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Polish doctor Jekyll and Mr. Hyde
15 kwietnia 2018

Polish doctor Jekyll and Mr. Hyde

The Polish government promises the lowest taxes for small businesses in Europe. Already excellent economic results can significantly speed up development. Poland, however, remains torn between the pro-market prime minister and the socialist-oriented majority in the ruling party.

On your average day, you probably do not read much on Poland. If you do, these are most likely disturbing news. Something on polish authoritarian, populist slash nationalistic tendencies. If you reach for the liberal media, you probably ask yourself whether Poland is turning to fascism right this moment. If you are a more advanced student of international relations, you probably already know that the European Commission is about to withdraw allegations of actions threatening the rule of law in Poland. Something that escapes the media spotlight is the Polish economy.

With already record low unemployment ( according to Eurostat 4.4), record low fiscal deficit at 1.5% of GDP. Shrinking government debt (50.6 per cent of GDP in 2017, down from 54.2 per cent in 2016) and with projected GDP growth government is about to implement an aggressive package of 200 new regulations focused on business development plus just announced major corporate tax cut for small firms from 15 to 9 percent. Only a year ago, the government reduced the same tax from 19% to 15%. This provided the budget with an additional 13% of the corporate tax.

Some of Morawiecki’s provisions that come into force on April 30 may seem obvious, for example, a golden rule - what is not a prohibited by law, is allowed. But polish officials have so far ignored those rules, and amazingly, they found understanding within the ruling party. Other regulations introduced by the prime minister, despite the lack of enthusiasm of a large part of the party and even some of the ministers are:

  • Presumption of integrity of the entrepreneur.
  • Unclear regulations will be resolved in favor of entrepreneurs.
  • The Government cannot impose unreasonable burdens on the entrepreneur.
  • Appointment of the Ombudsman for Small and Medium-sized companies
  • Lower social insurance(ZUS) for small businesses

The paradox of the Polish government is still a conflicting legislative policy towards entrepreneurs. Warsaw Enterprise Institute constantly draws attention to harmful provisions, those inherited from the previous governments as well as new legal absurdities. Like harmful law "pharmacy for a pharmacist" prohibiting people with no pharmacy education from owning a pharmacy. The law has only been in force for several months but already led to the collapse of many businesses, reduced competitiveness and investments in the sector. On one hand, government offers tax cuts for small and medium companies, but on the other hand, proposes regulations hampering business. The most recent example is the new requirement to mark each bottle of wine, whisky or vodka with precise information about all of the ingredients and calories. Poland will be the only country in Europe with such strict requirements. Only large companies will be able to carry out such extensive tests and bottle labeling. Many small, polish entrepreneurs and importers will disappear from the market.

In spite of the Prime Minister's promises, the influential forces within the government protect the statist and anti-business bureaucracy. The prime minister promises to reduce taxes for small companies in the hope of increasing the number of companies, but registration of the new company still takes from 6 months to a year. Quite few new laws are inspired by the worst protectionist practices in the Union. Like, for example, the French ban on trading in agricultural land adopted to polish law. New regulation practically prevents small Polish owners from trading the land. At the same time, the law leaves a huge loophole for large international funds trading in land.

We have a similar situation in the case of fur farms. Poland, one of Europe’s largest fur-farming countries, wants to introduce a total ban on the industry, destroying a thriving 370 mln euro business. An influential group of MPs staring at extreme left-wing, populist environmental organizations is forcing a ban against common sense, to the joy of competition from other countries.

The story of Polish doctor Jekyll and Mr. Hyde, where the reformatory Prime Minister struggles with the socialist mass within the ruling party, may be the key to understanding the changes that Poland is undergoing today. Not only the state's economy but also its politics. Premier geared to growth and prosperity, himself an experienced banker, understands that the success of his government depends also on the economic freedoms and repair relations with the EU. A socialist-national-oriented ruling party majority most resistant to economic arguments, strongly believes that prosperity will come with restrictive business regulations and a greater state interventions. Party discipline enforces obedience to the prime minister and acceptance for most reforms, but reform implementation remains a serious problem. It takes parliament forever to pass pro-market law and when it does the law is usually badly distorted. Together with the tax cut, the prime minister promised to lower contributions of small businesses to social insurance. The problem is that the government has tried to introduce reform for 18 months without success. Now, before the elections to local governments, probably socialist-minded deputies will support the project, but the proposed version has already been severely altered.

The same applies to the repair of the provisions on the judiciary reform or the law on lies about the participation of the Polish state in the Holocaust. Ultimately, the regulations will come into force and relations with the Union or with Israel will return to normality, but as with the economy, the process lasts much longer than it should and a thousand times longer than it would result from the prime minister's reformist ambitions.

Author: Tomasz Wróblewski

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