The assumptions of the “New Deal” provide, i.a. over a dozen tax breaks, including those for robotisation and production automation, encouraging Polish workers to return to the country or stimulating employment growth in various sectors of the economy. They also include the second SLIM VAT 2 simplification package, as well as provisions encouraging companies to continue investing in Poland, which would allow them to responsibly plan such investments for years to come.

In the third quarter of 2020, the Ministry of Finance will also start implementing the EU e-commerce package, that is, facilitating online trade with other European countries. In the fourth quarter, the national e-invoice system is to be implemented.

Tightening CIT collection as a priority of fiscal policy

Participants of the “CIT Payers Forum” devoted a lot of time to the discussion about the role of the corporate income tax in generating budget revenues. The Ministry of Finance recalled that measures to tighten the CIT collection system had brought considerable growth results in recent years.

“Recent years have been a period of substantial success in increasing CIT revenues. While in 2014-2015, income from CIT amounted to PLN 30-odd billion, in 2019 it was already at the level of PLN 50 billion. The revenues also increased in relation to the GDP. According to the estimates of the Polish Economic Institute (PEI), the closure of the so-called “CIT gaps” contributed to this effect. According to PEI, this CIT gap decreased by 1% GDP in the years 2014-1018. However, we are still below the EU average, which in 2019 equalled 6%. Poland ranks around 5.5% in relation to the income of the entire public finance sector. According to PEI, the CIT gap in Poland decreased from 2% GDP in 2014 to 1% GDP in 2018, that is up to PLN 20-odd billion. Certainly, we would have managed to obtain a dozen or so additional billion zloty if we had better tightened the system in terms of the CIT gap,” argued Łukasz Czernicki, Chief Economist at the Ministry of Finance.

Maciej Żukowski, tax advisor and former Director of the Income Tax Department at the Ministry of Finance, clarified which tightening measures were, in his opinion, discussed.

“Certainly, the amendments to the CIT had a direct impact on its collection. Highly specific regulations, regulations tightening the system or introducing BEPS (base erosion and profit shifting) and ATAD (the Anti-Tax Avoidance Directive) as well as those regarding transfer pricing contributed to this. It seems to me that the increase in CIT revenues is not influenced by the MDRs (mandatory disclosure regimes), because they are compliance regulations to a higher degree rather than a tightening measures, but in a sense they “crown” the whole idea for an income tax reform. In particular, the provisions on the separation of capital gains from operating profits improved CIT collection in 2018-2019, as 2020 is not a representative year to draw conclusions from. At least 12% from PLN 50 billion from CIT could still be received from taxpayers without raising taxes,” noticed Maciej Żukowski.

Andrzej Sadowski, President of the Adam Smith Centre, compared CIT to a fee paid by businesses for access to the Polish market.

“The disproportionate collection of CIT is noticeable. CIT, like the RTV subscription, is a “voluntary” tax. In both cases, we see an almost 50% share of non-payers. Can the Polish state, for providing access to its territory, the market, consumers, and infrastructure, afford what no office tenant would allow to happen? Companies pay their landlords every month, whereas they do not pay for the services of the Polish state,” said Andrzej Sadowski, economist, President of the Adam Smith Centre.

In the public debate, CIT itself is often considered in terms of economic patriotism. Meanwhile, in the opinion of the largest payers of this tax in Poland, its essence lies elsewhere.

“We do business in Poland and the prosperity of our country affects the prosperity of our company. According to the data published by the Ministry of Finance, Philip Morris has paid over PLN 1.2 billion in CIT since 2012,” said Wojciech Niewierko, Member of the Management Board for External Relations at Philip Morris for Poland and the Baltic States.

Representatives of the banking sector, on the other hand, raised the need for greater predictability and transparency of the legal and fiscal environment, including further strengthening of cooperation between entrepreneurs and the government. They also emphasised that the banking sector remains one of the largest CIT payers in the country.

“Banks dominate the list of the largest CIT payers. We would like to draw attention to the fact that our regulatory operating costs, such as contributions to the Bank Guarantee Fund and the borrower support fund or the bank tax, do not constitute tax deductible costs. Minister Sarnowski used the word “simplification” numerous times to mention planned initiatives in the area of taxes. As a sector, we are pleased with the announcement of such simplifications, but we can see that in practice, due to insufficient consultations with business, initiatives aimed at simplification rather cause difficulties,” said Łukasz Szczygieł, Director of the Tax Department at ING Bank Śląski.

Representatives of the fuel sector stressed the need for further simplification of the tax system and consistent removal of its irregularities. In their opinion, the complexity of some tax regulations may create a barrier for some companies willing to pay taxes diligently.

“The complexity of tax law means that some payers are unable to properly fulfil their obligations. And there is an increasing number of obligations to be taken care of. Many of them have a positive effect, but especially the smaller entities may not keep up with them. On the other hand, in large corporations, the complexity of business operations is a problem. A correct implementation of solutions in such large organisations requires a lot of preparation. This brings us to the conclusion that the law should be prepared well in advance. At the end of the day, we would all expect those who pay taxes correctly to be efficiently and effectively verified by the authorities. This brings us to the postulate of removing complexity in tax law. The institution in charge of tax explanations certainly makes life easier for taxpayers,” said Krzysztof Berliński, Director of the Tax Office at PKN Orlen.

The fight against aggressive tax optimisation

Participants of the “CIT Payers Forum” were also asked about solutions that should be implemented to improve tax collection. Maciej Żukowski drew attention in this context to the important role that, in his opinion, the National Revenue Administration (Krajowa Administracja Skarbowa) has to play in this area.

“Dishonest taxpayers constitute an area for the National Revenue Administration to prove themselves. To force the NRA to create a so-called “level playing field” is the role of KAS, which should effectively enforce such regulations,” – described Maciej Żukowski, tax advisor and former Director of the Income Tax Department at the Ministry of Finance.

The disproportions in the amount of CIT paid by companies was pointed out by the Polish Economic Society (Polskie Towarzystwo Gospodarcze) in their report covering the study for 2012-2019.

“The structure of CIT assumes the possibility of reducing the income by tax costs. If there is such a possibility, it is also possible to transfer profits: transfer pricing, fees for trademarks, interest on loans, etc. If the regulations make it possible, unless we make a revolution, as long as we continue to operate in this system, it all comes down to the camera of the National Revenue Administration. However, it is not allowed to pass judgment that the one who does not pay CIT is a fraud right away. If someone carries out extensive investment activities, especially in the same location where they pay tax, it is understandable that their tax base is reduced. More reliable controls are needed. Wherever there is activity, it is appropriate to contribute to the state treasury,” said Krzysztof Rutkowski, Partner at the law offices Kancelaria Doradztwa Celnego i Podatkowego Rutkowski i Wspólnicy and co-author of the “CIT and EBIT comparative analysis of representatives of selected sectors based on the data of the Ministry of Finance for the years 2012-2019”.

An attractive tax system is a simple one

A study by the Union of Entrepreneurs and Employers (ZPP) based on data from the Ministry of Finance from 2017 showed that out of 509 thousand CIT payers less than 345 thousand showed taxable income. After the deductions, the final number of taxpayers reporting CIT due was only 194,000. It is easy to calculate that only approximately 38% of taxpayers pay CIT. In the opinion of ZPP, one of the reasons for this state of affairs may be the complexity of the regulations.

“Can we become like Estonia or Ireland in fiscal terms? The most important features of those two systems are their simplicity and transparency. The data of the World Bank show that the average time necessary to complete tax returns in Poland is approximately 334 hours per year, in Estonia – about 80 hours, and in Ireland – circa 50 hours. Simple tax regulations are the key to the development of entrepreneurship and to the improvement of the tax system at a state level. It is worth leaning towards the changing philosophy and introducing the revenue tax replacing CIT. Of course, we see a challenge related to the need to establish an adequate rate of such a tax, but ultimately – regardless of the industry – all entities would include the cost of this burden in the prices of their products or services. Our recommendation is therefore to consider the revenue tax, which would be impossible to avoid, as well as easy to calculate and collect,” said Kamila Sotomska, Deputy Director of the Law and Legislation Department at the Union of Entrepreneurs and Employers.

The Polish Chamber of Commerce has been drawing attention to the need to reduce the complexity of the tax system for many years as well. However, the PCC notes that tightening the provisions of the law often does not keep up with the new tools utilised by companies that use tax optimisation.

“CIT is a tax that companies should pay. If they don’t, they should at least show investment costs as a reason why they don’t. Then such an income tax exemption would be justified, because those companies would be creating added value for the economy of a given country. However, if such activities are not carried out, then something is obviously wrong. The regulations are there, now we need the right analytical tools. Furthermore, it is important to reward reliable tax accounting,” noted Agnieszka Durlik, an expert of the Polish Chamber of Commerce.

Poland as an investment paradise – how to increase the attractiveness of the Polish tax system?

Can the Polish tax system compete with the systems of such countries as Belgium, Cyprus, Ireland or Luxembourg? Can we oppose practices that encourage transfers of profits from Poland? In the opinion of Professor Konrad Raczkowski, director of the Institute of Economics of the Social Academy of Sciences, Poland can compete with European tax havens by becoming an investment haven for entrepreneurs.

“In March 2019, the European Parliament recognised Luxembourg, Malta, Cyprus, Ireland and the Netherlands by an overwhelming majority as tax havens that facilitate aggressive tax planning. So we have a formal confirmation that these countries are tax havens. Some of them have been running tax haven policies since the 1970s. What can we, as the Republic of Poland, do to win additional tax revenues, but not necessarily at the expense of “squeezing” the tax base we have? We have two options. If we had large expenses, because of the pandemic, an increase in our deficit, debt – quite a significant one like in other countries – will we then decide to tax the existing tax base? The base will not grow, because if the taxation is too high, companies and corporations can then easily change jurisdiction. The average John Smith has it worse. But we can take a different path: broaden the tax base. This can be done by drawing in foreign companies and attracting investments that are not yet here. And this can be done by implementing changes to the Polish tax system that will make it attractive for companies. Changes which will make Poland a good tax destination. When it comes to the competitiveness of our tax system, out of 36 countries OECD countries, we rank 34^th. One has to transform one’s thinking and try to think about attracting companies from those countries that have high dynamics of generating new investments,” stated Professor Konrad Raczkowski, Ph.D., director of the Economic Institute of the Social Academy of Sciences in Warsaw.

Maciej Żukowski agreed with him, adding that unlike by increasing the base itself, it would be impossible to achieve higher levels of taxation by imposing greater burdens on the current CIT taxpayer base.

Ministry of Finance: legal predictability and business consultations are our priorities

In response to the appeals of Polish business for more predictability in tax regulations and the need to improve consultations with companies, Minister Piotr Patkowski took the floor.

“We all would like private investments in Poland to be as grand as possible. The main barrier, apart from the issue of the pandemic, is, among others, the instability of tax law. That is why we discuss at the Social Dialogue Council, among other things, the introduction of an absolutely mandatory rule of vacatio legis for all tax regulations. We want them not to enter into force overnight or next month, but always on a specific date: 1^st January or 1^st July. We will want to implement a proper vacatio legis for all new provisions, so that they are processed and announced in advance. The second absolute rule that we want to follow is a minimum of 21 or 30 days for public consultations and inter-ministerial arrangements so that all interested parties can familiarise themselves with the regulations, submit their remarks and proposals, and the government can respond to them,” said Piotr Patkowski, Undersecretary of State in the Ministry of Finance, Chief Spokesman of the Public Finance Discipline.

The Ministry also mentioned a programme of extended cooperation between the tax authorities and the world of business. Its aim is to improve the entrepreneurs’ comfort in terms of settlements with tax offices.

“We have at our disposal some non-imperative forms of influencing CIT payers, for instance a pilot cooperative-compliance programme that is being implemented by the National Revenue Administration. Taxpayers, in exchange for greater tax certainty and security and the possibility of cooperation with the tax administration, fully disclose their tax settlement mechanisms to the tax authorities. It is an optional programme, but there is a lot of interest from taxpayers. Certainly, there is also a need for the tax administration to create more effective selection tools for tax audits,” said Jakub Jankowski from the Income Tax Department at the Ministry of Finance.

Tax postulates for the “New Deal”

The Union of Entrepreneurs and Employers has been running an extensive tax agenda for many years. Some of the Union’s postulates could successfully be included in the “New Deal”, and some of them were supported by experts during the “CIT Payers Forum”. Among the supported activities postulated by the Union, there are the following:

• creating a competitive tax system that supports the development of Polish companies and attracts foreign entities, thus reinforcing economic growth;
• ensuring regulatory stability in the field of tax legislation, e.g. by introducing a minimum vacatio legis for acts regulating the economy and taxes, as well as by introducing the principle that all kinds of amendments in economic and tax law enter into force only once a year (e.g. on 1^st January);
• continuing the dialogue between the Ministry of Finance and Polish business in order to develop the best possible tax solutions;
• improving the process of public consultation regarding proposed tax solutions, including in the scope of the time to submit comments or the stage at which individual ideas are subject to consultation with business (pre-consultations, consultations regarding assumptions for draft acts).

Furthermore, the Union of Entrepreneurs and Employers maintains its regular postulate to replace CIT, which – as statistics show – remains a de facto voluntary tax, with a revenue tax that would be much more difficult to avoid and, at the same time, easy to collect and settle.

Warsaw, 9^th June 2021

 

Position of the Union of Entrepreneurs and Employers on the draft amendment to the Distance Act

 

The draft act presented by the Ministry of Development, Labour and Technology whose aim is to amend the act on investments in wind farms and some other acts (hereinafter: the Distance Act), liberalising to a certain extent the assumptions regarding the location of wind farms, is in fact a step in the right direction.

In said document, the liberalisation largely refers to the so-called “10H rule” – which is mandatory and according to which wind farms must not be located within a shorter distance from buildings and selected forms of nature reserves than 10 times the height of the turbine with raised blades. This means that the minimum distance from residential buildings for a modern wind farm with a maximum turbine height of 150-180 metres is approx. 1.5-1.8 kilometres.

The proposed amendment is a turning point in the government’s approach to the issue of the Polish energy sector transformation by allowing investments in onshore wind energy – currently the cheapest and fastest, in terms of investments, green energy source.

The growing supply deficit of green energy is a serious threat to the development of the entire Polish economy, thus also to the position of Poland in Europe. However, thanks to efficient and effective investments in onshore wind farms as well as large-scale solar sources, we can significantly reduce this deficit, providing the Polish industry with the necessary amount of cheap green energy. Moreover, a further development of these energy sources, along with the development of offshore wind farms, will positively affect the creation of Poland’s hydrogen economy.

With the above-mentioned facts in mind, the Union of Entrepreneurs and Employers would like to present feedback in the form of a series of comments which, in our opinion, will allow for increased effectiveness of the introduced regulations and thus their more frequent use by business.

I. Maintaining the “10H rule” as the administratively preferred distance

Unfortunately, the provisions of the draft act do not eliminate or soften the fundamental problem that has been present for years in the investment process in the field of onshore wind energy, i.e. conflicts within local communities related to such investments. Leaving “10H” unchanged as the administratively preferred distance will still constitute a significant investment barrier, since local governments – fearing conflicts between residents and local stakeholders – will cautiously approach the determination of closer distances when adopting local plans for investments in wind energy.

II. No simplified procedure for the so-called “repowering” process

Repowering refers to the process of replacing older machinery with next-gen turbines that have higher efficiency or higher installed power, resulting in an increase in net energy production. Importantly, the proposed regulations do not include simplified procedures for replacing wind turbines.

Facilitating the repowering process could increase the present-day supply of green energy by at least 20% in a way that is almost cost-free for the Polish economy. This could subsequently translate into an increase in green energy supply by up to 10 TWh (terawatt-hours) annually.

Therefore, we recommend introducing a relevant provision to the draft act which would stipulate that, in the case of replacement of devices with new ones (with higher environmental parameters or greater efficiency), a separate administrative procedure will be provided, which will constitute a significant simplification compared to the standard process.

III. Locating onshore installations near industrial plants

The presented draft Distance Act should be supplemented with provisions enabling or facilitating investments in renewable energy installations (in this case onshore wind farms) near industrial plants where the dominating landscape has an industrial character, and the construction of wind turbines would not adversely affect the aesthetic or environmental values of the surroundings.

Simplification of the investment process in post-mining, post-industrial or industrial areas would considerably accelerate the development of wind energy in Poland, and would also enable large domestic investors to quickly increase power from renewable energy sources (RES) for their needs, without incurring unnecessary costs.

For this purpose, it would be reasonable to introduce specific provisions to the Distance Act, which would exclude industrial development areas from the procedures introduced both by the Distance Act and envisioned in the consulted project. Furthermore, it is worth considering including in Art. 4 an exception to the obligation to keep the distance specified in the regulations in the case of construction of a wind farm in industrial areas.

An unambiguous exclusion of investments carried out in areas where industry is located from the scope of the regulations of the Distance Act would translate into a faster and more effective achievement of CO₂ reduction targets. One of the consequences of introducing such an exemption should also be the lack of the obligation to include and consult wind farms to be located in industrial areas in local spatial development plans.

An additional obstacle to the execution of investments in wind farms generating electricity for the needs of industry is laid down in Art. 35 sec. 1 of the Act of 7^th July 1994 Construction Law: the obligation to examine the compliance of a construction project with the local spatial development plan (hereinafter: LSDP) or with the land development conditions decision. The provisions contained in these documents often make it impossible to erect met masts used for wind measurements, necessary for examining the conditions prevailing at the site of the planned construction.

Henceforth, it is reasonable to supplement the above-mentioned provision with a regulation stating that the requirement referred to in this provision does not apply to technical infrastructure used to measure wind in industrial areas.

IV. Definition of a direct line in energy law

In the opinion of the Union of Entrepreneurs and Employers, one of the barriers to the development of renewable energy is the definition of a direct line contained in Art. 3 (11) (f) of the Energy Law of 10^th April 1997. The restrictive concept of a direct line requires adjustment to the requirements of Directive (EU) 2019/944 of the European Parliament and of the Council of 5^th June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (“Internal market in electricity” replacing the “Energy Efficiency Directive”). Pursuant to Art. 2 (41) of the Internal market in electricity Directive, “direct line” means either an electricity line linking an isolated generation site with an isolated customer or an electricity line linking a producer and an electricity supply undertaking to supply directly their own premises, subsidiaries and customers;.

Pursuant to Art. 7 sec. 1-3 of the Internal market in electricity Directive:

1. Member States shall take the measures necessary to enable:
   1. all producers and electricity supply undertakings established within their territory to supply their own premises, subsidiaries and customers through a direct line, without being subject to disproportionate administrative procedures or costs;
   2. all customers within their territory, individually or jointly, to be supplied through a direct line by producers and electricity supply undertakings.
2. Member States shall lay down the criteria for the grant of authorisations for the construction of direct lines in their territory. Those criteria shall be objective and non-discriminatory.
3. The possibility of supplying electricity through a direct line as referred to in paragraph 1 of this Article shall not affect the possibility of contracting electricity in accordance with Article 6.

In light of the above, the “insular” nature of the connection between an isolated producer and an isolated customer resulting from the Polish law seems to be a disproportionate and unjustified condition in the case of energy-intensive companies operating in a continuous system. The specificity of the operation of such plants requires having an emergency power supply, securing the necessary equipment in production installations, which may be of key importance for the company’s safety. It is a real barrier that cannot be overcome when trying to conclude contracts with renewable energy producers based on the institution of a direct line.

The provisions of Directive (EU) 2018/2001 of the European Parliament and of the Council of 11^th December 2018 on the promotion of the use of energy from renewable sources (“RED II”) with regard to the definition of a renewable electricity purchase contract (on the basis of which a natural or legal person agrees to purchase renewable electricity directly from an electricity producer), have not yet been transposed to the Polish legal system, which also hampers the low-carbon transformation.

V. Duration of individual stages of the approval process of a new LSDP

Provisions specifying the course and manner of conducting public consultations accompanying the processes of establishing or changing local spatial development plans, necessary to carry out investments in the area of onshore wind farms, are cited repeatedly in the draft act. The proposed regulations define the minimum duration of each stage of the approval process of the new LSDP and the accompanying public consultations, but do not specify the maximum time. Indication of the aforementioned maximum duration of determining the LSDP could standardise the process of changes and allow for more precise estimates of the time necessary to obtain permits for the construction of a wind farm. In our opinion, this could significantly facilitate the entire investment process, and be as a result a considerable incentive for investors.

VI. Investor relations with local communities

Currently, there are instances when local government authorities, fearing the reaction of the local community, refuse to cooperate with the investor in a non-public manner. In order to guarantee the transparency of information on investment plans for wind farms in a given commune (a Polish territorial unit), the investor should be allowed to communicate with the local community through official information channels.

Although in the current legal order there are no obstacles for an investor to run an informational and promotional campaign for a potential investment in a commune, it is advisable that the information process takes place within the framework of administrative and legal institutions. Therefore, it is proposed to establish an application path in the provisions of the Distance Act for the commencement of procedures constituting the process of locating wind farms. This should be done by means of a document in the form of an application within the meaning of Art. 64 of the Code of Administrative Procedure (CAP), announced in the form of notification by public announcement (Art. 49 CAP). In the application, the investor would provide information on the planned location of the wind farm along with documents determining the environmental impact.

Information through official commune channels will contribute to increasing the community’s trust in the investor. A well-informed community will be more willing to even try to discuss adopting a resolution to proceed with the preparation (or update) of the LSDP, taking into account wind farms. The investor will also have the opportunity to inform about the projected environmental impact of this investment.

VII. Raising the threshold of built-up area for the purposes of qualifying the project as an undertaking with a potentially significant impact on the environment

Pursuant to § 3 sec. 1 (54) of the Regulation of the Council of Ministers of 10^th September 2019 on projects that may have a significant impact on the environment, in connection with Art. 59 sec. 1 (2) of the Act of 3^rd October 2008 on the provision of information about the environment and its protection, and public participation in environmental protection and environmental impact assessments, photovoltaic installations with a built-up area of more than 0.5 ha require an environmental impact assessment, and thus obtaining a decision on environmental conditions.

In this context, we recommend considering raising the threshold of built-up areas for the purposes of qualifying the undertaking as a project that can have a potentially significant impact on the environment, and thus subject to an obligatory study on issuing a decision on environmental conditions (§ 3 sec. 1 (54) of the Regulation of the Council of Ministers of 10^th September 2019 on projects that may have a significant impact on the environment, Journal of Laws 2019 item 1839) – from the currently applicable values, i.e. not less than 0.5 ha in areas covered by forms of nature protection and not less than 1 ha in other areas, up to: 1 ha in areas covered by forms of nature protection and not less than 2 ha in other areas.

At the same time, we make a reservation that the proposed solution should include the maintenance of tools for verification by competent authorities of the need to conduct a procedure regarding the decision on environmental conditions, and to possibly conduct an environmental impact assessment, even if the revised thresholds are not exceeded.

VIII. Locating renewable energy installations on grade 4 agricultural land

Due to the current legal conditions, grade 4 agricultural land is largely used for the construction of photovoltaic installations. Inscribing grade 4 agricultural land in Art. 4 (1) of the draft act would significantly simplify the future investment process for photovoltaic farms with an installed electrical capacity of no more than 1000 kW, due to the exemption from the need to conduct a study of land use conditions and directions. This in turn would have a direct impact on shortening the time of investment execution.

Summary

In the opinion of the Union of Entrepreneurs and Employers, the proposed act ought to, first and foremost, eliminate all investment barriers related to the location and operation of onshore installations. This will allow for the restoration of confidence in state policy towards renewable energy sources, which was significantly damaged as a consequence of the introduction of the Distance Act in its current wording in 2016.

One of the major barriers to wind farms investments is the lengthiness of administrative proceedings. Therefore, in view of the Union, the target model for issuing administrative decisions regarding the investment process should include one “investment permit”, which will integrate the issues of environmental impact assessment and construction law procedures.

The successful removal of the above-mentioned problematic issues will indeed lead to a dynamic development of renewable energy sources, which will in turn trigger the entire Polish economy to develop and grow, as onshore wind energy has all the necessary potential to be a remedy to both the climate and economic crisis.

 

See more: 09.06.2021 Position of the Union of Entrepreneurs and Employers on the draft amendment to the Distance Act

Warsaw, 10^th June 2021

 

Economic forecast for the years 2021/2022 by the Union of Entrepreneurs and Employers

 

The economic slowdown in Poland in 2020 turned out to be milder than on average in the European Union. Poland’s GDP in 2020 shrank by mere 2.8%, while the GDP of the eurozone decreased by 6.6%.

At the beginning of the COVID-19 pandemic, the Polish economy was in a relatively better position compared to other economies. The most important factor due to which recession in Poland in 2020 was milder was the small share of sectors temporarily excluded from all activity as a consequence of anti-pandemic restrictions in the generation of added value in GDP along with the structure of exports constituting mostly of consumer goods, as well as the relatively smooth course of the crisis in Germany, Poland’s main trading partner.

Poland’s dynamically evolving macroeconomic situation directly impacts the condition of the enterprise sector. In order to better understand the processes taking place in this environment, the Union of Entrepreneurs and Employers has decided to publish its own economic forecast for the next two years.

The forecast was modelled on the basis of a proprietary econometric model (description of methodology included in the document) and takes into account key macroeconomic indicators, i.e. unemployment rate, inflation rate, GDP growth rate and investment rate (in relation to GDP). The current forecasts are as follows.

Unemployment
2021: 6.1%
2022: 5.9%

Inflation
2021: 4.0%
2022: 3.1%

GDP growth
2021: 4.0%
2022: 5.1%

Investment rate (% of GDP)
2021: 16%
2022: 17.2%

Basing on the forecast for 2021-2022, three factors can be identified that will have the greatest impact on the condition of enterprises in the years to come. These are the following: a significant slump in corporate investment during the crisis and the future impact of post-crisis pro-investment packages targeted at specific industries; wage pressure as a result of high inflation, a mismatch between the structure of supply and demand in the changing labour market, and the low unemployment rate; non-uniform inflation striking harder industrial sectors and those that cannot freely shape the prices of their products and services or easily renegotiate contracts.

 

See more: Economic forecast for the years 2021/2022