The Sly Santa Claus Report 2022

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We don’t know where Santa Claus gets his gift money from. We know though, where the money for gifts to voters comes from for the government – from their own pockets. Each year since 2020, the Warsaw Enterprise Institute has been calculating how many new gifts from the government voters find under the Christmas tree, and how much they will pay for this generosity in taxes. In 2022, the government’s gift bag contained 10 surprises, with an estimated cost per working taxpayer of PLN 3434. This is less than in the last two years. Could it be that the Sly Santa is running out of our money? Not necessarily. The government is already announcing today what it has in store for 2023.

(see report)

– If the government says it will give something to someone, it means it will take something away from you, because the government has no money of its own  Margaret Thatcher used to say. The Polish government shows a constant tendency to make us gifts that, in the end, we ourselves still  in taxes  finance. Unfortunately, there are still people who don’t realize that behind every transfer they receive from the government as a social benefit or subsidy there is its own PIT. That is why  in order to increase awareness of the functioning of economic policy and public finances  the Warsaw Enterprise Institute has been monitoring from 2020 what new gifts taxpayers receive from the government’s Sly Santa in a given year.

And so, in 2022, the government handed out 9 new gifts to Poles, for which they will pay approx. PLN 3434.Is it a lot, or is it a very little? The answer is related to the quality and purpose of these gifts. It varies.

Some of Sly Santa’s choices are primarily political and serve to cement support without contributing to the sustainable and healthy development of our country and society. We are talking, for example, about paying additional pensions or another increase in the minimum wage. The introduction of new benefits of PLN 12,000 for the second and subsequent children between the ages of 12 and 36 months should be understood similarly, i.e. as a political ploy. It is already clear that cash benefits do not improve the fertility rate of Polish women, but instead build attachment to the idea of a “Polish welfare state.”

Sometimes the ideas of Sly Santa come not so much from political calculation, but from a lack of vision and finesse in responding to emergencies such as war and the refugee crisis. It was regular people who took it upon themselves to help the Ukrainians, and those in power did little  at least at the most critical moment  apart from introducing another social programme, i.e. payments to people who had taken refugees under their roof. This program, while perhaps coupled with good intentions, has blunted our selflessness, created room for abuse and reduced refugees’ motivation to look for a job.

Although pandemic-related aid programs were slowly expiring in 2022, another excuse for handouts has emerged: high inflation. At the same time, it is worth remembering that the main cause of inflation is monetary and fiscal policy, and in this context Putin and the war in Ukraine are a convenient excuse for those in power to absolve them of responsibility for the rising cost of living. The government has introduced an anti-inflation shield, which consists of tax rate cuts and a shield allowance for households and businesses to immunize them against energy price increases. Of course, rising prices cannot be contained in the long term and sooner or later the government will have to make them real. The shock that consumers will then experience will be greater than if they had not received “help” before. The fight against inflation has also translated into action by the Monetary Policy Council, which has raised interest rates, which has contributed to an increase in the price of loans. This phenomenon provided the impetus for Sly Santa to take further action. In express mode, it has set aside another 1.4 billion to help borrowers  as if not realizing that this will limit the anti-inflationary effect of interest rate hikes. Unfortunately, in the long term, the effect of many other government gifts will be the opposite of the one declared  it will increase our cost of living. More broadly, on how government actions increase the cost of living, we write in the report “(Un)obvious causes of rising costs of living in Poland”.

Comparing gifts over the past 3 years, it seems that both the cost and the number of gifts are declining. However, this is a false impression. The programs that the government implements are often permanent, such as the fertility support programs and the national media subsidy program.

When it comes to the momentum of the Sly Santa Claus, we are seeing a continuous budget snowball effect. The Sly Santa is rolling it at different rates, but all the time he is rolling it, and it is constantly increasing in volume. This can be seen plainly in the government’s increasing revenues and expenditures every year.

Chart 1. Growth in budget revenues and expenditures over the years

Source: mapawydatków.pl.

 

While Poland’s public debt now seems to be under control (we analyse this in the “Opening Balance ), while in the long term, on the occasion of a potential recession, the situation may change dramatically: the gifts of the Wise Santa Claus to which voters will become accustomed (for example, the 500+ program) will in practice be rigid spending, making it difficult to balance a budget depleted by the crisis-ravaged decline in tax revenues. In addition, the growing role of the state is undermining economic growth. It is worth noting that the state is requisitioning more and more of our income as a proportion of GDP, that is, shifting capital from the productive sector (private pockets) to the unproductive sector (government).

Figure 2: Share of government revenue in GDP

Source: mapawydatków.pl.

 

Considering the activity of Sly Santa so far, there is – unfortunately! – reason to expect him to stop being generous next year. It is already known today that additional or larger than usual money in 2023 will be received by, among others, the national media or the Church Fund, further social benefits will also be distributed, e.g.such as the electric allowance for households heated by power and – last but not least – not only the 13th, 14th, but also the 15th pension will be paid. However, probably, given that 2023 will be an election year, there will be other generous initiatives from the government.

Finally – as every year – it is worth recalling Milton Friedman’s famous classification, in which he distinguished 4 ways of spending money. We can spend:

Own money for your own needs – it is the most fair and effective way.

Own money for someone else’s needs – it is still a fair but less effective way. We may, for example, “miss the mark” with a gift in the taste of the recipient.

Other people’s money for your own needs – you do this by paying for breakfast out of your employer’s budget, or as a minister, using the company car to do your shopping. This is ineffective from the point of view of the owner of the money. Your employers tend to lose out on this.

Other people’s money for other people’s needs – this is the essence of how a redistributive state works. Despite the best intentions, neither politicians nor officials can guess what we really want. It’s the most inefficient way to spend money.

And that’s what the Sly Santa Report is all about.

 

This publication, however, makes no claims to being scientific, and its main message is to make fellow citizens aware that free lunches do not exist and that they are the ones paying for them. Counterintuitively, this knowledge is not common. The study conducted in 2017 for ciekaweliczby.pl shows that only less than 40 percent of Poles are aware that the source of funding for programs such as 500+ are taxes paid by them, and not only by their neighbors or supporters of other parties.

In our statement, we calculate the cost per working taxpayer of the gifts we received from the state in 2022. We write only about the new gifts from the government in 2022. We do not include those programs that the government launched in previous years that are still in operation.

Unfortunately, the Polish government does not keep an account of all the benefits and social programs, subsidies and grants implemented. However, we have managed to identify 10 different activities of the state, which can be described as gifts for a taxpayer or a specific group of beneficiaries, for which taxpayers pay.

We stress that our calculations are a certain estimation, not a precise valuation.

As for the numerator of our calculations, i.e., the budget cost of a given gift, first of all, some Santa’s spending depends on the take-up rate (not all those entitled will use it, or not all will use it immediately), which translates into delays in accessing information on final expenses. For the purposes of our exercise, we assume that the utilization rate equals 100 percent. Second, some of the considered expenditures start in 2022, but are phased in over the years and have predetermined budgets, which, however, may change in the future. If these expenditures have annual budgets, we follow these assumptions by taking the amounts allocated for the current year. Third, some gifts formally function as investments, such as those in infrastructure. In this case, we take into account the total cost.

As for the denominator of the calculation, we are starting from the assumption that, at the end of the day, all budget expenditures are financed from the pocket of the working taxpayer. The number of employees is taken from the data of the Central Statistical Office for the second quarter of 2022– it amounts to: 16770000 people.

(see report)

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