Warsaw, 15^th December 2021

 

Memorandum of the Union of Entrepreneurs and Employers on inflation

 

Inflation crisis

The economies of Poland and the European Union are going through hard times. Since the beginning of March 2020, the world has been struggling with a pandemic, and in spite of a pronounced recovery in 2021, the new COVID-19 variants keep the global economy from healing completely. To boot, the pandemic is one of the sources of yet another problem that we have fallen victims to in recent months: soaring inflation. According to Eurostat data, inflation in the European Union amounted in October 2021 to 4.4% year-on-year, and to 4.1% (HICP) in the euro area. It was lowest in Malta (1.4%), Portugal (1.8%) and Greece (2.8%), and highest in Lithuania (8.2%), Estonia (6.8%) and Hungary (6.6%). Poland too recorded one of the highest inflation rates (6.4%), thus taking 5^th place in the entire EU[1]. Eurostat also analysed inflation in the euro area in November 2021, and as it turns out, it increased to 4.9% year-on-year[2]. Data Statistics Poland are not optimistic either. From the beginning of 2021, inflation has been growing steadily, reaching the level of 2.6% year-on-year in January, 4.3% in April, 5% in July, 5.9% in September, and 6.8% in October[3]. To make matters worse, according to their data, in November inflation might have amounted to 7.7% [4][4]!

[chart]

Source: Statistics Poland, https://stat.gov.pl/wykres/1.html

Reasons behind growing inflation in Poland and in Europe

A number of factors contribute to such a significant increase in inflation in Europe. One of them is the economic recovery of 2021 following a year of restrictions and lockdowns back in 2020. The fact that in the Q3 2021, according to a preliminary estimate of the Statistics Poland, the Polish GDP went up by 5.1%[5] proves this assumption, and so does the fact that the average wage in the enterprise sector in October 2021 increased by nearly PLN 500 since October 2020[6]. Consumption is largely responsible for the increase in GDP, which in Q2 2021 increased by as much as 13.3% year-on-year[7]. These data are certainly good news for the economy, but in terms of inflation, they are hardly neutral. Especially in the case of the Polish economy, which based its model of recovery from the pandemic crisis on generating consumer demand instead of stimulating investments, the impact of the above-mentioned factors on the increase in inflation, one of the highest in Europe, is the more visible.

One of the key reasons for inflation in the European Union is without any doubt the increase in energy prices related to rising gas prices. Demand for gas has been steadily increasing in recent months as a result of the economic rebound. Consequently, the prices of this raw material on global markets have gone up. Political uncertainty in the context of European-Russian relations (the latter being one of the largest natural gas suppliers to the European Union and its member states, including Poland) further aggravates the situation. Moreover, the CO₂ emission allowance within the EU ETS trading system comes to minds as well, as it has become the object of interest of speculators who purchase allowances with the intent to resell. For example, on the ICE and EEX exchanges, the prices of allowances increased by approximately 200% from the level of EUR 25 per tonne of CO₂ in November 2020 to almost EUR 75 a year later.

Another key factor influencing inflation is the increase in fuel prices – not only because fuels are part of the so-called inflation basket, but also (as is the case of energy prices) the increase in fuel prices translates into higher prices of virtually all goods and services in the economy. One ought to look for reasons for the increase in fuel prices (same goes for natural gas) in growing demand for this raw material, which in turn means higher prices on markets around the world. At the end of 2020, the price of a barrel of brent crude oil amounted approximately USD 50, whereas in November 2021 to USD 85. In recent days, we can observe a drop in oil prices to USD 69-73 per barrel due to uncertainty sparked by the emergence of a new variant of the coronavirus: “Omikron”. Besides, the weakening Polish zloty has an impact on the growing fuel prices too. On this very day, the US dollar costs PLN 4.10[8], while a year ago it cost PLN 3.69[9], which means that today one must pay over 10% more for the same amount of oil on international markets.

Of course, the policy pursued by Polish authorities is not without significance for inflation. Numerous social programmes, costs related to aid programmes aimed at mitigating the effects of the COVID-19 pandemic, or the re-purchase of Treasury bonds have all led to a surplus money supply on the market. Poland also decided relatively late (compared to other countries)to tighten its monetary policy and raise interest rates. According to the National Bank of Poland, inflation was supposed to be temporary. This approach has rather changed over the last three months. At the moment, the President of the Polish central bank is of the opinion that inflation may stay with us for a longer time, and the Monetary Policy Council is systematically raising rates. One can expect this trend to continue next year.

And finally, one must speak up that a further increase in inflation in Poland will be driven by the “Polish New Deal”. As part of this package, the real public burden on entrepreneurs will increase considerably. Ergo, the increase in the costs of economic activity will inevitably lead to an increase in the prices of goods and services, which will do nothing but increase inflation in 2022.

The risk of stagflation

Increasingly often, the media warn about the possibility of stagflation. Under normal market conditions, GDP growth is usually followed by an increase in inflation, and when GDP falls or its growth decelerates, inflation decreases. However, in the case of stagflation, economic stagnation is accompanies by high inflation. As we have indicated above, in Q3 of 2021, in line with the preliminary estimates of Statistics Poland, GDP increased by 5.1%. Still, one must not forget that this was primarily fuelled by consumption, not by investing in the economy. What this means is that our economy is not becoming more effective or competitive and may therefore lag behind other European countries and the world in general in the long run. High energy prices, problems related to supply chains, rising prices of raw materials and a number of other factors mentioned above translate not only into soaring inflation, but also into an industrial slowdown, already elaborated on in the Markit PMI Purchasing Managers’ Index. In recent months, the index, albeit still favourable for Poland, was disappointing (53.4 points in September, 53.8 points in October and 54.4 points in November, respectively)[10]. Economists also predict a decline in GDP, and the latest estimates say that the GDP will increase in 2022 in the range of 4-5%[11].

While the risk of stagflation is still moderate, the very risk of its occurrence makes the need to combat rising inflation all the more urgent.

Europe in the face of inflation

In November 2021, inflation in Germany increased by 5.2% year-on-year – the highest surge in 29 years, since 1992. One of the main reasons for this was the significant rise in energy prices, which increased by over 22%. In this case, fuel is also included in the energy price growth index. Prices of food (4.5%) and services (2.8%) were also higher[12]. Nevertheless, these are not the only factors related to skyrocketing inflation. Just as in Poland, a number of measures were undertaken in Germany to counteract the COVID-19 pandemic, among them a temporary reduction in VAT. When it returned to its original value, increases in the prices of goods and services became an additional factor leading to higher inflation.

France boasts a relatively low inflation. In November 2021, it amounted to 2.8% year-on-year. Notwithstanding its relatively low level, authorities decided, amongst other, that a large part of the society be awarded vouchers EUR 100 worth to compensate for the effects of fuel price increases. One should keep in mind, however, that both France and Germany are part of the so-called Eurozone, and therefore their fiscal policy depends on the actions of the European Central Bank.

A similar level of inflation to that of Poland was observed in Hungary (6.6% in October). Budapest made up its mind to slightly increase the country’s base rate, to 1.8% in October and 2.1% in November. The last one was the sixth increase in interest rates in recent months, and their value is 0.35% higher than in Poland.

The problem of inflation affects the entire European Union to a greater or lesser extent. For instance, in France, where inflation is not too high, measures undertaken are rather insignificant, in the form of one-off social transfers. In the case of Germany, inflation is above the EU average and has reached levels unseen in years. And yet it is still much lower than in Poland. The situation most similar to our country can be observed in Hungary. However, lest we forget, the fiscal policy of this country is a bit more determined than in Poland.

Anti-inflation shield

The fiscal policy pursued by the National Bank of Poland and the Monetary Policy Council is not the only measure to combat inflation. On 25^th November 2021, the government decided to introduce an “Anti-Inflation Shield”. This programme assumes a number of changes aimed at curbing inflation. Draft projects have already been submitted to the Sejm (the lower house of the Polish parliament).

The first step to be implemented as part of this “Shield” is a reduction in excise duty on fuels to the minimum level permitted in the European Union, which is to apply from 20^th December 2021 to the end of May 2022. Then the “tax on emissions” is to be abolished. According to the government’s assumptions, this reduction will result in a drop in fuel prices by approximately PLN 0.2-0.3 per litre. Also noteworthy is the fact that there have been declines in oil prices in recent days worldwide in the light of the emergence of “Omicron”. Should this trend continue, lowering wholesale oil prices may contribute to a dip in fuel prices. Reductions in taxes and wholesale prices of raw materials may translate into a noticeable drop in prices at petrol stations.

The “Shield” also postulates a reduction of VAT on natural gas from 23% to 8% from January until the end of March 2022 and 0% excise tax for households. In this period, VAT will also be reduced from 23% to 5% on electricity and households will be exempt from excise duty on electricity. January to March 2022, VAT on heat energy for households is also to change from 23% to 8%. However, let us not forget that next year we will face further, already approved increases in electricity and gas prices, which will fully “absorb” the above-mentioned tax cuts. Furthermore, these reductions are only temporary, while the increases to come will stay with us for good.

Another element of the “Shield” to be introduced are further social transfers in the form of “shield allowances”, which, depending on the number of people in the family and the income earned, is to range from PLN 400 to PLN 1,150. According to estimates, up to 7 million households will be eligible for these allowances.

In the opinion of the Union of Entrepreneurs and Employers, the “Anti-Inflation Shield” may in the short term slow down inflation, but will fail to stop it. Tax cuts are only of a temporary nature, therefore, when they are gone, we may deal with yet another sharp increase in inflation. The VAT cut in Germany had a similar effect. Another thing is the further development of the system of social transfers in the form of a “shield allowance”, which will further boost consumption and thus fuel inflation. While our Union supports tax cuts, we believe that such measures should be more systemic, long-term, and in line with national fiscal policy. The government announced that it would allow some solutions of the “Anti-Inflation Shield” to be extended, and for other solutions to be introduced as well. Should this come to fruition, these measures may help us mitigate the effects of the inflation crisis. At the same time, we must point out that additional social transfers are not the answer to our problems. They will only contribute to exacerbating the situation in Poland. Above all else, it is necessary to change the approach to the economy itself and create conditions for entrepreneurs to develop, to be more effective, innovative and, consequently, more competitive.

***

[1] Flash estimate – October 2021, Euro area annual inflation up to 4.1%, https://ec.europa.eu/eurostat/documents/2995521/11563351/2-29102021-AP-EN.pdf/70e9c60b-8bca-12cc-859e-41af561b5a08 (date of access 15^th December 2021)

[2] https://ec.europa.eu/eurostat/documents/2995521/11563387/2-30112021-AP-EN.pdf/8072b1c7-4379-7fbe-af36-ec2300c42265 (date of access 15^th December 2021)

[3] Statistics Poland (Główny Urząd Statystyczny), https://stat.gov.pl/wykres/1.html (date of access 15^th December 2021)

[4] Statistics Poland (Główny Urząd Statystyczny), https://stat.gov.pl/obszary-tematyczne/ceny-handel/wskazniki-cen/szybki-szacunek-wskaznika-cen-towarow-i-uslug-konsumpcyjnych-w-listopadzie-2021-roku,8,67.html (date of access 15^th December 2021)

[5] https://stat.gov.pl/obszary-tematyczne/rachunki-narodowe/kwartalne-rachunki-narodowe/szybki-szacunek-produktu-krajowego-brutto-za-iii-kwartal-2021-roku,1,35.html (date of access 15^th December 2021)

[6] https://stat.gov.pl/sygnalne/komunikaty-i-obwieszczenia/18,2021,kategoria.html (date of access 15^th December 2021)

[7] https://www.money.pl/gospodarka/polskiej-gospodarce-mogla-wyrosnac-nowa-kula-u-nogi-do-tej-pory-byl-to-nasz-atut-6702642264578912a.html (date of access 15^th December 2021)

[8] https://www.nbp.pl/Kursy/KursyA.html (date of access 15^th December 2021)

[9] https://www.nbp.pl/home.aspx?navid=archa&c=/ascx/tabarch.ascx&n=a239z201208 (date of access 15^th December 2021)

[10] https://businessinsider.com.pl/stagflacja-w-polsce-jest-mozliwa-boja-sie-ekonomisci-wszystko-przez-kryzys/7869s03; https://300gospodarka.pl/news/pmi-indeks-markit-przemysl-sierpien-2021; https://www.money.pl/gospodarka/pmi-nowy-raport-o-polskim-przemysle-coraz-mocniej-ciaza-opoznienia-w-dostawach-6678454486424384a.html (date of access 15^th December 2021)

[11] https://businessinsider.com.pl/gospodarka/makroekonomia/pkb-w-2022-r-ekonomisci-obnizaja-prognozy/654mxb2 (date of access 15^th December 2021)

[12] https://businessinsider.com.pl/gospodarka/inflacja-w-niemczech-padl-29-letni-rekord-do-polski-im-jednak-jeszcze-daleko/neszq2y (date of access 15^th December 2021)

 

See more: 15.12.2021 Memorandum of the Union of Entrepreneurs and Employers on inflation

Warsaw, 7^th December 2021

 

Updated 2022 Economic Forecast of the Union of Entrepreneurs and Employers

 

2021 was a year of economic rebound after the crisis caused by the COVID-19 epidemic a year before. Economy’s return to a state of ‘relative normal’ after a period of lockdowns and restrictions does not mean, however, that the risk related to the pandemic have disappeared from the landscape entirely.

The emergence of new variants of the coronavirus raises concern both on the part of governments and companies, while a specific “decline” after the period of expansionary fiscal and monetary policy in 2020 manifested itself in the inflation that has been skyrocketing in most developed economies.

It was this economic index that made most forecasts published in the H1 of 2021 (including our own) obsolete. Research centres failed to take into account the possibility of such a rapid increase in prices almost all over the entire developed world.

Keeping these circumstances in mind, we present an updated 2022 Economic Forecast. The current projection is as follows:

Unemployment

Formerly: 5.9%
Now: 5.3%

Inflation

Formerly: 3.1%
Now: 6.5%

GDP growth

Formerly: 5.1%
Now: 5.2%

Investments (% GDP)

Formerly: 17.2%
Now: 16.9%

 

Find out more: 07.12.2021 Updated 2022 Economic Forecast of the Union of Entrepreneurs and Employers

Warsaw, 29^th November 2021

 

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers
on rising prices of raw materials for energy

 

Prices of raw materials used for energy production have increased drastically over the last year. It was all the more dramatic as the recession that took place due to the COVID-19 pandemic lowered those prices “temporarily” to their lowest levels in more than a decade. Over a dozen or so months, prices rose from exceptionally low to extremely high. The global law of one price does not apply to natural gas and prices are still regionally shaped. In this case, price increases in Europe proved to be particularly steep. In Poland, the severity of high prices of some of these raw materials is further exacerbated by the unfavourable situation on the foreign exchange market.

The price increase in energy raw materials significantly impacted the inflation dynamics through rising costs of electricity, transport, and heating. In Poland, this is partially neutralised by the national coal policy. State-owned mining companies concluded some time ago long-term contracts for the supply of hard coal to Polish energy producers. Back then, it was supposed to protect, at least on a basic level, the interests of the hard coal sector. Last year, it meant the cost of coal was several dozen percent higher than market costs. This year, however, coal prices at least twice as low as in Europe.

Should prices of energy raw materials stabilise at an elevated level, this would result in a relatively short-term inflation spike. However, should the growth trend in this sector turn out to stay with us in the medium-term (which is hard to imagine today at the current prices), it will result in constant inflationary pressure. Already today, in the context of inflation caused by both internal factors and the external pressure on prices of energy raw materials (and consequently on prices of energy in various forms), there is talk of a social inequality becoming more severe. We are approaching the point where an increase in nominal wages will be tantamount to a decline, not an increase in real wages. This will be a mighty blow to the lowest-income groups who spend a major part of their salaries and wages on goods and services whose prices are particularly sensitive to energy prices and transport costs, such as food.

The sources of this increase are diverse. The increase in demand compared to the previous year due to economic growth (recovery after the deep slump the year before) played a critical role. Supply chains becoming longer or broken as well as the cold winter in the northern hemisphere contributed to this too. It seems, however, that one of the most principal factors in this case turned out to be the green policies for preventing climate change and limiting greenhouse gas emissions.

One must stress the fact that the challenge of rising prices of energy raw materials in Europe is not a short-term one. Apart from global factors, the increase in prices is influenced by regional conditions, including a high degree of monopolisation of supplies and climate policies. These policies, based on ambitious plans for a rapid reduction of emissions (as provided for in EU’s strategic agendas: European Green Deal and Fit for 55), are to bring about swift results in the most emission-intensive sectors of the economy, e.g. transport, energy and heavy industry. Natural gas, until recently considered a transitional fuel, plays a key role in European energy transformation (and in achieving the EU’s goal of climate neutrality). As Europe is dependent on natural gas imports, and the energy transformation is driving demand for gas, its suppliers gain strong political leverage. This applies particularly to Russia’s policy, although the uncertainty (expected and unassumed) of supplies from North Africa also raises concerns. Moreover, growing demand for gas in Asia has made Europe (and especially the EU) compete directly with Asian buyers. Since demand in Asia in recent years has started to exceed that of Europe, we are slowly becoming, to a certain degree, the price taker. This is also due to the development of maritime transport of LNG, as well as investments in a network of gas pipelines connecting Russian deposits with recipients in Asia.

Europe has been hit awfully hard this year by the crisis on the market of energy raw materials. Technological conditions and political choices mean that we can expect long-term problems due to soaring prices of fossil fuels and the ability of safely meeting the demand. These problems can significantly affect the quality of life of Europeans. First of all, directly through the price mechanism: increases in energy prices in various forms (electricity, heating, or fuel) may become gut-wrenching and indirect, because they will further boost inflation. Then, there is the risk of temporary shortages of fuel (which we have seen take place recently in the UK, already outside the EU) or gas or electricity (in the form of blackouts). An additional consequence may be such a high increase in production costs in the manufacturing sector that it will affect the development potential of European industry. We would then have to give up our dreams of a European re-industrialisation.

Such a negative impact on the quality of life (and possibly the dynamics of development), should this process prove to be permanent, may in turn spark a redefinition of the European political scene. It is therefore worth paying attention to the situation, because the mixture of (excessively?) ambitious climate policy goals, dependence on external gas suppliers, and unexpected turbulences in global markets may affect not only the fate of climate policy in Europe, but also the internal cohesion of the entire community.

 

Piotr Koryś, Ph.D.
Chief Economist of the Union of Entrepreneurs and Employers

 

See more: 29.11.2021 Opinion of the Chief Economist of the Union of Entrepreneurs and Employers on rising prices of raw materials for energy

Warsaw, 14^th December 2021

 

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers
on the economic benefits of transformation and accession to the EU

 

Systemic transformation of our region began in a formal sense over three decades ago. Apart from the Polish general elections on 4^th June or the wave of protests in the countries of the so-called people’s democracy, one of its most momentous events, was the fall of the Berlin Wall. It marked the beginning of the process of German reunification (following the German unification of the 19^th century), which ended in October 1990. Thirty years ago, in 1991, the Soviet Union collapsed, although this did not mean the collapse of the Soviet, and later Russian sphere of influence.

From the Polish perspective, systemic transformation opened a window of opportunity. For the first time in two centuries, all Polish lands and the Polish nation were outside the Russian / Soviet sphere of influence. While the incorporation of East Germany into the West in 1989 was self-explanatory, or the historical and cultural closeness of Czechoslovakia, Slovenia and Hungary to Germany and Austria opened the door to the West for them relatively wide, the fate of Poland (along with Romania, Bulgaria, Latvia and several other countries) was not sure back in 1989. In the case of Poland, the efforts of the Americans were critical, as they translated in economic terms into direct involvement of experts, led by Jeffrey Sachs, in the process of economic transformation. However, this does not in any way diminish the role of domestic authorities. They led Poland onto a path of integration with the West and dynamic and thorough socio-economic changes, which resulted in the emergence of a modern market economy on the ruins of an inefficient planned economy. And they achieved it in a way that allowed for preservation of many of our resources, human capital more than anything else, developed in the times of real socialism.

In the years and decades to follow, Poland’s ties with Western Europe (first with the European Economic Community and later the European Union) became increasingly essential. These countries (including Germany, the Netherlands and Austria) played a progressively vital role in Poland’s trade. Independently and as a European Community alike, they became the main donors of development aid, which accelerated the Polish reforms. From today’s perspective, the scale of this aid in the 1990s (the equivalent of EUR 3-4 billion) was minor, one must, however, keep in mind that back then Poland’s GDP was several times lower than it is today.

The accession of Poland and several other countries in CEE constituted in 2004 a symbolic end to the first phase of transformation. It encouraged further integration and rapid development. One can look at it from a number of angles. Becoming part of EU institutions brought about stabilisation and order to the regulatory and institutional framework. It was then that the post-communist era began to end in Poland. The inflow of EU funds, the spending of which was subject to increasingly stringent requirements, the transposition of European law, and finally political and clerical contacts at various levels radically changed the model of the functioning of the public sphere in Poland. Some of these changes were taking place under the influence of external pressure and could be objected to, but they undoubtedly civilised Polish politics, especially the meeting point of politics, the state and the private sector. Subsequent reports from Transparency International proved this to be right: the level of corruption in Poland and other countries in the region began to decline, among others, in the eyes of foreign investors and politicians. This impression was true for the entire region; therefore, it is difficult to name specific internal factor that would impact this process.

Furthermore, over the first years after Poland’s accession to the EU, the last such great migration in Polish history took place (at least in a foreseeable time perspective). Although it was inevitable on an open labour market and it solved several internal problems in the short term (it improved budget stability thanks to a decrease in social benefits, lowered unemployment and eased political tensions), it contributed in the long term to the considerable demographic challenges that Poland is facing nowadays. It also shed light on the short-sightedness of the political elites of that time (regardless of political affiliation). Politicians did not even try to put any tools to use in order to mitigate this enormous outflow of human capital from Poland – neither during accession negotiations, nor after 2004. Perhaps it was simply impossible? Nonetheless, we must not forget that the inflow of funds sent by migrants back to their families in Poland did in a way offset the costs of the human capital outflow. According to some estimates, this stream of money amounted to more than 2% GDP by 2010, and in the next decade remained at the level of over 1% GDP (after the accession, it remained in the range of EUR 3-5 billion annually).

The accession also resulted in unprecedented infrastructural aid that Poland and countries of the region benefited from. New investments reached a scale unseen in decades, and one could compare EU-funded development programmes to the Marshall Plan. The inflow of funds incomparably greater than in the pre-accession period made it possible to expand infrastructure, in particular in the easternmost regions. One might question some of the investments, or complain about execution or disappointing effects of other, but there can be no doubt that EU funds were behind the great shift that took place in Poland over the last dozen or so years. Moreover, this change at least in part supported the development of Poland, as domestic companies were employed as contractors and subcontractors, pro-development infrastructure grew, and there were funds for research and development projects.

However, it is probably Poland’s participation in the European open market that brought the greatest profits. Investment capital from abroad flooded the market, followed by technologies and organisational changes that went far beyond what happened in the last decade of the 20^th century. It gave Polish companies easy access to the European market, which brought many benefits, especially in the field of services (such as Polish road transport services – a highly interesting case indeed). A process of spectacular re-industrialisation of Poland was put into motion although, unfortunately, to this day most Polish companies tend to be mid-level subcontractors in production chains. Of course, one could argue there are costs associated with participation in the European market: the collapse of uncompetitive companies or changes in the ownership structure. A more serious challenge are the efforts of some Western countries to restrict the freedom of exchange, in particular in services, thus limiting Polish entrepreneurs’ competitive advantages – the foundation of their success in European services.

There can be no doubt that the accession to the EU accelerated the economic development of Poland and the entire region in a significant way. It extended the period of rapid convergence to the economies of the West that had lasted since 1989. As a result, the level of GDP per capita (in purchasing power parity) in Poland reached the level of GDP in Portugal (and the level of GDP per capita in the Czech Republic reached last year the level of Italy). For the first time since the end of World War II, the development of the Polish state has come close to that of the countries of the European South and never have we been so close before.

The above comments primarily concern economic issues. Political ties with the West, stronger than have been in centuries (even despite recent turbulences), are testament to the success of transformation. Nevertheless, it remains to be seen whether we wasted the period of peace, rejoicing at economic success, part of which was pure luck. The contributions of the architects of economic transformation are undoubtedly enormous. Later, however, we capitalised on economic integration with the West, competitive advantages, and the influx of huge post-accession funds. The open question we ought to ask ourselves is: what will drive further development in the nearest future?

 

Piotr Koryś, Ph.D.
Chief Economist of the Union of Entrepreneurs and Employers

 

See more: 14.12.2021 Opinion of the Chief Economist of the Union of Entrepreneurs and Employers on the economic benefits of transformation and accession to the EU

Warsaw, 18^th January 2022

 

APPEAL OF CEZARY KAŹMIERCZAK, PRESIDENT OF THE UNION OF ENTREPRENEURS AND EMPLOYERS, TO THE EUROPEAN COMMISSION REGARDING EUROPEAN RECOVERY FUND

 

Madame Commissioner,

The last couple of years has been an exceptionally tough time for both Europe and the entire world. The challenges that stem from the coronavirus pandemic are not only health-related but also of a social and economic nature. Widespread recession, albeit short-lived, made it necessary to undertake non-standard measures in the field of monetary and fiscal policy. Launching immense aid programmes for enterprises and maintaining exceptionally low-interest rates have saved many businesses from bankruptcy and communities from impoverishment. However, they have not entirely mitigated the negative impact the pandemic has been exerting on economies. In many countries, the pandemic has highlighted the necessity of major reforms to the healthcare system, public services, or digitisation of public offices in the most brutal way.

All this led the European Union to propose an ambitious aid programme for Member States to help post-pandemic recovery. It is to be achieved, among others, by the Recovery and Resilience Facility.

In the preamble to the regulation establishing the Facility, it is stated that it aims to provide “effective and significant financial support to step up the implementation of sustainable reforms and related public investments in the Member States” and its ultimate objective is “to tackle the adverse effects and consequences of the COVID-19 crisis in the Union”.

The nature of the challenges the Facility is addressing is beyond politics. A consensus was achieved regarding the need to rebuild and maintain the competitiveness of the European Union and its economic cohesion, which goes beyond current national policies. Therefore, I am deeply convinced that the actual implementation of the Facility, by providing Member States with the funds allocated to them, should disregard the current relations between European institutions and representatives of individual countries.

It is no secret that there are disputes between certain Member States and the European Commission regarding, inter alia, the principles on the functioning of the Community or restrictions of individual countries’ sovereignty. In the case of Poland, this discussion to the greatest degree revolves around the changes introduced to the judicial system. In any well-functioning organisation, a dispute is nothing out of the ordinary. We should not avoid it, and all parties involved have the undisputed right to formulate opinions (even adamant ones) or to draw conclusions and consequences in the scope of mutual relations.

For this reason, I am increasingly concerned that the Recovery and Resilience Facility, despite its essentially apolitical nature, has become part of the ongoing dispute between the Polish government and the European Commission, and an argument of sort. Hence, I would like to express my strong opposition to this practice.

Social partners in Poland have frequently commented on the so-called reform of the judiciary system in recent years. However, I cannot accept a situation in which citizens of Poland and Polish businesses have become hostage to a largely political dispute between EU bodies and the Polish government. Discourse on the rule of law or the principles of the functioning of the EU can and should continue. I am convinced, however, that the European Commission has a full range of measures at its disposal to advocate its reasoning without endangering the Polish – and, consequently, the European – economy, risking a slower come back to the path of growth disrupted by the COVID-19 pandemic.

I call for the funds entirely due to Poland, which completed all the procedures required by the relevant regulation, to be mobilised under the Recovery and Resilience Facility and  stop using them to influence the Polish government. Such practices can only reinforce the narrative of distrust aimed at EU institutions and lead to further polarization in relations between Poland and the EU, as well as among Polish citizens itself. At the end of the day, it is the Polish citizens and entrepreneurs, who will lose the most.

Yours faithfully,

Cezary Kaźmierczak
President of the Union of Entrepreneurs and Employers

See more: 18.01.2022 Appeal of Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers, to the European Commission regarding European Recovery Fund

Warsaw, 5^th November 2021

Position of the Union of Entrepreneurs and Employers on the draft act amending the Act on Foreigners and certain other acts

The draft act amending the Act on Foreigners and certain other acts was submitted to the Sejm on 22^nd October 2021. Already on 26^th October 26, it was sent to appropriate committees for its first reading. Apart from the Act on Foreigners, it also introduces changes to the following acts: on Repatriation, on Employment Promotion and Labour Market Institutions, on Healthcare Benefits Financed from Public Funds, and on Stamp Duty. In the draft act, there are a number of changes that will impact the both the legal situation of foreigners and their everyday lives, including work permits and related procedures.

The Union of Entrepreneurs and Employers decided to scrutinise the proposed changes. In our view, they are certainly beneficial and, to a large extent, a major step towards improving the situation of foreigners on the Polish labour market. Nonetheless, the proposals are insufficient and, in some respects, increase formalism and complexity of provisions regarding foreigners’ ability to enter the Polish labour market.

A crucial and desired change is to abandon the requirement to have a stable and regular income (thus far provided for in Art. 114 sec. 1.2) along with a place of residence (Art. 114 sec. 2) in the procedure to obtain temporary residence and a work permit. Certainly, such a solution should be considered a helping hand, because when foreigners decide to find employment in Poland, they will no longer be forced to have a place of residence and therefore long-term financial obligations. Furthermore, while the requirement to have a stable and regular income has been removed, Art. 114 sec. 1.4 remains guaranteeing that entities entrusting work to foreigners will provide them with remuneration which (in accordance with the proposed amendment to point Art. 114 sec. 1.5 of the Act on Foreigners) “is not lower than the minimum amount of remuneration for work, regardless of the working hours or type of legal relationship being the basis for the performance of work by a foreigner”. Such a solution is legally consistent and simplifies existing rules.

Amendments to Art. 119 and Art. 120 of the Act on Foreigners are welcome changes too that we evaluate positively. The amendment to Art. 119 will allow foreigners to perform work after the existing civil law contract is transformed into an employment contract, after changes to job post name while retaining the current scope of duties or increasing the working time provided it results in a proportional increase in remuneration. On top of that, pursuant to the amended Art. 120, foreigners working in Poland will not have to re-apply for a work permit as it is the case presently in the event of change to the entity they work for, because the existing one will suffice.

Undoubtedly, one of the draft acts key provisions is the amendment to Art. 88z of the Act on Employment Promotion and Labour Market Institutions. According to the new wording of sec. 2(3), entrusting work by means of an employer’s declaration is to be extended from 6 months to 2 years. This is a welcome change indeed, as it will eliminate the extremely high rotation of employees benefitting both employers and employees. The latter will gain greater stability and job security in the long term. It will certainly allow them to better assimilate and perhaps even encourage them to stay in Poland for a long time. The former, on the other hand, will not have to bear costs associated with frequent rotation of employees, such as recruitment, training etc.

Nevertheless, the question regarding potential future of employees at the end of the 2-year-long employment period on the basis of a declaration of entrusting work to a foreigner remains open. We believe there ought to be a mechanism enabling a foreigner to obtain a work and residence permits conveniently, regardless of the type of work performed and without the so-called labour market test (the procedure of verifying whether the employer’s staffing needs can be satisfied locally). This procedure does not meet the needs of the contemporary Polish labour market, which urgently needs an influx of workforce, that is, workers willing to settle in our country for a long time, looking for employment and starting families. We need to fill the generation gap leading not only to an economic slowdown, but also a growing burden on the social security system.

The Union of Entrepreneurs and Employers presented its proposals in this respect in our report “Poland’s migration policy – necessary directions for changes” ¹. They include, among others, the introduction of a “white and red card” which is a document confirming the right to stay and take up employment by a foreigner. It would be initially issued for a period not longer than 3 years, and later extended indefinitely if the foreigner meets specific criteria, such as no criminal record.

All in all, the Union of Entrepreneurs and Employers positively evaluates the draft act on the amendment to the Act on Foreigners and certain other acts in the form presented by the Polish Prime Minister. It certainly is a step in the right direction. However, we need a comprehensive immigration strategy which would take into account: the change in the model of immigration to Poland (from short-term and fast-rotating to permanent), the need to secure our domestic borders, and the necessity to control the dynamics of immigration processes. With this in mind, it would be reasonable to extend the proposed changes to include an easy path to change the declaration to entrust work to a foreigner into a work and residence permit.

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Find out more: 05.11.2021 Position of the Union of Entrepreneurs and Employers on the draft act amending the Act on Foreigners and certain other acts

Warsaw, 25^th November 2021

Commentary of the Union of Entrepreneurs and Employers
on the announcement of the “Anti-Inflation Shield”

Prime Minister of the Republic of Poland Mateusz Morawiecki presented today his plan to introduce an “Anti-Inflation Shield”. This package of solutions consists to a large extent of a series of temporary tax cuts, mainly concerning VAT and excise duty. The initiative to reduce these burdens considering rapidly growing inflation is in our view worth supporting. According to data from Statistics Poland, in October 2021, prices increased year-on-year by as much as 6.8%. This is a record high level, unheard of in years. Moreover, according to some forecasts, inflation is expected to continue to rise and in January 2022 it may even reach a double-digit level¹. This situation requires urgent intervention. Apart from monetary policy, there are also fiscal tools at the government’s disposal, and it is good news they decided to make use of them.

In terms of fuel prices, an excise duty reduction was announced to the minimum level permitted in the European Union to being on 20^th December 2021 and to last until 20^th May 2022. Minimum excise duty on fuels is set out in Council Directive 2003/96/EC of 27^th October 2003 restructuring the Community framework for the taxation of energy products and electricity (known as the Energy Taxation Directive), and it is different for each type of fuel. The second solution aimed at reducing fuel prices is the retail sales tax exemption from 1^st January to 31^st May 2022. The so-called “emission fee” is also to be temporarily abolished. These measures are to reduce fuel prices by PLN 0.2-0.3 per litre. It will not only impact drivers, but the whole industry and all consumers as transport costs are included in the price of virtually all goods.

Moreover, VAT on natural gas is to be reduced from 23% down to 8%. Natural gas is one of the most important energy resources used, among others, to heat households, water, and gas stoves. It is also of key importance in the energy industry. It is estimated that for households, a VAT reduction may translate into lower bills to pay – by several up to even several dozen zlotys per month. In terms of electricity prices, VAT will be reduced from 23% down to 5% in January 2022, whereas excise duty will be brought down to 0%.

Obviously, the reduction of costs which is to result from changes in tax on energy carriers is a step in the right direction. Rising energy prices are responsible for a significant part of the overall price increase – the reasons for these increases lie largely beyond the control of the state authorities. However, tax reduction is a mechanism that equalises these increases.

Another of the PM’s announcements we find praiseworthy is the introduction of savings in public administration. At this stage, we are unaware of any specific details, but limiting the number of jobs in administration has been one of the postulates raised by the Union of Entrepreneurs and Employers for a long time. The announcement of savings and caution in spending public funds on the functioning of the state sets a good course of action.

The Prime Minister also announced the introduction of the so-called “shield allowance” for people and families with the lowest income in the amount from PLN 400 to 1,150. Its purpose is to compensate for the increase in food prices. However, this is yet another public transfer of a social nature and will constitute a further burden on the state budget. Increasing the system of social benefit, which is already rather extensive, may turn out to be counterproductive and lead to an even higher inflation. We are unequivocally critical of this particular element of the “Anti-Inflation Shield”.

Furthermore, Prime Minister Morawiecki criticised the CO₂ emission allowance trading system and noticed its disastrous impact on energy prices in Europe. In our report “EUA: Price bubbles and the competitiveness of Poland and the European Union” of September 2021², we elaborated in detail on the price bubble on the emission allowance trading market. For this reason, we support the announcement of actions to improve this system.

To sum up, the Union of Entrepreneurs and Employees is in favour of most of the proposals envisioned in the “Anti-Inflation Shield”. The announced tax cuts may slow down price increases and they are the right response to one of the greatest inflation crises in years.

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See more: 25.11.2021 Commentary of the Union of Entrepreneurs and Employers on the announcement of the “Anti-Inflation Shield”

Warsaw, 26^th November 2021

Commentary of the Union of Entrepreneurs and Employers on the European minimum wage

Position of the European Parliament on the directive on adequate minimum wages in the European Union.

On 11^th November 2021, the European Parliament’s Committee on Employment and Social Affairs (EMPL) adopted the Parliament’s position regarding the European Commission’s proposal for a directive on adequate minimum wages in the European Union. The position provides for making part of the proposals contained in the draft directive stricter.

The first proposed amendment concerns Article 4 of the draft directive. Under the original proposal, member states with collective bargaining coverage less than 70% of workers should establish a framework of favourable conditions for their conduct, by law after consultation with the social partners or by agreement with social partners, and subsequently establish an action plan to promote collective bargaining. According to EMPL’s adopted position, the required percentage of employees covered by collective bargaining should amount to 80%.

It is also proposed to include thresholds among the rules for determining the minimum wage in an individual member state. These thresholds should come up to 50% of the average gross wage and 60% of the median gross wage in a given country. The draft directive referred to these values only as an example of recognising the minimum wage as “adequate”, whereas the proposed amendment introduces these values directly into Article 5 of the draft directive.

Yet another major amendment is the removal of the entire Article 6 from the draft directive. It provides that member states could, in certain cases, allow different levels of statutory minimum wage for specific groups of workers. This provision would also allow for the possibility to apply specific deductions which could bring workers’ remuneration below the minimum level.

While it is true that the proposed position does not require a plenary vote by the Parliament, the Scandinavians have already announced that they would seek to vote. In Sweden and Denmark, minimum wages are as a rule the subject of agreements between employers and employees. Their culture differs from most European countries in terms of minimum wages, as it is not established by law, and yet, thanks to extensive negotiations, even the lowest wages are quite high.

The opinion of the Union of Entrepreneurs and Employers on the directive on adequate minimum wages in the European Union.

The Union of Entrepreneurs and Employers has expressed its views on the issue of the minimum EU wage on many occasions. We believe the directive might be harmful to both the labour market and the European economy. It can aggravate the situation of the most vulnerable workers, make it harder for the EU to recover from the ongoing crisis, and disrupt well-functioning collective bargaining systems. And above all else, we oppose the introduction of the directive on grounds that the EU lacks the necessary competences to act in the field of wages. The political nature of the European Pillar of Social Rights is non-binding, and the directive is bound to have negative effects both in social and economic terms. Referencing Art. 153 sec. 1(b) of the Treaty on the Functioning of the European Union as the basis for the proposed changes does raise objections too. Indeed, this provision gives the Union the possibility to support member states in activities related to working conditions, however, the same article in sec. 5 expressly states that “the provisions of this Article shall not apply to pay (…)”.

In the opinion of Union of Entrepreneurs and Employers, the amendments to the directive proposed by EMPL constitute further interference of the European Union in matters in which it should not interfere at all. Should we assume that Art. 153 sec. 1(b) provides for interfering with the minimum wage policy in individual member states, these activities should only be of a supportive nature, instead of negating consultation mechanisms efficiently operating in certain countries (particularly in Scandinavia).

The solutions proposed in the directive may also contribute to the inflation crisis in Europe. Increasing wages should go hand in hand with growing GDP and depend on the market, not only on a legal framework imposed by means of a political decision. Some employees may find themselves at a weakened position as a result of these changes, as employers, fearing additional costs, may be reluctant to offer employment contracts, and will only offer part-time jobs.

What we also find worth emphasising in this context is the fact that the directive will not bring about any significant changes in terms of remuneration in Poland. The Polish minimum gross salary amounts currently to PLN 2,800, and it will increase to PLN 3,010 as of January 2022. Meanwhile, the average monthly salary in the enterprise sector, including profit payments, in the third quarter of 2021 amounted to PLN 5,885.75. This means that EU regulations will have little to no impact on the policy regarding the lowest wages in our country. On the other hand, the introduction of the directive will result in further formalisation of the labour market, and will therefore limit the possibilities of shaping the minimum wage policy in the future, especially in a crisis.

See more: 26.11.2021 Commentary of the Union of Entrepreneurs and Employers on the European minimum wage

Warsaw, 3^rd November 2021

Shame on the Ministry of Finance for discriminating against Polish companies

• Only 41% of CIT payers reported tax payable in 2018. Among “flat” PIT payers that share was 83%. Entrepreneurs who pay flat tax also effectively pay three times more income tax (in relation to income) than capital companies.
• The budget is being robbed by means of a commonplace CIT avoidance. The resulting deficit will be an even bigger blow to small Polish companies, because as our report proves, they are the ones where the entire tax burden is shifted.
• The Polish New Deal will only strengthen tax disproportions. Entrepreneurs from the SME sector must prepare for tax increases, while foreign investors (96% of whom operate in the form of capital companies) can count on further tax reliefs.

Earlier this year – in August, the Union of Entrepreneurs and Employers published the report “French companies in Poland” showcasing the enormous scale of tax avoidance among the largest French companies operating on the Polish market. Both the conclusions from this report and the enforcement of the New Deal by the government, containing solutions detrimental to domestic SMEs, prompted us to create a study showcasing tax discrimination of the smallest Polish companies.

“We can’t argue with facts. While Polish entrepreneurs, sometimes described by representatives of public institutions as “schemers”, reliably settle their taxes, capital companies seem to be paying their taxes on a voluntary basis,” claims Jakub Bińkowski, Member of the Board and Director of the Law and Legislation Department at the Union of Entrepreneurs and Employers. “And last time I checked we all used public infrastructure and services.”

The data gathered in the report is alarming. It confirms the fact that that there is a huge disproportion between taxation of SMEs and large enterprises. One of the largest mobile operators paid only PLN 30,000 income tax over a 5-year-long period, and a German discount retailer did not pay a single penny over that period, to name just a few examples of activities responsible for the CIT gap – now at PLN 35 billion.

The state tolerating such a state of affairs and practices is all the more irrational given the amount of public aid that corporations receive. In the years 2016-2020, a German car engine factory received almost a billion zlotys from the state and paid merely half a million zlotys in tax.

“Multinational ownership structures are very often used by large foreign players to lower their CIT,” explains Kamila Sotomska, the Union’s Deputy Director of the Law and Legislation Department. “Claiming that tiny taxes are the result of the scale of investments is completely unconvincing. In sectors such as telecommunications or e-commerce, there are gigantic differences in the effective scale of taxation, even though everyone is investing and spending massive resources on development.”

 

Find out more: 03.11.2021 Report by the Union of Entrepreneurs and Employers “Book of Shame of the Ministry of Finance – tax discrimination against Polish companies”

Warsaw, 21^st October 2021

Opinion of the Chief Expert of the Union of Entrepreneurs and Employers on digital economy
regarding the Personal Information Protection Law

The Personal Information Protection Law (PIPL), the Chinese equivalent of the European General Data Protection Regulation (GDPR), will enter into force at the beginning of November this year. While it resembles the GDPR in many ways, there are also a number of significant differences proving the goals of the Chinese law are broader than mere protection of personal data.

PIPL regulates how personal data is collected and processed by companies. Both GDPR and PIPL similarly define such basic notions as “personal data” or “personal data processing”. Following its enforcement, data processing will only be allowed if it has a clear and legitimate purpose and is limited to the “minimum extent necessary to achieve the purposes of data processing”, and the user will have to consent to their processing. This consent may be withdrawn at any time, and companies will not be entitled to refuse to render services solely on this basis. Contrary to the GDPR, PIPL does not mention any legitimate interests of the administrator, yet it states that data may be collected without consent in certain cases, such as compliance with an obligation imposed by law or to the extent necessary to perform the contract concluded with the user etc.

Both GDPR and PIPL are applied in an extraterritorial fashion, which means both acts apply to the processing of personal data that takes place outside the borders of the EU and China, respectively. However, the scope of the extraterritorial application of PIPL is wider than in the case of GDPR. When determining the territorial scope of the GDPR, it is necessary to take into account the geographic location of the administrator or the processing party, and more specifically, whether it is based in the EU or conducts business activities in the EU. Running a business in the EU can be determined by offering services in one any of the member states. The availability of a website or the use of a language that is also a widely spoken language in a third-party country are not sufficient indicators. On the other hand, enabling an order in the currency of one of the member states may be enough.

Meanwhile, PIPL will apply to the processing of personal data outside of China, provided that the purpose of the processing is to provide products or services to individuals in China or to “analyse” the behaviour of individuals in China. Other objectives can be added by regulation. This shows that PIPL is “casting a much bigger net” than the GDPR.

Due to PIPL, foreign entities will be required to establish a branch or representative office in China for purposes related to data protection and control together with the Chinese authorities. This requirement largely reflects a non-EU entity representative known from GDPR.

The new provisions will also introduce restrictions on the cross-border transfer of personal data. Some provisions resemble those of the GDPR, but PIPL also includes a number of additional requirements, especially if the data exporter is an operator of a critical IT infrastructure or is processing a volume of personal data that requires permission from the Cyberspace Administration of China (CAC).

Firstly, a data controller planning to transfer personal data to entities outside of China is required to:

• obtain separate consent from users;
• take the necessary measures to guarantee that foreign recipients of data can ensure the level of protection required by PIPL;
• carry out an impact assessment on the protection of personal data.

Second, critical infrastructure operators or large data processors will need to store personal data locally. Should a transfer of data abroad become a necessity, the controller will have to undergo a security audit conducted by the CAC. These provisions will give the Chinese regulator wide opportunities to interfere in the business practices of companies and defend Chinese public interests.

Ultimately, the PIPL gives China the opportunity to take countermeasures against countries that have:

• acted in a way that discriminates against China in the protection of personal information;
• violated the interests of Chinese citizens whose data were processed;
• violated China’s national security and public interest.

To sum up, PIPL, following the example of GDPR, sets high standards of personal data protection. On the one hand, one could say that it is testament to the normative power of the EU in international relations and achieves one of the strategic goals of the European Commission to export EU standards. However, if we take consider the fact that PIPL, unlike the GDPR, will increase the control of the central state apparatus over the economy and strengthen China’s international position against foreign entities, we will see that these high standards are used against the EU itself. This is primarily due to the fact that PIPL will cover foreign companies to a much greater extent than GDPR, and will limit cross-border data transfer. Ultimately, PIPL shows how, in an increasingly data-driven economy, the regulation of cyberspace is becoming a new arena for geopolitics.

 

Kamila Sotomska
Chief Expert of the Union of Entrepreneurs and Employers on digital economy

 

See more: 21.10.2021 Opinion of the Chief Expert of the Union of Entrepreneurs and Employers on digital economy regarding the Personal Information Protection Law