Join us!
  • PL
  • EN
    • szukaj

    Commentary by the Union of Entrepreneurs and Employers: economic regulations should come into force once a year, after at least 12 months – a recipe for regulatory instability

    Posted on by Weronika Marzec

    Warsaw, 24 November 2022 

     

    Commentary by the Union of Entrepreneurs and Employers: economic regulations should come into force once a year, after at least 12 months – a recipe for regulatory instability

     

    • According to a Grant Thornton study, in the period from January to September 2022, the average vacatio legis period for laws and regulations governing business in Poland was 31.9 and 6.9 days respectively.
    • Year on year, the tendency to reduce the length of the vacatio legis period increases, forcing businesses to implement new regulations immediately, which becomes particularly difficult with the start of each new calendar year, when the accumulation of the introduction of new regulations is observed.
    • Too short vacatio legis period is a real barrier to the development of Polish business, with particular emphasis on micro, small and medium-sized enterprises, which account for 99.8 per cent of businesses in Poland.
    • For years, the Union of Entrepreneurs and Employers has been calling for the introduction of a principle whereby all economic regulations come into force only on 1 January of a given year and are preceded by at least 12 months of vacatio legis.


    The stability and predictability of the legal and regulatory environment is one of the basic elements necessary for the continuous development of domestic enterprises. Meanwhile, the law in Poland changes too often and entrepreneurs have far too little time to adapt to new regulations. Companies’ confidence in the state therefore remains limited, and this translates into a decline in investment potential.

    The Union of Entrepreneurs and Employers has long taken the view that all new economic regulations should come into force simultaneously on the first day of January with a 12-month vacatio legis. This will give businesses a year to adapt to the changes in the law and reduce the amount of time needed to implement new procedures and requirements. This bold move would definitely change entrepreneurs’ perception of Poland as – in many cases – a business-hostile environment in terms of the quality and pace of legislative change. Such a pro-business refocusing would also help officials, who, with more time to refine documents, could improve the quality of legal acts, which today are often drafted in haste and enacted in the same way – many times with numerous errors.

    As calculated by Grant Thornton analysts in the study Zwolnij, szkoda firm! Vacatio legis w polskim prawie gospodarczym as recently as 2011, the average vacatio legis of legal acts regulating the rules of conducting business activity in Poland was 53.2 days for acts and 19.8 days for regulations. At the time – from today’s perspective – it was a relatively comfortable situation. In 2022, in the period from January to September, as the referenced report reads, this time has decreased to 31.9 days for acts and 6.9 days for regulations. At a time of rising business costs, these figures cannot instil optimism – especially when one considers the continuing trend of reducing “response times” to new legislation.

    Data provided by Grant Thornton also shows that as many as 44 of the 78 laws that came into force in 2021 had a vacatio legis of between 0 and 14 days. Similarly, as many as 178 of the 355 regulations that came into force in 2021 were implemented “on the fly”. Of the 78 laws that came into force last year, only 4 were subject to a minimum six-month vacatio legis. Similarly, only 4 out of 355 regulations received a vacatio legis of minimum three months. Statistics show the abuse of Art. 4 of the Act on promulgation of normative acts and certain other legal acts, and the use of provisions on “important state interest requiring immediate entry into force of a normative act”.

    The tendency to abruptly shorten the vacatio legis in the context of laws entering into force with the arrival of the new year is also worrying. Here, the average vacatio legis for laws is 25.8 days, and for regulations 5.9 days. This only demonstrates an unnecessary haste in the creation and implementation of laws, which entrepreneurs often cannot keep up with. However, once they manage to implement the new regulations in their business, it often turns out that – while the vacatio legis is still in effect or immediately afterwards – numerous amendments are introduced, destroying the new order that has just been established.

    Meanwhile, while in 2021 the average vacatio legis of the Polish law was 33 days, in the Czech Republic it was 98.7 days, and while in the same year the average vacatio legis for regulations was 7.2 days, in Sweden it was 76.6 days. Both countries compared with Poland are members of the European Union, so they are bound by similar procedures to our country. 

    The problem is relevant for all businesses operating under Polish law, but it is most acutely felt by representatives of the SME sector, which often does not have specialised units responsible for thorough analysis of legislative acts. It is worth mentioning that SMEs account for as much as 99.8 per cent of domestic enterprises, while employing 67.4 per cent of those working in the business sector. Therefore, the “problematic” vacatio legis particularly affects companies generating every second zloty (49.6% of GDP according to PARP data), which are the flywheel of the Polish economy.

    It should be remembered that the creation of a business-friendly legal and regulatory environment should be one of the main objectives pursued by the state. This is particularly important at a time of economic turbulence and general uncertainty about the development of the macroeconomic situation. Today, however, the legislative environment forces companies to adapt immediately to new regulations, which is time-consuming and costly – often companies in the SME sector have to use the services of specialised external entities in order to implement new regulations immediately. The lack of order in the issue of vacatio legis – bearing in mind also the tendency to reduce it every year – already makes companies take a close look at the issue of planning investments in Poland, which should be treated as a priority in the current economic situation. The uncertain legislative environment disturbs continuous economic development.

    For years, the Union of Entrepreneurs and Employers has been calling for the introduction of a principle whereby all economic regulations come into force only on 1 January of a given year and are preceded by at least 12 months of vacatio legis. We believe that this solution would be a good answer to the problem of an increasingly unstable regulatory environment for companies.

    How to support SMEs in the public procurement market? Let us not waste this opportunity!

    Posted on by Weronika Marzec

    Warsaw, 30 November 2022 

     

    How to support SMEs in the public procurement market? Let us not waste this opportunity!

     

    • The domestic public procurement market is characterised by insufficient competitiveness. It is therefore desirable – in terms of the economic conditions – to increase the participation of the SME sector in the use of public procurement. Currently, the participation of SMEs as public procurement contractors is disproportionately low in relation to their role in the domestic economy.
    • There are a number of legal instruments potentially supporting the SME sector in the public procurement market. The most important of these include the possibility of submitting partial tender offers (division of a contract into lots); refraining from the formulation of conditions for participation in the procedure; non-application of optional grounds for exclusion where it is not necessary; flexible application of tender evaluation criteria; appropriate descriptions of the subject matter of the contract; the possibility to waive the requirement for a bid deposit or to set its amount at a reasonable level; creating contractor-friendly contract templates; the possibility for consortia to submit tenders; no artificial aggregation of contracts; application of Art. 30 sec. 4 of the Public Procurement Law; not reserving the obligation of personal performance of a part of the contract; answering all questions regarding the Terms of Reference; extending deadlines for the submission of tenders; using, where possible, cost estimate-based remuneration or not requiring the submission of documents where contractors’ statements are sufficient. The implementation of at least some of these opportunities could reduce the current disparities with regard to the potential of the SME sector and its participation in the public procurement market.
    • Contracting authorities in the public procurement system should use the concept of local content, the essence of which is supporting SMEs (both on a national and regional level). In order to create the right conditions for their increased participation in the system, it is necessary to raise awareness of the existence of the instruments provided for in the Public Procurement Law to facilitate the participation of SMEs in tender procedures.
    • It is possible and desirable for contracting authorities to apply the concept of local content to the public procurement system when it is not the primary and only objective, but a secondary objective that takes into account the specific characteristics of SMEs, such as the pursuit of environmental, innovative or social goals. The concept of local content is part of the evolutionary changes taking place in the public procurement system.
    • The National Procurement Policy makes it possible to put the principle of local content into practice, as it is itself a source of secondary objectives aiming to increase the level of innovation in the national economy in line with the development of solutions of an environmental, social and health-related nature.
    • The concept of local content can be applied to both domestic and EU proceedings. It should then be borne in mind that national contracting authorities must take into account the context of strategic objectives from a state perspective. Since supporting local SMEs is possible at EU level, it is therefore desirable for the domestic public procurement system – provided, however, that the process is carried out in compliance with the principles of EU public procurement law.
    • The Public Procurement Law provides contracting authorities – particularly local authorities – with a number of instruments to put the concept of local content into practice. The crucial point in this respect remains the demonstration of significant correlations between the application of the chosen solution and the actual, objective needs and the goal the contracting authority wishes to achieve.

    The role of SMEs in the national economy in the face of challenges in the public procurement system – untapped potential

    According to European Union figures from 2020, public procurement accounts for around 19 per cent of the Community’s GDP, which translates into an annual figure of around EUR 2.3 trillion. In Poland, their share of GDP is lower, at approximately 10 per cent, which nevertheless accounts for up to PLN 200 billion per year.

    Considering the scale of the functioning of the public procurement sector and its contribution to building key economic indicators, attention should be drawn to the insufficient share of micro, small and medium-sized enterprises in the percentage of bids submitted in tenders both below and above the EU thresholds. The figures for contracts awarded also look unfavourable for SMEs.

    Meanwhile, according to data from Statistics Poland in 2020, of Poland’s 2.3 million non-financial enterprises, 99.8 per cent were in the SME sector. 97 per cent of the pool of said 2.3 million companies are micro-enterprises with up to nine employees – only 3.7 thousand are entities with more than 250 employees. The trend continues – between 2014 and 2020, the number of micro-enterprises in Poland increased by more than half a million according to Statistics Poland. At the same time, the number of small, medium and large companies decreased by more than 10,000. At the same time, it is the SME sector that has been hit the hardest – due to insufficient financial reserves – by the COVID-19 pandemic, causing the need for support for the sector.

    Despite such a significant share of SMEs in the total number of enterprises in Poland, the share of bids submitted by them in public procurement below the EU thresholds in 2020 in Poland was 82 per cent[1]. This is a slightly higher figure than in previous years (82 per cent in 2019, 79 per cent in 2018, 80 per cent in 2017). In 2020, construction contracts were the most sought after by the SME sector (88 per cent). In the case of bids for services and supplies, the SME participation rate was 79 per cent. The most favourable bids from the SME sector were found in 81 per cent of tenders below the EU thresholds in 2020, accounting for 85 per cent of the value of total contracts. 

    The situation looks less favourable when contracts with a value above the EU thresholds are taken into account. This is where the percentage of bids submitted by SMEs amounted to just over 65 per cent of the total, with 60-62 per cent being considered the most favourable, which translated into 48 per cent of the total value of the contracts (approximately PLN 69.2 billion). The participation of SMEs as public procurement contractors is disproportionate in relation to their role in the domestic economy.

    Increasing the competitiveness of the public procurement market

    The Polish public procurement market is characterised by relatively low competitiveness, which is directly attributable to too few bids submitted in public procurement procedures. According to the Public Procurement Office in its Report on the Study on Low Competitiveness in Public Procurement in 2020, an average of just 2.786 bids were submitted for contracts below the EU thresholds.

    The above figure represents a low percentage of companies that choose to take part in the procurement process and translates into a limitation of the possibility for the contracting authority to achieve the expected maximum efficiency in meeting the identified need. This situation also contributes to the public procurement market being dominated by the largest companies accounting for only 0.2 per cent of the Polish business market.

    The reasons for the reluctance to bid for public procurement contracts can primarily be found in the limited knowledge of the instruments that the Public Procurement Law offers to the SME sector, the excessive complexity of the public procurement market and – as emphasised by entrepreneurs themselves – the hostility of the system towards small and medium-sized companies, resulting in the fear of violating public finance discipline.

    There is therefore a pressing need to increase the participation of representatives of the SME sector in the public procurement market, all the more so as, given its size, any disruption to it could translate into a significant slowdown in economic growth. An additional advantage of SMEs is the opportunity to meet the needs of increasing the use of innovative solutions offered by the sector.

    Meanwhile, local authorities – which are also the most important purchasers of services, supplies and construction work provided by contractors (51.8 per cent of all contracts in 2020) – are reluctant to take advantage of new opportunities to ensure that the concept of local content is implemented. The effect of this is particularly evident in the construction sector, where the most important contracts tend to be executed by the largest companies using the SME sector as subcontractors, who often have problems receiving payment for their work on time. The inability of the SME sector to bid on its own (as a result of contracting authorities not using instruments such as advance payments or splitting the contract into lots) results in SME representatives competing unnecessarily in terms of price for subcontracts with the general contractor, which translates into lower earnings and reduced profitability for these companies.

    When drafting the current Public Procurement Law, the legislator recognised the problem, resulting in numerous amendments to the document, which – contrary to popular opinion – do not exclude the application of the local content principle. The current form of the Public Procurement Law gives the contracting authority a number of instruments to support SMEs both on the regional and national level.

    All in the hands of the contracting authorities

    Contracting authorities, particularly local authorities – based on current legislation – have a number of instruments at their disposal that potentially support the concept of local content and, at the same time, do not violate the provisions of the Public Procurement Law.

    A basic instrument that could be used to increase the participation of SMEs in the public procurement market is – here the contracting authority has discretion in the application of the rules – the possibility to divide the contract into lots. The contracting authority also has the right to limit the number of lots to be awarded to one contractor. Both the Classical Public Sector Directive and the Utilities Directive gave Member States a choice regarding the introduction of an obligation to divide a contract into lots, but Poland did not make use of this option.

    The contracting authority – according to the latest formulation of the Public Procurement Law – has also gained the full right – without violating the provisions of the Law – to decide not to formulate the conditions for participation in the procedure. This gives representatives of the SME sector the chance not to submit full documentation and declarations when it is not necessary. De-bureaucratising this element of the procedure – assuming that contracting authorities make use of this privilege – could have a huge impact on increasing the competitiveness of the public procurement market and the role of SMEs in it. The contracting authority may also choose not to apply the optional grounds for exclusion, provided that this decision does not violate the principles of competitiveness and does not create a risk of inadequate performance of the subject matter of the contract. The use of optional grounds for exclusion must always be associated with a clearly defined objective.

    Some opportunities for implementing the local content concept are also provided by the bid evaluation criteria. In this case, although the contracting authority may not directly promote SMEs, nothing prevents it from using criteria whose implementation will be simpler from the SME’s point of view – such as, for example, the employment by these entities of staff living in close proximity to the place where the subject of the contract is to be performed, which may translate into a higher efficiency of its performance.

    An opportunity for the SME sector to increase its participation in the public procurement market is also provided by the fact that there is no obligation to establish a requirement to pay a bid deposit, regardless of the value of the contract, the type of contract and the mode of the procedure conducted. This is new in relation to the 2004 Public Procurement Law. Given the optional nature of the deposit, any waiver of it by the contracting authority increases the competitiveness of the procedure.

    In financial matters sensu stricto, the provision of Art. 442 of the Public Procurement Law, which provides for the possibility for the contracting authority to make an advance payment – under certain conditions – is also of paramount importance. This is a nod to representatives of the SME sector, who usually have less financial capacity than the country’s largest companies. Advance payments fully comply with EU law and increase the competitiveness of the public procurement market in all cases.

    Contractors also have the option of submitting a bid as a consortium. This has a positive impact on increasing the potential of contractors to meet the conditions imposed by the contracting authority in the procedure. However, the contracting authority has the option of limiting the freedom of contractors in terms of the fulfilment of individual conditions for participation in the procedure. In order to increase the chances of SMEs to submit the most well-prepared bid, contracting authorities may use the privilege of extending the deadline for the submission of bids – but this must then be consistent with the possibility of properly and fully preparing the bid. Extending the deadlines for submitting bids is one way of putting the concept of local content into practice – longer timeframes mean more realistic opportunities for SMEs, which do not usually have specialised units responsible for quickly preparing a full bid and completing the necessary documentation. Contracting authorities – in order to stimulate SMEs in the field of public procurement – may also use the formula of cost estimate-based remuneration, which, unlike lump-sum remuneration, offers relative certainty about receiving a higher remuneration from the contracting authority in a situation in which the contractor incurs additional costs. Cost estimate-based remuneration is a formula that directly encourages SME contractors to increase their participation in the public procurement market.

    Contracting authorities can also implement the local content concept using a number of other instruments provided by the Public Procurement Law. These include the creation of contract templates that are as transparent as possible, the appropriate descriptions of the objects of the contracts, the departure from the popular practice of artificially aggregating contracts, the provision of answers that are as concise as possible regarding the contract specifications or the careful reservation of the obligation for the contractor to perform part of the contract personally.

    Conclusions

    Local authorities and other contracting authorities, in accordance with the Public Procurement Law, have the opportunity to implement the concept of local content when carrying out both national and EU procurement, which effectively increases the chances of the most numerous group of enterprises in Poland, i.e. the SME sector, to participate in the public procurement market. The use of the aforementioned instruments increases the competitiveness of the public procurement sector and wards off the prospect of the market being dominated almost exclusively by the largest companies.

    On the one hand, cooperation between the public and private sectors, based on the principles of partnership and dialogue, can encourage more entrepreneurs – with particular emphasis on entrepreneurs from the SME sector – to participate in procurement procedures. On the other hand, a wider range of companies submitting bids is also an opportunity for contracting authorities to choose the most favourable offer in terms of primary and secondary objectives.

    For this to happen, however, there must be a real change in the mentality of the contracting authorities, which must be followed by the willingness – based on real tangible benefits – of contractors, including representatives of the small and medium-sized enterprise sector.

    ***

    [1] Data based on the Report of the President of the Public Procurement Office on the Functioning of the Public Procurement System in 2020.

    Marcin Nowacki was elected Chairman of the EU-Ukraine Civil Society Platform

    Posted on by Weronika Marzec

    Warsaw, 23 November 2022 


    Marcin Nowacki was elected Chairman of the EU-Ukraine Civil Society Platform


    Marcin Nowacki, Vice President of the Union of Entrepreneurs and Employers, has been elected Chairman of the EU-Ukraine Civil Society Platform within the European Economic and Social Committee. The EU-Ukraine CSP carries out institutional cooperation between the EU and Ukraine in the field of social partner contacts, in particular it monitors the process of Ukraine’s integration into the European Union.

    As a result of its application for membership, which was formally accepted, Ukraine has been granted the status of candidate country for accession to the European Union. However, accession to the Community is a complex and lengthy process, during which Ukraine will have to fulfil many conditions in terms of adapting its economic, legal and political system to the rules in force inside the European Union. This is an area where ongoing cooperation and exchange of experience between European and Ukrainian social partners could prove to be a key element in speeding up and supporting the accession process.

    Opinion of the Chief Energy Technology Specialist at the Union of Entrepreneurs and Employers (ZPP) on the place of oil and natural gas in Europe’s modern hydrogen-renewable economy

    Posted on by Weronika Marzec

    Warsaw, 14 November 2022 

     

    Opinion of the Chief Energy Technology Specialist at the Union of Entrepreneurs and Employers (ZPP) on the place of oil and natural gas in Europe’s modern hydrogen-renewable economy

     

    On Wednesday, 3 November 2022, during the conference Energy security in times of war, co-organised by the Union of Entrepreneurs and Employers (ZPP), we had the opportunity to initiate a discussion aimed at demonstrating the role of conventional energy carriers in the future in which energy sources are expected to be converted into hydrogen and renewables. We attempted to show the future of oil and gas over time in the global and European economy and outline the future of fossil fuels in the Polish energy system.

    The discussion was moderated by Włodzimierz Ehrenhalt, Chief Energy Technology Specialist at ZPP. The invited panellists were experienced practitioners specialising in the sector of renewable energy sources and oil and gas market experts. Maciej Bando, long-standing President of the Energy Regulatory Office and Chairman of the Advisory Board of the OZE POWER Congress, participated in the discussion. The Orlen Group was represented by Mr Tomasz Jarmicki, Director of the Research and Innovation Department of PKN Orlen, Central Branch of PGNiG in Warsaw, and the Polish Wind Energy Association was represented by  Janusz Gajowiecki, President of the Association. Bogdan Pilch, General Director of the Polish Chamber of Power Industry and Environmental Protection, and Tomasz Surma, Regulatory Affairs and Public Relations Director of Veolia Energia Polska S.A., also took part in the panel.

    In the context of predictions of what the future of natural gas and oil will be and whether hydrogen and RESs will be able to replace current energy carriers, all discussants agreed that this would vary around the world depending on the region. The rapid development of renewables in Europe will certainly lead to the gradual elimination of oil and gas as energy resources in the foreseeable future. Based on the statements of the European Commission and past experience, it can be predicted that renewables, together with hydrogen facilities, will replace gas and oil in transport and heating around 2045. In the energy industry, this will probably happen a little sooner. 

    The experience resulting from the war in Ukraine and Russia’s raw material policy has shown that only complete energy autonomy can save Europe from the crisis we are currently facing. Europe will certainly learn from the current extremely complex situation and will probably reduce its demand for gas and oil to the supply level guaranteed by European suppliers. This will, however, mean that both of these raw materials will be back-up and complementary sources for renewables and hydrogen. Of course, they will continue to remain basic raw materials for the purposes of the large-scale chemical industry.

    Europe is likely to remain a leader in the zero-carbon electrification of economic life and industrial processes. Other parts of the world will, of course, develop green energy, but coal, oil and natural gas will play key roles in their economies for a long time to come. It is important to keep in mind that today China is a major investor in green energy; to secure its position as an export leader, it will be forced to move quickly from carbon to zero-emission energy, especially in the supply of energy to its industry.

    During the discussion, the question was raised about the fate of petrochemical companies in the new electric and hydrogen economy in Europe and, in the future, globally. Extensive corporate investment programmes in renewable and hydrogen energy sources can already be observed. The scale of investment made by the largest companies in non-fossil energy sources is enormous and will enable their gradual business reorientation. There are many cases of mergers or equity investments between oil companies
    and entities operating in the green energy sector.

    The development of renewable energy sources and perhaps a return to modern nuclear power is likely to make Europe completely independent of fossil fuels. According to experts, the development of wind power in Poland and Europe is progressing, and it is now an irreversible process, not least because of the need to generate large supplies of green energy for green hydrogen production processes.

    The Polish nuclear power plant is expected to be operational in 2033. The project involves the construction of three units with a capacity of 3 GW, which will reduce coal consumption in the national energy system by at least 15 to 20 per cent. If this happens, it will be a positive signal for the entire energy sector in Europe. Three gigawatts of energy from Poland’s first nuclear power plant equates to more than 25 terawatt-hours of clean energy, which is as much as we are now producing from all renewable sources.

    However, while looking forward to the construction of the first nuclear power plant, we must not forget the current challenges facing the energy industry. As a country, we should focus on the short-term problems of our energy and heating industry. And, according to industry representatives, the situation is becoming dramatic. The blocking of the development of onshore wind energy by the so-called 10H Act has led to a slowdown in investment in the entire renewable energy industry in Poland, which prevents the dynamic growth of RESs, makes it impossible to sufficiently influence the reduction of energy prices and may lead to local power outages, especially in the areas where the existing infrastructure is outdated and overloaded. The speed at which the liberalisation of the “anti-wind” legislation is proceeding does not allow for rapid investment in modern generation sources and slows down the modernisation of transmission lines. Probably, already around 2025, we will be forced to import a lot of energy, especially green energy, for companies exporting products to European markets. And until we get our own offshore wind farms and nuclear power plant up and running, this is unavoidable. Perhaps the launching of the “Bloki 200+” (200+ Units) project, which is a programme of refurbishments to make the 200MW units more flexible and adapt them to work with renewable energy sources, could alleviate the energy shortage, but it has also been put on hold.

    The situation of district heating in smaller centres is particularly difficult. We have approx. 400 district heating systems, mainly based on coal technologies. Converting these systems to gas appeared to be the simplest solution so far. But is this sensible in the current situation? Will gas price dynamics return to that observed before 24 February 2022? Although we do not know the answer, Poland seems to be prepared for increased gas needs related to the stabilisation of the operation of renewable energy sources, and in the future, once the gas market in Europe has stabilised, the share of gas in the Polish energy mix is likely to be significant despite the current problems. All the more so as some investors are already working on upgrading their gas systems using hydrogen. In the future, district heating equipment could be powered exclusively by hydrogen. Green combined heat and power plants are the future of the heat market in Europe. The experiences of countries such as Denmark, the Netherlands and Norway in this area are paving the way for other European countries to achieve this goal.

    Conclusions

    It is completely incomprehensible that, in the face of the energy crisis, legislative delays are holding up investments in wind energy of 10 GW, i.e. approx. 30 TWh of cheap green energy production. The wind energy sector is prepared for rapid investments and sees opportunities to reduce the green energy shortage and significantly lower energy prices in the Polish market. In general, in the opinion of the experts, gas and oil are still expected to be used in the energy industry as carriers complementing renewable sources. The use of these raw materials in chemical processes is also undeniable.

    The state of the Polish energy industry and the problems facing the energy and gas market are cause for concern. Investment delays in virtually every sector of the energy industry may result in high prices, as well as insufficient supply of energy and heat. The short-term solution to this problem is import, at prices that are difficult to predict. Although transmission capacity is far from sufficient.

    Only ad-hoc legislative and investment measures can reduce the threat of reduced power supply for industry and households.

    We consider the following issues to be particularly important:

    • Unblocking investment opportunities in onshore wind energy (Bill 10 H),
    • Facilitating investments in renewable sources in post-industrial and post-mining areas,
    • Intensifying investments in offshore wind farms – rational state support in this area,
    • Accelerating works on the Act on Direct Lines,
    • Implementing the programme concerning the regeneration of the most efficient 200 MW units (“Bloki 200+” programme),
    • Launching the business prosumer programme – providing assistance and support to companies building their own energy sources,
    • Commercialising low and medium voltage lines (local transmission grid).

    The proposals presented above do not exhaust the catalogue of needs – the scope of necessary changes in legislation is much greater, and the lack of coordinated work in this area exposes the Polish economy to the loss of attractive export markets for the domestic industry.


    Włodzimierz Ehrenhalt,
     Chief Energy Technology Specialist at ZPP

     

    See: 14.11.2022 Opinion of the Chief Energy Technology Specialist at the Union of Entrepreneurs and Employers (ZPP) on the place of oil and natural gas in Europe’s modern hydrogen-renewable economy

    Commentary of the Union of Entrepreneurs and Employers (ZPP) on the necessary reduction of expenditure on social and welfare programmes in hard economic times

    Posted on by Weronika Marzec

    Warsaw, 10 November 2022 

     

    Commentary of the Union of Entrepreneurs and Employers (ZPP) on the necessary reduction of expenditure on social and welfare programmes in hard economic times

    • Due to the increasingly difficult situation of public finances, the government should aim to redefine the direction of its social policy. The abolition of benefits such as the thirteenth and fourteenth pension, the launching of the “Dobry Start” (Sure Start) programme and the reorganisation of the “Rodzina 500 plus” (Family 500 plus) programme could contribute to a significant reduction in budget spending and constitute a key source of desired savings.
    • Returning to the original form of the “Rodzina 500 plus” programme, excluding the payment of the benefit for every first child without setting an income threshold, could reduce the budget costs of the programme by about PLN 20 billion per year.
    • The abolition of the so-called thirteenth and fourteenth pension can lead to a direct reduction of expenditures related to the pension system by almost PLN 25 billion a year.
    • Moreover, the effectiveness of any other social and welfare programmes should also be thoroughly assessed.

    Rising inflation and the instability of the economic environment caused by the negative economic consequences of the pandemic and Russia’s armed aggression against Ukraine and the related energy crisis should force the government to redefine the direction of its fiscal policy.

    Although the Ministry of Finance reported a budget surplus for the period from January to September 2022 in the amount of PLN 27.5 billion, it should be remembered that a significant proportion of expenditures is charged to non-budgetary funds. And thus, based on Poland’s fiscal notification presented by Eurostat, the general government deficit in 2022 will be approx. PLN 141.4 billion compared to approx. PLN 48.195 billion in 2021. The deficit of the central government subsector will increase from PLN 49 billion in 2021 to PLN 135.9 billion this year. The local government surplus will also be lower – PLN 6.52 billion in 2022 compared to PLN 14.92 billion in 2021. The deficit of the social security funds subsector is expected to be PLN 12.84 billion. The cost of aggregate debt servicing for the public finance sector will also be high and will amount to 1.75% of GDP, i.e. almost PLN 53 billion.

    The government seems to assume that adjustments to fiscal policy should involve instruments that have as little direct impact on the sphere of social benefits as possible. According to reports, the Prime Minister issued a working order for the introduction of a programme of budget cuts in ministries, which is expected to result in savings of about PLN 10-15 billion – it is still a negligible amount with respect to real needs. Reducing expenditures on social programmes seems to be the most natural and desirable response today, which should be reflected in the decisions of state authorities, especially given the fact that the most important social programmes have cost us around PLN 250 billion since 2016.

    In February 2022, even before Russia’s invasion of Ukraine, the Union of Entrepreneurs and Employers (ZPP) urged the decision-makers to adopt a “conservative turn in social and budgetary policy” in the face of potential economic risks that make it much more difficult to stimulate economic growth with consumption, which is misguided in its nature. Already at that time, ZPP warned that, in the near future, high expenditure on social benefits could become cumbersome from a budgetary point of view. Cuts in spending on social programmes are today the surest way to restore the sustainability of the public finance sector. Plans to redefine the policy directions in other areas are subject to considerable risk resulting from uncertain estimates and forecasts, which are made in times of pandemic and war.

    “Rodzina 500 plus” programme

    As far as social spending is concerned, the flagship programme of Zjednoczona Prawica – “Rodzina 500 plus” (Family 500 plus) has been the biggest strain on the budget for years. By the end of 2021 alone, it cost us about PLN 180 billion. As at today, the annual cost of the “Rodzina 500 plus” programme is PLN 41 billion. This is more than twice as much as the cost of the programme in its original version – at the time, the then Ministry of Family, Labour and Social Policy reported that the cost of the programme would be PLN 21 billion.

    In this context, it is worth recalling that in the original version of the “Rodzina 500 plus” programme, benefits were provided with respect to the second and each subsequent child to recipients whose income per household member did not exceed PLN 800 or PLN 1,200 in the case of a child with a disability.  In the second half of 2019, the income threshold was abolished, and the benefit was extended to every child, which led to an increase in expenditure on the programme to PLN 41 billion per year.

    Restoring the original version of the programme, i.e. restoring the income threshold and excluding every first child from the benefit, would result in savings of about PLN 20 billion per year and a more targeted flow of funds under the programme.

    Potential plans to index the benefit in its current form should also be abandoned. The Pollster research institute asked Poles in a survey commissioned by se.pl in October this year whether the government should increase the “Rodzina 500 plus” benefit to PLN 800. Fifty-one per cent of the respondents answered unequivocally “no”, 12 per cent answered “hard to say”, and 37 per cent of the respondents were in favour of an increase in the benefit. The results of the survey show a change in the way Poles think about budget spending. The majority of the respondents are aware of the fact that the costs of indexation of the “Rodzina 500 plus” programme would be borne by everyone, and that any attempt to “catch up with inflation” by indexing social benefits is too costly and counterproductive from the point of view of an already strained state budget. The results of the survey are also a signal for the ruling party, which should not see an increase in this benefit as an opportunity to extend the electorate – this is particularly important in the context of next year’s parliamentary elections.

    Allowance for pensioners

    The desire to maintain the so-called thirteenth and fourteenth pension is an incomprehensible move from the point of view of the difficult economic situation in recent years. It is worth recalling that the second pension was originally intended to be a one-off allowance, but – according to the government’s announcement – it is also to be paid in 2023 at an indexed, higher rate. According to the Ministry of Family, Labour and Social Policy, in 2022 alone, the cost of the fourteenth pension is expected to be PLN 11.4 billion. In 2023, it will be higher, as the minimum pension rate will also be adjusted. The popular thirteenth pension will cost us about PLN 13.1 billion in total in 2022.

    In October 2022, inflation in Poland stood at 17.9 per cent and was the highest from December 1996. Despite regular increases, instead of reforming the ossified pension system, the government has only exacerbated its problems in recent years. The introduction of the thirteenth and fourteenth pension and the increase in the retirement age have dramatically increased costs generated by the pension system. It is also difficult to find an economic justification for further transfers. We should still consider them in the context of purely politically motivated actions.

    According to the Union of Entrepreneurs and Employers, the “belt-tightening” policy should largely apply to the pension system. From the outset of the discussion on the introduction of additional allowances in the form of the thirteenth and fourteenth pension, we believe that they unnecessarily strain the budget and are used to achieve political goals with respect to an arbitrarily designated group of the electorate; therefore, once again we emphasise the urgent need to abolish both allowances, namely the thirteenth and fourteenth pension. It should be noted that compared to the group of OECD countries, the Polish pension system is one of the most expensive systems, consuming more than 10% of GDP annually.

    “Dobry Start” programme

    “Dobry Start” (Sure Start) or “wyprawka” (school starter kit) or “300 plus” is another social programme that is excessively costly from the point of view of budgetary burdens. The essence of the programme is the annual payment of a one-off benefit to parents of school-age children up to 20 years of age or up to 24 years of age in case of children with disabilities.

    The annual cost of the programme is almost PLN 1.45 billion, amounting to a total of almost PLN 7.5 billion from the start of the programme until the end of 2022. Based on the latest data on the condition of the public finance sector, it would be reasonable to abandon the programme in subsequent editions, which would give real savings of around PLN 1.45 billion per year.

    Other relevant social and welfare programmes

    The “Rodzinny Kapitał Opiekuńczy” (Family Care Capital) programme, which is a new benefit proposed in the Polish Deal, costs the budget PLN 3.15 billion per year. Moreover, parents of children aged between 12 and 35 months are entitled to a benefit of PLN 12,000 for their second and subsequent child. The allowance is paid in monthly instalments. The aim of the benefit is to encourage parents to return to the labour market, but it is difficult to determine its effectiveness due to the short duration of the programme. However, the introduction of an income threshold should be considered, which could significantly reduce the amounts of the payments and relieve the state budget.

    “Mama 4 plus” (Mother 4 plus), the tourist voucher and other similar programmes represent a relatively small budgetary burden.

    Conclusions

    Abandoning some of the budgetary burdens associated with spending on social programmes or changing the criteria for some of the existing programmes will make it possible to save funds in the short term, which is necessary in light of the current crisis. If we return to the original version of the “Rodzina 500 plus” programme and give up the thirteenth and fourteenth pension, as much as PLN 40 to 50 billion per year will remain in the budget.

    The government should also make every effort to change the tax system in order to give entrepreneurs a sense of stability and ensure an increase in the level of investment. The savings of PLN10-15 billion achieved by the government’s policy of cuts in ministries is a significant value but insufficient in the face of current challenges – after all, the anti-inflation shield alone is worth three times as much.

     

    More: 10.11.2022 Commentary of the Union of Entrepreneurs and Employers (ZPP) on the necessary reduction of expenditure on social and welfare programmes in hard economic times

    For members of the ZPP

    Bulletin of Law and Legislation
    Knowledge base

    Our websites

    Subscribe to our newsletter