Warsaw, 6^th September 2021

 

Survey by the Union of Entrepreneurs and Employers: Polish New Deal in the eyes
of employees and the self-employed – clear pessimism regarding government’s proposals

 

The results of the survey commissioned by the Union of Entrepreneurs and Employers clearly indicate there is reluctance amongst respondents regarding the solutions included the Polish New Deal.

As many as 64% of all people surveyed believe they will be worse off as a result of the tax changes provided for in the Polish New Deal, while only 12% believe they can benefit from them. As many as 83% of all respondents are concerned that the planned increases in taxes will cause a further increase in prices. As the results of the research indicate there is a high risk of such a scenario, as 65% of entrepreneurs surveyed declared that tax changes would force them to increase the prices of their products or services.

As Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers, points out: “Such widespread disapproval of tax changes should give the government food for thought. Even among employees whose economic conditions will not change as drastically as the situation of entrepreneurs, there is opposition to the proposed solutions. Employees generally perceive the benefits of the Polish Deal as having very little impact on the situation of household budgets. For entrepreneurs, the originally proposed increase in the health insurance premium is, in turn, a heavy burden.”

In this study, people were also asked about potential sources of healthcare financing. According to the majority, as many as 56% of respondents, healthcare should be financed primarily from a more effective taxation of international corporations. Only 9% of participants surveyed expressed the opinion that higher expenditure on healthcare should result from higher taxation of Polish companies.

We encourage you to familiarise yourselves with the report summarising our quantitative study.

Warsaw, 7^th September 2021

 

Analysis of the Polish e-commerce market. Expansion potential of Polish companies

 

The Union of Entrepreneurs and Employers commissioned a study of the e-commerce market in Poland. In-depth interviews as part of that study were conducted in August 2021. The study is already the second analysis of the e-commerce market carried out by the Union.

The first report dedicated to the Polish e-commerce market, published in March this year, focused on the quantitative analysis of the market situation and development opportunities with the use of e-commerce for small and medium-sized companies.

This time, the study aimed to identify the reasons why Polish companies are afraid to utilise e-commerce tools or take advantage of international expansion, as well as on ways that can dispel these fears, and thus unlock the potential of Polish companies.

 

Find out more: 07.09.2021 On-line sales survey of companies

Warsaw, 23^rd July 2021

Memorandum of the Union of Entrepreneurs and Employers on the post-pandemic recovery
of the Polish economy

 

1. Introduction

The coronavirus pandemic that broke out in Q1 2020 led to an unusual recession on a global scale. It was sudden and deep, and left a lasting mark on several sectors of the economy. According to the calculations of the World Bank, the global economy shrank by 4.3% last year. The scale of the recession was milder than it had been assumed at the beginning due to, among other things, the fact that developed countries dealt with the pandemic relatively well.

The pandemic recession affected individual sectors of the economy in various ways. The industries that lost customers due to restrictions on the movement of people were affected most – these include industries such as tourism, food services, air transport, and hospitality. On the other hand, the broadly understood technology industry has benefited from keeping people at home. Certain industries and sectors passed through the worst period of the pandemic in a relatively neutral manner.

The pandemic also had, of course, a negative impact on the Polish economy, leading to the sharpest decline in GDP since the economic transformation. It amounted to -2.7% last year, and was the worst result of the Polish economy since 1991.

The year 2021 brings a post-pandemic rebound, stimulated by governments and central banks. Governments have launched bailouts totalling trillions of dollars. Central banks have kept rates at very low levels – and even lowered them in numerous cases – thereby offering cheap money and readily available credit.

The GDP growth rate in Q1 2021 turned out to be positive in many of the most important economies. In the US, it was 0.4% year-on-year (hereinafter y-o-y). In China, it skyrocketed to 18.3% y-o-y. In Singapore, it came to 1.3% y-o-y. According to the forecasts of the World Bank, the global economy is to grow by 5.6% this year, which is to be the quickest pace in 80 years. The International Monetary Fund (IMF) claims in turn that it will grow by 6%, and then the growth rate will become slightly moderate in 2022 (4.4% y-o-y). This is without any doubts an effect of a low base, but some readings suggest that optimism has returned to the world economy. Let us have a look, for instance, at the IHS Markit Eurozone Manufacturing PMI – the index of the economic situation in the manufacturing industry in the euro area – which reached in June this year historic highs (63.4 points), after 12 months of increases.

How does the Polish economy compare to others? What does the pandemic rebound in our country look like? Which industries are recovering faster and which ones slower after last year’s recession? How do the phenomena taking place in our main trading partners (e.g. demand shifts) affect selected sectors of the Polish economy? The next wave of the pandemic, possibly to emerge in autumn this year, how destructive could it be? This study tries to earnestly answer these important questions.

2. Rebound of the Polish economy at the beginning of 2021

In Q1 2021, Poland’s real gross GDP (that is, inflation-adjusted) was higher by 1.1% than in the previous quarter according to Statistics Poland (GUS). However, year-on-year, it decreased by 0.9%. (data not adjusted seasonally), which turned out to be a better result than economists expected (the forecast mentioned an increase by 0.9% quarter-on-quarter and a decrease by 1.2% y-o-y).

Investment expenditures positively surprised in Q1 2021 (increase by 1.3% y-o-y, while an 8.6% drop was expected after dropping by as much as 15.5% in Q4 2020). Private consumption increased by 0.2% y-o-y, while a decline was expected. Exports increased by 5.7% y-o-y, and imports by 10%.

How did the Polish economy compare to others in Q1 2021? The economy of the euro area shrank by 1.3% y-o-y (forecast: -1.8%), so it fared well compared to developed European markets. Also compared to other countries of the region, it did quite well, because the Czech economy, for example, shrank by 2.1% y-o-y, while the Lithuanian and the Slovak grew by 1.2% and 0.2% y-o-y respectively.

 

Poland – GDP growth rate y-o-y
[% year-on-year (stable prices of the previous year)]

Source: SpotData / Puls Biznesu

 

Median of Poland’s GDP growth forecasts in 2021
[% year-on-year]

Source: SpotData / Puls Biznesu

 

Data on the Polish economy in May this year turned out to be very good. May was the first month that the economy fully opened after the winter/spring restrictions. Retail sales in May rose in real terms by 13.9% y-o-y after an increase of 21.1% y-o-y a month earlier, and – in nominal terms – it increased by 19.1% y-o-y. Construction and assembly production increased 4.% in May y-o-y against -4.2% y-o-y in April. Sold industrial production increased by 29.8% in May y-o-y after an increase of 44.5% y-o-y in April (which resulted from the low base for April 2020). Therefore, one can see that the domestic economy is in the phase of rapid economic growth, and the construction industry is chasing sales or trade.

 

Poland – level of activity in the economy

[Index, January 2020 = 100 retail sales industrial production construction production]

Source: PKO BP Analyses Centre

 

In this case, what are the forecasts for Q2 and the entire 2021? According to economists at PKO BP, the GDP growth in Q2 amounted to approx. 10% y-o-y, and throughout the year the reading may exceed 5.1% (e.g. due to a revival in investments). According to economists at Bank Pekao, GDP in Q2 could have grown in double-digit terms (approx. 11% y-o-y), and for the entire 2021 it will grow by over 5%. According to the economists at Credit Agricole, the period of shrinking of the Polish economy came to an end with Q1 2021, because in the quarters to come the “base effect” will take effect – exports and consumption will grow. In turn, the Polish Economic Institute (PIE) forecasts that the Polish GDP growth rate this year will amount to 4.4%, mainly due to the effect of delayed demand. The European Commission raised its economic growth forecasts for Poland for 2021 in early July from 4% up to 5% in its own forecast, while the Union of Entrepreneurs and Employers forecasts an increase of 4% in 2021 and 5.1% in 2022.

The dynamic economic rebound – not only in Poland, but around the world – results in a significant increase in the demand for raw materials, which creates price pressure. The so-called non-financial barriers to business appear. In May, the indices of delays in deliveries, production costs, and prices of finished goods reached record highs, whereas the employment, semi-finished stock, and production backlog indices were close to their maximum levels. The data shows a high demand for labour, which, combined with production backlogs, results in insufficient processing capacity, which means that there is need for investment.

 

Business barriers – shortage of raw materials, materials, and semi-finished products (due to non-financial reasons)

Source: PKO BP Analyses Centre

3. Dynamic rebound in certain sectors – manufacturing industry, transport, and trade

As the pandemic recession began last year, economists wondered what shape it would take on as the rebounded afterwards – whether it would be V-shaped (deep crisis, quick rebound), W-shaped (series of recessions and rebounds) or L-shaped (a long-term recession). Today we know that none of these scenarios took place, as the K-scenario took over. This means that certain industries and sectors have quickly and dynamically emerged from the pandemic recession, while others are still in an unenviable situation.

The manufacturing industry, transport, and trade are the best survivors of the pandemic recession, and are recovering the fastest from it. Sold production of industry in Q1 2021 was 7.8% higher than a year ago (when an increase of 0.9% y-o-y was recorded). In May, sold industrial production increased by 29.8% y-o-y, after it skyrocketed by 44.5% in April y-o-y. The Polish manufacturing industry is a beneficiary of the recovery in the global economy.

It is worth taking a look at the export results from Q1-Q2 2021. From January to April, total exports amounted to EUR 90 billion (+19 percent y-o-y) according to GUS. In April, exports of goods increased by 69.2% y-o-y compared to 27.7% y-o-y in March, and in May by 41.7% y-o-y. These double-digit results from April and May are an effect of a low base, but also a display of the strength of demand for Polish goods. Importantly, such results were achieved by Polish exports in connection to the accelerating German economy, our main trade partner.

The demand for car batteries, TV sets, catalytic converters, clothes and furniture produced in Poland is high and growing. The export-oriented automotive industry has a great influence on the excellent results of the industry. Producers of food, plastics, and metal products can also boast a high contribution. Producers of electrical devices, who sell most of their production abroad, also do not disappoint according to GUS and PontInfo data. It is noteworthy too to pay attention to the production of household appliances: according to the report “Household appliances manufacturers and suppliers in the face of new trends and challenges” (“Producenci i dostawcy AGD w obliczu nowych trendów i wyzwań” by Bank Santander and SpotData, May 2021) Polish producers satisfy approx. 2% of the global demand, and this increased in the pandemic due to the phenomenon of expenditure substitution (consumers saved on entertainment, so they decided to replace their old washing machines or refrigerators).

 

10 biggest household appliances exporters (billion USD)
[China, Germany, Mexico, Poland, Italy, Turkey, United States, the Netherlands, Thailand, South Korea]

Source: Bank Santander / SpotData

 

Refrigerators and freezers – production in Poland (thousand)

Source: Bank Santander / SpotData

 

However, the industry faces a challenge: supply constraints make production not keeping up with the dynamically growing orders. A great example is the shortage of semiconductors, which has been a big deal in recent weeks, also due to the problems of Tesla. At the same time, in Poland, there are no problems in the automotive sector so far, because vehicle production in May sared by as much as 103.9% y-o-y, after an increase by 370% in April (this was due to an extremely low base).

Trading companies have very good prospects. Private consumption in Q1 2021 increased by 0.2% y-o-y, compared to a decline of -3.2% y-o-y in Q4 2020). Retail sales in May rose in real terms by 13.9% y-o-y, after an increase of 21.1% y-o-y in April. In May, textile sales increased by 92.2% y-o-y and sales of furniture, electronics and household appliances increased by 30% y-o-y.

Furthermore, PKO BP data from payment cards show that in April 2021 consumer demand was under the pressure of anti-pandemic restrictions, but at the beginning of May – along with the opening of the economy – it literally exploded and remained at a high level in the following weeks. Savings of households “forced” by pandemic lockdowns amount to around PLN 85-102 billion, which correspond to 6.5-7.8% of private consumption in 2019. During the pandemic, the savings rate of Poles increased from 3% to in 2019 up to 10% in 2020. Consumers in countries that are leaders in vaccination, such as Israel or Canada, spend a lot after the restrictions were lifted, and Poles will probably do the same.

In 2021, the transport industry is gaining momentum. Transport companies in Q2 2021 evaluated their situation as the best in 30 months – this is indicated by the EFL Barometer reading for the transport industry at 65.6 points (+10.4 points quarter-on-quarter) reflecting optimistic forecasts for investments and sales.

4. How are those most affected by pandemic restrictions doing – services, hospitality, and tourism

Let us now have a look at the industries and sectors that were hit the most by the pandemic and the restrictions that followed. It is mainly the broadly understood services sector – tourism, HoReCa, and the event industrt (concerts etc.) in particular. Its activity for a large part of 2020 and in Q1 2021 was very limited, and people were reluctant to travel or make use of attractions drawing larger numbers of people (such as aquaparks, ski sloped, and restaurants). Furthermore, companies have significantly reduced the number of business trips.

The contribution of the hotel and food services sector as well as cultural activities to the annual GDP growth in Q4 2020 amounted to -0.9 and -2.0 percentage points respectively according to GUS. In Q1 2021, in hotel and food services sector, added value decreased by 77.2% y-o-y (almost as much as in Q2 2020: -78.4% y-o-y), and for the first time in almost a decade, the number of entities in the tourism industry removed from the National Court Register exceeded the number of new companies. Nearly 80 companies disappeared from the Polish tourism market in Q1 2021, and another 185 were suspended, the operation of nearly 500 hotels and accommodation facilities was suspended (+50% y-o-y) according to Dun & Bradstreet.

“In Q4 2020, the profitability of the hotel industry amounted to -83.6%, and of the food service industry to -6.0%. Revenues were respectively 65% and 15% lower y-o-y (companies with 49+ employees). According to the Polish Hotel Industry Chamber of Commerce, the number of closed hotels increased to 17% in March 2021, and 8 out of 10 open facilities recorded an average occupancy rate well below the break-even point. The moods of 62% of surveyed hotel operators in March 2021 are more pessimistic (+10 percentage points) than a month ago. In the Corona Mood report by Gfk, it was stated that 8% of food services establishments closed down for good and 25% suspended their operations,” say analysts of PKO BP.

One ought to add that the service industry is very sensitive to the administrative risk that still looms over it due to the pandemic. A perfect example is the sudden decision to introduce a mandatory 10-day quarantine from 24^th June for all people coming to Poland from non-Schengen and non-EU countries. This restriction was introduced by the legislator with a vacatio legis of mere few hours, which outraged the tourism industry, and was obviously a blow to business, as it reintroduced uncertainty among tourists in terms of planning holidays outside of the EU.

The HoReCa and tourism industries are not doomed to fail, because the demand for their services will soon exceed the reduced supply, and the margins on these activities may be very high in the short term. However, it cannot be denied that companies in this industry may be forced to scale up their operations according to the principle of “grow or die”. Moreover, there are signs that these industries are facing an employee-related problem, as they reskilled in search of stable income and stabilsation during lockdowns, and found alternative employment in other sectors.

5. Autumn wave – a threat to economic recovery?

How will the Polish economy fare throughout 2021? Is there a chance for a positive GDP growth rate, even if another wave of COVID-19 appears in the autumn, and with it further restrictions in socio-economic life?

The vast majority of economists are optimistic as to how Poland will handle economic activity in the coming months. The World Bank assumes that the Polish economy in 2021 will grow by 3.8%, that is faster than, for example, the Russian economy (3.2%), but still well below the average growth rate of the world economy (5.6%) or the emerging economies (6%).

“Despite the next wave of the pandemic and the long-term shutdown of many of the largest EU economies, Poland’s return to the pre-pandemic GDP level will be possible already at the beginning of 2022,” said Beata Javorcik, Chief Economist at the European Bank for Reconstruction and Development, in an interview for “Obserwator Finansowy” in April this year.

According to economists at Bank Millennium, the economic losses for 2020 will be made up for already this year.

“The worsening of the pandemic and the related sanitary restrictions will slow down the GDP growth in Q2 2021. Our baseline scenario is the stabilisation of the epidemic within that quarter, which seems realistic given the announced clear acceleration of the vaccination process, as well as the natural increase in the immunity of this part of the society that has been infected with the coronavirus. (…) The economy will be fuelled by consumption and exports, although as uncertainty subsides, corporate investment should also enjoy revival,” economists of Bank Millennium stated in the publication “Makro i Rynek. Oczekiwanie na letnie ożywienie”(April 2021).

Assuming that Polish businesses have already developed measures under the restrictions, and that at the end of the year, the majority of Polish society will have been vaccinated, on can say with a high degree of probability that each subsequent possible wave of COVID-19 will to a decreasing extent interfere with economic activity (as long as vaccines are effective, and possible SARS-CoV-2 mutations are not more aggressive and resistant). Of course, we are talking about activities in those industries and sectors that do not run businesses based on – or requiring – people to gather in a relatively small space. During subsequent quarantines, companies from the hotel industry or broadly understood entertainment (sports events, concerts etc.) may again be affected. Meanwhile, the industrial or commercial sector should operate increasingly efficiently during possible lockdowns, within the already developed rules of conduct, habits, and security measures.

This means that most industries, and the Polish economy as a whole, should be doing ever better in a prolonged pandemic. Therefore, it may be possible to avoid a classically defined recession – that is, a decline in GDP for at least two consecutive quarters. However, it is not completely out of the question, nor is just one quarter with a decline in GDP (it may be Q4 2021 or Q1 2022). At the same time, taking into account the base effect, the occurrence of a recession in the winter of 2021/22 would have to be associated with a significant reduction in economic activity, for instance due to the emergence of a dangerous and/or aggressive mutation of the coronavirus.

 

Number of people who received at least one vaccine dose
[Poland, Canada, Israel, the European Union]

Source: PKO BP Analyses Centre

6. Summary

The driving force of the Polish economy during the post-pandemic recovery are – and it is not a big surprise – exports, whose dynamics is high and corresponds to what is happening in the global economy. The Polish economy currently benefits from a dense network of connections not only with the German economy, but also with economies from around the world (the United Kingdom, the Czech Republic, the Russian Federation and the US). One can assume that the position of Polish exporters will strengthen as a result of the pandemic – especially within the eurozone.

In some industries and sectors, the rebound is dynamic, as if they were using some kind of “trampoline”, built primarily on global demand. This phenomenon chiefly concerns the manufacturing industry and production companies (especially those that carry out most of their sales abroad). But not all of them are able to use the trampoline, and in fact remain in quarantine – here we should indicate particularly the broadly understood services and entertainment industries.

The situation on the labour market is good (unemployment is at 6.1%), although certain sectors of the economy may be affected by a shortage in workforce. Food services and tourism could be mentioned in this context, because people working in these sectors during lockdowns were, in a way, forced by their life situation to reskill.

Obviously, it is not that such a dynamic rebound will last forever. The first cracks are appearing, and the threats to the prosperity are already to be spotted on the horizon. First of all, one should bear in mind the issue of the fourth wave this autumn, related to the spread of the so-called Delta variant. It is worth emphasising here, however, that only in a negative scenario – assuming the appearance of a dangerous and contagious mutation of the coronavirus, which would force further “hard” lockdowns – one can expect another recession within the Polish economy in the coming quarters (and thus further blows to trade and services). The baseline scenario should assume effective vaccinations and the acquisition of herd immunity as well as economic growth, possibly a quarter with negative GDP. The optimistic scenario should in turn assume a permanent, or even solid, economic growth, among other things, due to an excellent global economic situation and very high savings of households, which will directly drive trade and, indirectly, other sectors of the economy.

However, the coronavirus and the possible autumn lockdown are not the only “black clouds on the horizon”. It is enough to indicate in this regard the issue of shortages of some raw materials or semi-finished products (this may be a blow to industrial companies), and the issue of price pressure (a global boom raises the prices of raw materials). Moreover, a shift in the demand structure in the West is likely to come – consumers will adjust their interest from goods to services. There are regulatory risk factors hanging over the service and tourism industry (as shown by the example of the sudden introduction of a 10-day-long quarantine for people coming to Poland from non-Schengen countries).

Therefore, the post-pandemic jumping on the trampoline may end quite quickly. Nevertheless, one should hope that even if the pandemic continues, the economy will not revert back to recession, as the extent of consumers’ and companies’ adaptation to a changed reality will be significant.

 

See more: 23.07.2021 Memorandum of the Union of Entrepreneurs and Employers on the post-pandemic recovery of the Polish economy

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, 24^th August 2021

 

Statement of the Union of Entrepreneurs and Employers regarding the situation on the Polish-Belarusian border

 

Over the last week or so, the Polish public debate has been dominated by the discussion about a group of several dozen people camping on the Belarusian side of the border with Poland. It is not the task of the Union of Entrepreneurs and Employers to conduct an in-depth analysis of this difficult situation, but everything indicates that it is the result of the scenario planned and implemented by the Belarusian regime. The government of the Republic of Belarus welcomed immigrants from the Middle East and countries neighbouring with the region, and then directed them to the external borders of the European Union in order to destabilise the situation in neighbouring countries. A similar scenario was repeated in other EU member states.

As we have mentioned above, we are not experts in matters related to state security. However, the heat of the dispute along with its very nature are sources, in our opinion, of far-reaching risks for a discussion on another issue, very important from the point of view of the future of Poland. The consultations have recently ended regarding the country’s long-awaited demographic strategy indicating the main directions of institutional and regulatory changes in the field of admitting foreigners to Poland.

The Union of Entrepreneurs and Employers has repeatedly pointed out that – in the context of the ongoing demographic crisis, the effects of which will be felt in the coming decades – adopting a coherent and rational approach to the absorption of immigration is absolutely essential.

Meanwhile, the more inflamed the situation on the Polish-Belarusian border and the harsher words are spoken on this matter, the greater may be the willingness of people and entities traditionally sceptical towards immigration to link the current crisis with the state’s long-term policy towards migrants from other countries.

Regarding this subject, we want to unequivocally state that the protection of the state borders (and at the same time the external border of the European Union) along with the defence against external attempts to destabilise the political situation and the migration strategy describing the procedures and approach of state institutions to migrants coming to Poland mainly for economic purposes are two fully separate things. Any attempt to link these two completely different issues based on emotions and resentment may lead to the inhibition or a significant slowdown of works on a strategic approach to immigration, which we are in dire need of for reasons both demographic and economic.

See more: 24.08.2021 Statement of the Union of Entrepreneurs and Employers regarding the situation on the Polish-Belarusian border

Warsaw, 16^th August 2021

 

Busometr Index: Investments still at historical lows, the labour market in good shape

 

“Busometr” – the index of economic mood – amounted to 46.5 points for the 2^nd half of 2021 (up from 42.2 points in the previous half-year), which means that the entrepreneurs’ sentiment is clearly improving. Investments are still in the worst shape, while on the labour market good prospects remain.

In our last survey, we recorded the best sentiment among entrepreneurs in two years. Importantly, however, the previous two studies took place during the extraordinary economic situation sparked by the global COVID-19 epidemic. Numerous sanitary restrictions accompanying the pandemic forced a large number of enterprises to shut down, mostly in food services, tourism and event management.

“When most sanitary restrictions were waived, economic normalcy returned,” claims Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “Most industries and sectors now have the opportunity to recover from the prolonged lockdown. We expect a further improvement in economic mood, as long as the epidemic does not get out of hand once again.”

The analysis of the individual components of the “Busometr” index suggests that entrepreneurs’ moods vary depending on which specific part of the economic reality they are asked about.

As many as 35% of all people surveyed believe that the economic situation will worsen in the coming months. A slightly smaller group – 34% of entrepreneurs – believe that the economic situation will not change. However, there is no shortage of optimists, as 31% of respondents trust that the economic situation will improve.

The post-pandemic economic rebound is clear under the “Labour Market” component. Entrepreneurs need more workforce, which is visible in the results of the survey. As many as 16% of companies plan to increase employment, while the reduction of jobs is forecast by only 6% of enterprises. It is also important for employers to retain current employees, which is why 17% of companies plan to raise wages, while only 5% of respondents anticipate a reduction in salaries.

The reading of the “Investments” component still raises big concerns. The index increased slightly to 29.9 points, compared to 29.2 points in the previous six months. As many as 65% of enterprises declare that they do not plan to implement any investments in the foreseeable future.

“The root cause of the reluctance to invest, noted in earlier readings, was the uncertainty surrounding the COVID-19 pandemic. However, the main cause of concern among entrepreneurs remains the regulatory uncertainty, additionally exacerbated by the directions of changes proposed in the Polish Deal,” stresses Jakub Bińkowski, Management Board Member and Director of the Law and Legislation Department of the Union of Entrepreneurs and Employers. “Companies are afraid of increased fiscal burdens and growing operating costs, therefore they give up new investment projects.”

 

***

 

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

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

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

The Union of Entrepreneurs and Employers along with Maison&Partners conduct the research among a representative group of small and medium enterprises (up to 250 employees). Busometr ZPP is published every six months. The sample size is N = 600 respondents from the SME sector.

The survey is carried out since 2011.

 

See more: 16.08.2021 Busometr Index by the Union of Entrepreneurs and Employers: Forecast for the 2^nd half of 2021

Warsaw, 12^th August 2021

Memorandum of the Union of Entrepreneurs and Employers on European climate policy

The Union of Entrepreneurs and Employers recognises the need for concern about climate and environmental protection. However, we express our opposition to the model of combating climate change proposed by the European Commission. The instruments used are often ineffective, and the European climate policy is full of internal contradictions. Some of the recently proposed changes are of a purely political nature, and embedding them in pro-environmental rhetoric by the European Commission is an example of plain green washing. Ultimately, the implementation of the changes proposed in the Fit for 55 package may lead to a significant deterioration of the European economy and impoverishment of Europeans, to which we cannot agree. We believe that it is necessary to look for alternative and reliable ways to combat climate change, instead of blindly following the path of politically set goals.

Concern for the climate must not come at the expense of reducing the competitiveness of European companies or decreasing the quality of life of Europeans. The European Union is responsible for a relatively small percentage of greenhouse gas emissions, so unilateral actions based on the introduction of stringent norms and standards within the Community will not lead to a radical improvement in the state of the global environment. In the meantime, there is no doubt that Europe is losing its economic momentum – what we need are deregulatory initiatives and support for entrepreneurship rather than proposals for further self-limitation which often turn out to be counterproductive.

Lack of effectiveness of the instruments used

The European Emissions Trading Scheme (ETS) is considered one of the greatest successes of the European climate policy. Its actual impact on reducing greenhouse gas emissions remains very limited. Extensive literature and various studies seem on the surface to confirm the effectiveness of the ETS. However, if we look at these studies, we see that the vast majority of them are ex ante models, not empirical ex post studies. This conclusion was reached by Professor Jessica Green of the University of Toronto, who conducted a literature review on the topic of ETS and found fewer than 40 empirical studies of their effects. On the EU-ETS, Green concludes: “Despite the extensive human and financial resources invested in developing and managing the EU-ETS, annual emissions reductions (i.e. across all sectors) range between 0% and 1.5% per year.”[1]

At the same time, the system is burdened with serious flaws that allow it to be used as a speculative tool. It is therefore surprising that the European Commission has decided to extend the ETS to cover buildings as well as air transport. On the one hand, extending the ETS to buildings may lead to widespread energy poverty in Europe. The Union of Entrepreneurs and Employers has serious doubts as to how this effect can be reconciled with another strategic EU objective – namely a Europe with a strong social dimension. On the other hand, applying the ETS to air transport, which at the moment has no viable low-carbon alternatives, will increase flight prices and reduce the mobility of Europeans, hitting the core of the EU: the single market. Reduced demand for flights, in turn, could significantly reduce the sector’s projected ETS revenues – after all, the purpose of the ETS is to provide funds for green investments.

Internal contradictions in European climate policy

As our Union has previously warned, EU climate goals are being achieved at the expense of deforestation while having little real impact on greenhouse gas emissions. This is because EU law recognises bioenergy (including biodiesel and biomass) as climate-friendly and imposes on member states the need to achieve an appropriate share of renewable energy in final energy consumption. However, the original assumption about the “greenness” of bioenergy is due to an incorrect estimate of the greenhouse gas emissions that arise from its use. This error has been acknowledged by the European Commission itself in two reports on alternative land use cost (known as ILUC). These studies showed that when ILUC is taken into account, palm and soybean oil-based biodiesels have three and two times the emissions of traditional fossil diesel, respectively.

Worse even, the increased use of biofuels is leading to massive and unsustainable land conversion. A report by Transport & Environment found that EU’s demand for soybean and palm oil biodiesel required 4 million hectares of land, while demand for palm oil alone required the conversion of 1.1 million hectares of mature land in Southeast Asian countries into new palm plantations.[2] According to Euractiv, the deforested area is equivalent to the size of the Netherlands. To make matters worse, the forests converted are orangutan habitats.[3] T&E estimates that the EU’s increased demand for palm oil biodiesel is responsible for the destruction of 10% of the world’s remaining orangutan homes.

Politically motivated changes embedded in pro-environmental rhetoric

The carbon border adjustment mechanism (CBAM for short), or simply the EU carbon duty, is an example of green washing by the European Commission. The EC embedded this protectionist tax in pro-environmental rhetoric, even though its introduction is not supported by any rational evidence.

According to the EC, the introduction of the carbon duty is necessary to prevent the phenomenon of the so-called carbon leakage. This theory assumes that when emissions are taxed (see: ETS), high-emission production will be moved outside the EU, to countries where emissions are not taxed and therefore cheaper. In order to prevent production in areas with cheap emissions and the import of non-environmental products into the EU, CBAM is necessary. Unfortunately, there is no substantial evidence to support this theory.

A study by Frédéric Branger, Ph.D. and Philippe Quirion, Ph.D. of the Centre International de Recherche sur l’Environnement on the EU ETS has yet to find any significant evidence of carbon leakage.[4] Furthermore, a team led by Antoine Dechezleprêtre Ph.D. of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics used Carbon Disclosure Project data covering 2007-2014, which tracks the declared emissions of multinational corporations. In theory, it is these companies that should be affected by carbon leakage because, unlike, say, the SME sector, corporations have sufficient resources to move factors of production to another country. Meanwhile, Dechezleprêtre and his team found no evidence that the ETS has led to carbon leakage outside the EU.[5] In 2019, the World Bank agreed with these conclusions and concluded that there is little evidence of carbon leakage.[6] There is a plausible explanation for this phenomenon – the cost of the ETS is lower than the cost of moving factors of production.

At the same time, the EC is aware of the protectionist nature of the CBAM and the consequences that may result. This is evidenced by the fact that designing a World Trade Organization-compliant carbon adjustment mechanism has become an important item on the agenda of the EU institutions.[7] To make things worse, the continued pursuit of CBAM shows that the EC is decisively and consciously moving away from its longstanding work and commitment to multilateralism and liberalism, the strategies that has allowed the EU to gain its current global position.

Deterioration of the European economy

The proposals contained in the Fit for 55 package will lead to a worsening of the condition of the European economy, and consequently to the impoverishment of Europeans. The EU’s unilateral climate action will not achieve the intended climate goals for several basic reasons. First of all, the energy transition requires investment at the industry level, and economic regression will make this impossible. Secondly, for consumers to embrace new climate-neutral technologies, they need the resources to do so. It is obvious that burdening Europeans with additional taxes will reduce their disposable income, which they could spend on green investments. Third, the EU accounts for only a small portion of global emissions. Unilateral actions, although they may give a political impulse, are not able to generate real benefits for the climate. At the same time, these actions undermine international rules of cooperation and may make it harder, not easier, to reach a global consensus. Ultimately, the EU, at its own behest, becomes the world’s guinea pig for the “green” transition. In this situation, other countries may use the EU as a model, and implement only proven solutions themselves sometime after their introduction.

Conclusions

The Union of Entrepreneurs and Employers recognises the need to respond to the challenges of climate change. We are also in favour of reliable and reasonable actions motivated by concern for the future of the planet. However, taking into account the enormous costs for entrepreneurs and consumers, as well as the serious risks associated with political green-washing at the international level, we strongly oppose the actions of the European Commission.

In view of the above, in the discussion on climate regulations we appeal for honesty and fairness, respect for the needs of entrepreneurs and consumers, as well as genuine concern for the climate.

We appeal to the Polish government to oppose plans that will lead to a loss of Europe’s competitiveness in the global economy and to the mass impoverishment of its citizens. The issue is extremely serious – we need to build a coalition of countries, industry, consumers and stakeholders to stop these plans. We will support the government’s activities in this regard.

***

[1] https://iopscience.iop.org/article/10.1088/1748-9326/abdae9/pdf

[2] https://www.transportenvironment.org/sites/te/files/publications/Biofuels%20briefing%20072021.pdf

[3] https://www.euractiv.com/section/transport/news/eu-biofuels-goals-seen-behind-deforested-area-as-big-as-the-netherlands/

[4] https://www.reuters.com/article/us-climate-change-eu-carbontax-explainer/explainer-what-an-eu-carbon-border-tax-might-look-like-and-who-would-be-hit-idUSKBN1YE1C4

[5] https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2019/01/working-paper-165-Dechezlepretre-et-al-July-2019.pdf

[6] http://documents1.worldbank.org/curated/en/486921568877882882/pdf/Report-of-the-High-Level-Commission-on-Carbon-Pricing-and-Competitiveness.pdf

[7] https://www.europarl.europa.eu/doceo/document/A-9-2021-0019_EN.html

See: 12.08.2021 Memorandum of the Union of Entrepreneurs and Employers on European climate policy

Warsaw, 26^th July 2021

Position of the Union of Entrepreneurs and Employers on the draft Polish Export Policy

In the opinion of the Union of Entrepreneurs and Employers, the draft Polish Export Policy (hereinafter referred to as “PEP”) presented for pre-consultation is a document of strategic importance, aiming to shape an orderly system of support and promotion of exports, addressed to, among others, domestic companies from the SME sector. In our view, the consistent increase in the strength of Polish exports is an essential activity in the context of contributing to the wealth of the country and its citizens. As a rule, the increase in exports also causes an acceleration of economic growth and a decrease in unemployment, therefore a positive trade balance is one of the most important economic indicators.

The Union of Entrepreneurs and Employers generally agrees with the Ministry of Development, Labour and Technology as to the direction of the proposed solutions in the field of supporting domestic exports, however, we would like to present a number of postulates, the inclusion of which will significantly improve the effectiveness of the proposed strategy.

1. Diversifying the geographic structure of exports

First and foremost, the Union would like to indicate the fact that exports largely focus on markets within the EU. According to the information provided in the PEP, exports to EU member states currently account for approximately 76% of all Polish exports. Moreover, according to the data of the Polish Economic Institute, Germany is the market of highest significance for Polish goods, as it accounts for 27.5% of all Polish exports.[1] Strong focus on trade with Germany has made us globally the fourth largest supplier of goods to our western neighbour and the second largest in Europe. Only the Netherlands exported more to Germany, while only China and the USA did so from outside of Europe.

It is natural that neighbouring countries or those located nearby are responsible for the largest volume of exports and imports. The above-mentioned concentration also results from the single European market, and as a consequence, follows a significantly lower number of barriers to the movement of goods within the European Union. However, one should not disregard the negative aspects of such high concentration of exports solely to European markets.

First of all, one must mention the vulnerability of domestic exports to economic fluctuations in European countries. As things stand, Poland remains largely dependent on local economic conditions, which in the event of a recession in EU member states will have negative consequences for the Polish economy.

Therefore, in our view, the PEP should pay particular attention to the above-mentioned aspect, and as part of measures counteracting dependence on the economic situation in the EU, a greater emphasis should be placed on supporting exports to countries Poland has marginal trade with, as well as destinations oof significant export potential.

We believe that, while searching for new markets, Poland should look to, for instance, Asian countries whose significance on the international area has been steadily growing and thus also play an increasingly important role in the context of global trade. Currently, Poland’s largest trade partner from the Far East is the People’s Republic of China which only receives as much as 1.1% of all Polish exports.

It is our opinion that the geographical diversification of exports will help maintain the business security of domestic companies, as due to a de-concentration of exports, they will be less dependent on local economic conditions.

2. Public authorities reacting to protectionist measures in other countries

In the SWOT analysis presented in the PEP, the authors of the draft defined protectionist actions by other countries as a barrier to the internationalisation of enterprises. However, no instruments were introduced to prevent or respond to such behaviour by third countries.

In the report prepared by the Union of Entrepreneurs and Employers “Problems of Polish entrepreneurs in France”, we identified a number of measures undertaken by the French public administration against Polish entrepreneurs. These should clearly be classified as restricting the rights and freedoms embedded in the single market. Basing on examples cited in that report, one could argue that French authorities allow their local companies to build their position in violation of European law, to the detriment of consumer safety, and against the interests of entrepreneurs from other member states.

Therefore, in our opinion, it is important to strengthen the role of economic diplomacy, as its importance presently seems to be underestimated by bodies of the public administration. We call for a proactive diplomatic stance supporting Polish entrepreneurs in the context of overcoming protectionist barriers imposed by individual states. Both public administration, embassies, consulates, as well as Foreign Trade Offices of the Polish Investment and Trade Agency should be involved in any and all cases regarding Polish entrepreneurs experiencing difficulties in running a business abroad, providing them with all the necessary legal and diplomatic assistance.

In our view, an equally important element missing in the PEP project is an educational campaign and other activities addressed to exporters, aimed at increasing their awareness of legal instruments at their disposal in disputes with authorities in other EU member states. In this place, the SOLVIT system should be mentioned as the first instance when a government agency of another EU country does not respect the rights of individuals or companies under EU law. Unfortunately, due to the low awareness of entrepreneurs, SOLVIT is of marginal use when it comes to out-of-court dispute resolution with the administration of another EU country.

3. Necessity to complete the catalogue of industries covered by Sectoral Promotion Programmes

As part of the Sectoral Promotion Programmes (pp. 13 and 14), support is to be provided for various sectors of the economy relevant to exports, but – as is usually the case with closed catalogues covering a list of specific industries – it seems that this list too should be re-analysed and supplemented accordingly. One could point out, for example, that support for producers of household chemicals was not included in the Sectoral Promotion Programmes. It is noteworthy that the importance of the domestic detergent sector has grown as a result of the COVID-19 pandemic, resulting in increased demand for biocidal products. Meanwhile, worldwide demand for detergents remains increased due to sanitary requirements and restrictions still in force – it seems that this could be the right moment to boost the position of Polish producers on the global market. Bearing in mind such a shortcoming as this one, the list of industries covered by promotion programmes should be re-examined and supplemented considering the export potential of individual sectors.

4. No link between the strategic goals of PEP and the assumptions of the Polish Hydrogen Strategy

According to the contents of the presented document, the Polish Export Policy aims to create forms of support for industries that are most prospective in terms of export and, at the same time, have the greatest potential to build a positive image of the Polish economy. The current wording of the export strategy does not mention the opportunity resulting from the emerging global megatrend: the use of hydrogen as an energy source. The PEP refers to the Polish Industrial Policy numerous times, indicating that both strategies are correlated with each other. However, no actions are foreseen to consolidate the Polish Hydrogen Strategy with the Polish Export Policy.

Due to an adequate promotional support, hydrogen technologies or public transport vehicles that are being developed in Poland stand a great opportunity to enter foreign markets. We are aware of the fact that the Sectoral Promotion Programmes provide support for sectors such as the automotive sector or the rail transport sector, however, in our opinion, there is concern that, under these programmes, the export potential of hydrogen-related goods will not be fully utilised whereas the aid will be allocated to, for example, the promotion of vehicles using traditional fuels. Therefore, we recommend distinguishing the hydrogen sector as a separate category for which additional promotional support would be provided.

5. Significance of e-commerce

We share the diagnosis made by the Ministry, according to which there is a chance to increase the share of Polish exporters in the dynamically growing global e-commerce market. The development of on-line sales through export to foreign markets is a real opportunity for Polish companies from the SME sector. Owing to the relatively low employment and production costs, they have the possibility of competing with Western companies in terms of price, and additionally – thanks to the highly developed digital competences of Polish employees – they also have a chance to compete in terms of the quality of customer services, no matter where the customer is from.

However, according to the results of the study commissioned by the Union of Entrepreneurs and Employers about e-commerce in Poland[2], a significant number of companies trading via the Internet are not present on foreign markets. According to the results of the survey, from all the surveyed companies that sell online 53% are exclusively or only present on foreign markets. This percentage is higher among manufacturing companies, larger ones, and those that have longer been on the market.

The arguments above indicate an enormous potential that lies dormant in Polish enterprises that have not yet decided to expand abroad. Indeed, one of the barriers to entering foreign markets is the lack of knowledge how to develop sales outside the Polish jurisdiction, especially among representatives of companies from the SME sector. Therefore, in our opinion, the PEP should provide support in the field of increasing competences in the use of the e-commerce channel.

Moreover, we suggest analysing the major barriers to digital internationalization of Polish SMEs – that are largely of a technical and organisational nature, as well as focusing on defining tools and methods for their removal. One of the barriers that we observe are, among others, the lengthy and complicated customs and tax processes in exports, and thus – the need to devote the limited resources of companies from the SME sector to administrative activities, instead of focusing on effective foreign expansion.

At the same time, we call for the processes of exporting goods to non-EU markets to be simplified and digitised. One possible solution would be to create a national platform facilitating formalities regarding exports, which would enable a completely new approach to international trade, while giving the National Revenue Administration full control over this process. We would definitely see the development of the concept of such a tool and its implementation as an element of the Polish Export Policy. Perhaps more detailed solutions could be developed within working groups composed of representatives of business and administration.

6. Summary

Impacted by the global COVID-19 pandemic, the world finds itself in the midst of major economic changes. Broken supply chains in the era of the greatest sanitary restrictions or problems with transporting goods to Europe have caused companies to look for alternatives to products and raw materials from Asia. Polish producers, who are able to compete with producers from Asian countries in terms of prices, can take over some of that production and orders that have so far been sent to the East. To do this, however, it is necessary to quickly enforce the solutions provided for in the Polish Export Policy in order to take advantage of the moment at hand, while supply chains are still being redefined.

To sum up, we call for the introduction of solutions and instruments that will simplify export processes. Without a doubt, complex and bureaucratic procedures affect smaller companies, whose human and financial resources are significantly limited, the most.

The cornerstone of the strategy under construction should be the pro-entrepreneurial approach of the authorities and institutions aiding exports. Their effectiveness largely determines whether entrepreneurs will more often and more willingly decide to export goods to other countries, instead of focusing only on the local market.

We also point to the need to diversify the sales markets, as this will limit the impact of a potential economic crash in individual countries on the situation of Polish exporters. A strong focus on trade relations with only one partner may generate significant business risks for companies, also due to the protectionist measures undertaken by some countries.

***

[1] “The transformation of Polish exports – 30 years of growth and what next?” („Transformacja polskiego eksportu – 30 lat wzrostu i co dalej?”), Polish Economic Institute, December 2020

[2] “Survey on companies selling online” („Badanie firm dot. sprzedaży on-line”), Maison & Partners commission by the Union of Entrepreneurs and Employers, April 2021

 

See more: 26.07.2021 Position of the Union of Entrepreneurs and Employers on the draft Polish Export Policy

Warsaw, 28^th July 2021

Memorandum of the Union of Entrepreneurs and Employers on alternative solutions for entrepreneurs in the Polish New Deal

The Union of Entrepreneurs and Employers postulates to resign from burdening entrepreneurs with the National Health Fund premium proportional to income or revenue, and to abandon the possibility of deducting the NHF premium from the personal income tax paid by entrepreneurs.

We propose that only three forms of running a business in the system be left in the system, all of which are simple from a tax point  of view:

1. a small one-person business activity (sole proprietorship) for those with revenues up to PLN 120 thousand annually;
2. flat tax on the current terms;
3. lump sum on revenues with revised tax rates.

Furthermore, we propose a gradual increase in the basis on which health insurance premiums are calculated and paid by entrepreneurs to the level of 90% of the average wage.

The following concepts may help supplement the budget revenues that were to come from the solutions described in the Polish New Deal:

1. a uniform VAT rate of 18.75% (for the least wealthy, we propose a compensating solution in the form of a social card);
2. a minimum CIT rate of 1% of the revenues generated in a given tax year.

 

See more: 28.07.2021 Memorandum of the Union of Entrepreneurs and Employers   on alternative solutions for entrepreneurs in the Polish New Deal