The current situation does not inspire optimism – high inflation, a possible outflow of capital due to the war in Ukraine, the weakening zloty, and rising prices of production factors are just a few of the problems that need to be tackled. The Warsaw Enterprise Institute believes that fundamental economic reforms can no longer be neglected. We presented a package of such reforms in our report the Economic recovery plan after the COVID-19 crisis, which includes ensuring legal stability and predictability, reducing overregulation, simplifying taxes, making the labour market more flexible, reforming the social security system and the judiciary. They will act as a safety cushion against global turbulence.
Recently, we have observed a slowdown of the Polish economy, strained by the COVID-19 crisis, which additionally has to deal with the effects of the war in Ukraine. At the same time, there is high and rising inflation, which in April 2022 reached 12.3 percent y/y. According to the predictions of economists, price growth should peak in the middle of the year, but the double-digit value will also accompany us for the next months. Forecasts for other aspects of the economy are also not the most favorable. Back in January, according to the World Bank’s calculations, the planned GDP growth in 2022 was to reach 4.7 percent, while due to the situation in Ukraine it was revised down by 0.8 percentage point to 3.9 percent. Similarly, domestic economists are revising their forecasts, unfortunately also in the direction of a slowdown in the economy, despite the fact that not long ago an error of underestimating the growth trend was expected. The proximity of Ukraine also makes foreign investors apprehensive about investing capital in Poland due to the possibility of an expansion of military operations.
What then should Poland do? Our influence on the international situation is limited, but we can strengthen the resilience of our own economy to external shocks, stimulating its vitality and dynamism. To achieve this, fundamental reforms that Polish governments have so far avoided should be introduced.
The Warsaw Enterprise Institute has long advocated the need for fundamental changes, and in December 2020 it presented a report that included a plan for rebuilding the economy after the COVID-19 crisis. In the current situation, the proposed changes are even more relevant and urgent than they were a year and a half ago. Raising interest rates, which is necessary but overdue, or anti-inflationary shields will not solve the problems of the Polish economy. In addition to short-term measures, it is necessary to implement a number of reforms that will ensure an appropriate regulatory environment and enable growth to be stimulated.
Key postulates include:
- ensuring the stability and predictability of the law, including the introduction of a principle whereby all laws affecting entrepreneurs would come into force only once a year, on January 1, after a prior vacatio legis period of at least one year;
- limiting minimum wage increases;
- abandoning excessive regulation in the implementation of EU law and repealing legislation adopted so far that constitutes overregulation;
- introduction of uniform tax rates, including:
- reforming labor taxation by introducing a uniform tax rate levied by the employer on the wage fund;
- introduction of a unified tax rate of registered lump sum for all natural persons conducting business activity or abolition of the limit of income for this form of taxation and introduction of a new matrix of rates of registered lump sum;
- introduction of a single VAT rate for all products, regardless of their type;
- abolition of the insurance system and creation of a supply-side model;
- introduction of income tax, with simultaneous provision by the state of a guaranteed benefit – citizen’s pension (a benefit in equal amount if person is unable to work due to age or illness);
- a sensible and effective pro-family policy aimed at popularization of 2+2 and 2+3 families in Poland;
- creation of conditions conducive to the return of emigrants from abroad;
- reasonable absorption of immigrants, primarily from countries neighboring Poland;
- introduction of planned solutions facilitating digitalisation of the labour market, in particular by regulating remote work and enabling electronic document flow between the employer and the employee;
- introduction of flexible solutions regarding the establishment and termination of the employment relationship, the working time system and working time records;
- liberalization of labor regulations for small employers;
- decreasing the basic contribution to the Company Social Benefits Fund and increasing the possibility of spending resources from the Fund on, for example, private medical care for employees;
- institutional changes in the judiciary, including:
- reform of the Supreme Court,
- liquidation of the Constitutional Tribunal, State Tribunal and separate administrative courts,
- introduction of justices of the peace,
- reorganise the general judiciary and court administration;
- introduction of procedural changes in the judiciary, including:
- transfer of the company register to the public administration,
- introduction of notarial payment order,
- development of work on computerization of document circulation,
- introduction of the institution of pre-trial proceedings,
- introduction of division of cases according to the value of the object of dispute.