The golden age - book review

Most books coming into by hands are recommended by someone else, but the reviewed one indeed has been chosen by someone else, but not precisely for me. The essay on the macroeconomic success of Poland after 1989 was an award in a contest for managers run by my employer and with a bit of luck I won it. Regardless of uncanny method I have come by it, I am glad it has landed on my bookshelf.

Oddly enough, the book, whose author, Mr Piątkowski, is a scholar at Oxford University, has been originally written in English. I have learnt it around the middle of my reading, having come across several excerpts having all features of clumsy translations of English sentences. I regret not having the chance to get familiar with the original version, yet at the end of the day, the cognitive experience would have been the same. Of note is that the first edition of the book was published in 2018. Since then there were some minor supplements and the last chapter was added, yet in the contemporary fast-evolving world, passing time has rendered some arguments outdated.

Regardless of what some populist politicians might tell you, Poland has made an impressive stride after 1989, absolutely unprecedented in its history; a progress all citizens have benefited from (though not to the same extent) we, a collective accomplishment Poles can be proud of.

In the first chapters of the book, the author explores drivers of economic growth, paying particular attention to purely qualitative ones, such as institutions, culture and mindsets of people. His musings bring back Micheal's question, whether collapse of communism should be put down to the system or to the people. Before Mr Piątkowski moves on to examine reasons why Poland used to fall behind western Europe for centuries, he reminds GDP is not a perfect indicator of people's welfare and happiness. Here, again, my thought are diverted to Michael's blog and his de-growth manifesto.

Over the course of its history, Poland could not boast of testimony of growth-conducive circumstances. Between 16th and 18^th century, when western European nations accumulated wealth, Poland was effectively under the rule of oligarchic caste of noblemen, who pursued their own interests, consumed fruits of peasants' work in countryside, fostering their backwardness, when in the West, middle class of merchants and upper-middle class of industry developers was nascent. The country, devoid of actual power exercised by a king and lacking money from tax collection, was gradually plunging into anarchy, which eventually led to partitions which wiped Poland off the map if Europe for 123 years.

Once Poland regained independence in 1918, it restored its pre-partition social structure with tiny elite minding its own business and keeping with country backward. The society was still predominantly agrarian, with poor access to education and health service. With such elites, the country had little chance to move forward.

The advent of communism, no matter how evil it was, turned the social structure upside down and flattened it. The bygone elites (those who survived WW2) were stripped off their wealth, while the descendants of the numerous lower class were given a chance for social advancement. Communist Poland has not only cracked down on illiteracy, but also gave a chance to children of peasants and blue-collar workers to get university education. As the author points out then, inclusiveness and low inequality of the Polish society were crucial for putting the country on fast-growth track after 1989.

The post-1989 advance was tough, painful and a deep recession was the price to pay for fast catching up with the West in subsequent years. The author points out a mix of factors, categorised both into "the system" and "the people" underpinned the period of unprecedented growth which with hindsight might beyond all doubt be called the golden age of Poland. The progress continued for many years despite the headwinds from the world economy and regardless of political groupings behind the wheel. Personal bias aside, leftist post-communists, centrist PO and right-populist PiS have all helped my country move ahead.

The best years are behind us. The distance to the richer west is narrower, cheap workforce is no longer our ace up the sleeve. Poland lacks cutting-edge innovativeness which could work to its advantage. Besides, demographics, especially fertility drastically lower than expected a few years ago, will become a massive burden hampering further development. Looking at the far end of the political arena at parties opposing Poland's belonging to the (imperfect, yet best available) civilised West and tilting at the empire of evil, one cries out: don't squander it.

Going back to the very review - after a brilliant beginning, with each chapter charm wanes and towards the end, the book gets not yet dull, but too academic. Nevertheless, anyone fond of economics and history of Poland should find time to get familiar with it.

Buy cheap, buy twice

A long time ago I heard a woman who could be ranked among lower-middle class (in Poland there are no standards of social stratification, hence such assignment was purely judgemental) claiming she “could not afford to buy cheap stuff”. At that time I thought she was showing off she could afford some decent items to make up for her inability to buy more expensive durable goods, such as more comfortable dwelling. With hindsight, I recognise the wisdom in such attitude.

The musings should begin with a question whether there is a positive correlation between price and quality. I would argue it exists, yet not really strong. If you buy expensive items, you might be let down by their poor quality, yet if you buy cheap items, it is far more likely the cost of acquiring them reflects their shoddiness. There are bargains you might chase, but laws of economics remain unwavering – products or services of high quality might be attractively priced only for a short time, then the market will drift towards equilibrium.

With age (and rising earnings) I lean towards buying more expensive durable goods and my higher disposable income is not a core reason. I like using stuff for several years, I realise such consumer habits are good for the planet, I detest producing rubbish and I generally dislike shopping, so if I buy something that serves me for many years, it saves me hassle which replacing a defective or worn-out item involves. Besides, the comfort of using quality stuff is usually higher. Such approach requires a larger initial expenditure. As I point out, I pay more up-front, but over years I do not spend more money by replacing one shoddy item with another. Quite sadly, the initial outlay is the biggest barrier for the poorer who for financial reasons are stuck in a vicious circle of buying cheap stuff: furniture which fall apart after a few years, clothes which look like rags after a few washes, etc.

One would say it is contrary to manufacturers’ interest to put out durable objects, as capitalism is driven by ongoing, never-ending demand. Bosch brand, being a symbol of quality gives lie to this. My dishwasher has never let me down over 7 years. By dint of high quality, I have come by a driller, a universal brush, a wire detector and a washing machine, all manufactured by Bosch, which since decades has been a renowned producer of reliable and durable machinery. It earns on clients recurring to buy a different product, not to replace an item they bought a few years ago.

In purely economic terms, the strategy of buying expensive items does not always make sense, especially when quality does not go together with practical properties of an item or if you are going to use an item once in a blue moon. In the latter situation, sharing economy should be the answer, nevertheless despite some progress, Poland still lacks a well-organised platform for renting / borrowing stuff (such as tools used once a year or less often).

On prices rising

Michael has beaten it to me, with a splendid account of what Poles have to face up to these days. The imminent price growth has been a par for the course since pre-pandemic times. Recent outburst of public outrage over prime minister Morawiecki’s purchase of inflation-indexed government bonds has left me unimpressed. I bought such securities for the first time in July 2019; my grasp of economics told me to protect against recklessly loose fiscal and monetary policies. Time has proven me right, while the pandemic and the war in Ukraine have amplified the effects of local policy errors.

Looking back at the autumn 2021, when I visited underprivileged families as a volunteer of Szlachetna Paczka, I remember well people complaining about rising costs of living, especially more expensive food, electricity and heating. I worried this could send millions of people into poverty if prices of essential goods keep rising like that. I also can boast of predicting the threat of stagflation which was in the offing even without warfare on the horizon.

The factors which to some extent will continue to drive prices up are: the pandemic (not really likely to ease off for good), the fight against climate changes (which prompts consumers to change their habits) and the sanctions against Russia. The very latter will sadly hit more those who rightly aim to punish Russia for its cruelty, than the Russians, who for centuries have been accustomed to depravity.

The struggle which looms ahead of Poles now is multi-faceted.

Food prices will not go down due to droughts, shortages of fertilizers and higher energy prices. Climate change and negative supply shocks related to the war in Ukraine will push millions into famine, while residents of the developed countries will need to spend larger parts of their household budgets for nutrition.

Dwelling upkeep costs will not go down as well. They will be kept high by the push for the greener energy and decreased supply of fossil fuels from Russia. This will be painful for several poorer Poles, who will need to save on virtually everything to keep their houses warm during the coming winter. I believe we will all need to give up on some thermal comfort in months ahead and withstand temperatures of +18C in our interiors. Appallingly, some European countries, such as Germany and Austria are about to switch on their once shut down coal-burnt power plants, committing a sin of not restarting their nuclear power plants whose environmental impact is incomparably lower than of burning coal.

Fuel prices have gone up by some 50% vs. February 2022 and they might decline a but, yet given the cost of transport is included in nearly every price, even without direct exposure to petrol stations’ price lists, everyone will be worse off. So far, judging by traffic volumes, few people have given up on motoring in favour of public transport, cycling or walking – does not bode well for the economy, for the climate and for the public health.

What is being first hit by the inflation is demand for discretionary, non-essential goods. But if are to gain control over the surging prices, we must stop chasing such goods, resist the temptation to flee money. The circulation of money has to be contained, hence lending ought to be curbed and saving should be encouraged.

I have no good news for you. The best times for our civilisation are already past us. We have to brace ourselves for austerity unseen since decades. Many of us will need to watch every zloty before spending it. Our consumer habits will need to be rethought. Wisdom and sustainability will have to take over. Sharing will have to become an alternative to buying.

Besides, I am glad personally I am not impacted badly by the inflation. I put aside less money monthly, but do not have to abandon any expenses for purely financial reasons (I drive even less, but not because I cannot afford to fill up my car). My savings are shielded reasonably well from the inflation. Each day I am thankful for the sense of financial security. I hope this gratitude fends off the evil, albeit the outbreak of war east of Poland, being a tragedy to millions of innocent people, reminds nothing can be taken for granted.

Stagflation

Some time ago I believed the term coined in 1970s would become the thing of the past, explored by students of economics and occupying few pages in their textbooks. The stagflation in 1970s arose from a negative supply shock and was successfully combated by tight monetary policy and drawing back on economic liberalism. The price to pay was a rise in unemployment and downfall of inefficient, uncompetitive industries.

Rings a bell? In 1970s real negative interest rates were prevalent in developed economies, as they are today. In 1970s a surge in oil prices contributed to the stagflation; today disrupted supply chains and shortages of several components might produce a similar outcome.

The two comparisons might misguidedly suggest the today’s situation is parallel to what was witnessed over 40 years ago, while it is not.

The COVID-19 pandemic, especially in its early phases, prompted unprecedented government stimulus programmes. As several sectors of economies were brought to a halt to curb the spread of the virus, the governments had to feed mouths of those who were forbidden to work. If the link between the output and the money is broken, it means the supply of money on the market is not counterbalanced by goods or services produced and so prices inevitably rise. This has happened with a delay of a few quarters.

Frail economies of several countries were propped up by ultra-loose monetary policies, giving relief to debtors and inducing those holding cash to spend it. I suppose there are other precisely targeted measures to help out those devoid of stream of revenues. If you earn no money it does not matter much whether the interest rate on your debt is 3% or 0%.

Although the pandemic has been brought under some control in several countries, supply chains continue to be disrupted. Lack of semi-conductors, disruptive for several industries, brings supply of several goods down, which, holding everything else unchanged, pushes their prices up.

Also the climate change and efforts to slow the AGW down begin to have impact on prices of energy and fossil fuels. The time has come to pay the bill for exploitation of the planet. Prices of several goods will need to incorporate the harm done to the planet by the consumers.

As a banker I have industry insights which are out od reach for an ordinary man. I closely see how soaring prices of some raw materials send profitability of some companies up and others down. On some markets where prices increased by a few hundred percent over the recent year, buyers said they’d had enough and would rather cease to manufacture rather than produce with a loss if they are unable to pass the rising cost of raw materials to off-takers. Such phenomena are a clear signal stagflation might be in the offing.

The inflation will always have its beneficiaries, but most economic actors lose on it. Usually those better off are debtors and worse off are their creditors. On top, the poorest suffer the most. Prices of dwelling upkeep and basic food have risen by more than 6% over the recent year, hitting the wallets of the underprivileged.

I am grateful for my wisdom and intuition thanks to which I invested my savings in inflation-linked government bonds which in 2022 will pay me coupons up to 8%, with risk and liquidity profile far superior to a residential property which is considered the main alternative to bank deposits in Poland

Inflation creeping in

The inflation reading in Poland for July 2021 hit 5.0% year-on-year; the highest since May 2011 and the second-highest in the last two decades. Probably I would not gripe much about it, had the monetary policy been conducted in a proper manner. Sadly, it is not. Despite the rising price level and rapid recovery in the economy, benchmark interest rate in Poland stays at 0.10% (which in fact means the real interest rate is almost -5%, perhaps the lowest in the civilised world).

Interest rates in Poland were slashed to a record-low (by historical standards) level of 1.50% in March 2015, when Poland struggled a deflation. Then such move, with real interest rate of nearly 3%, was justified. Despite economic expansion, the central bank kept its rate level until March 2020, when it responded to the pandemic-related economic standstill by a rate cut of 50 basis points. In the next weeks the current level of 0.10% was reached. I will refrain from commenting on the legitimacy of such move in a situation of an unprecedented supply shock. I believe tools different than the cost of money should have been used to help businesses and customers out.

Customarily, I am referring you to my essay on harms inflicted by too loose monetary policy. Times have changed, economic principles have not, albeit some are intent on setting new paradigms.

Astonishingly many people realise why the Polish central bank does not react to the price growth which exceeds the statutory goal of monetary policy (i.e. inflation target of 2.50% +/- 1 p.p.). They do it to help the government finance its debt cheaply and pay negative interest on a large portion thereof. Not only the debt service spending is lower thanks to lack of monetary tightening. Higher prices mean higher tax inflows, predominantly from VAT. Inflation which spirals out of control always at least temporarily translates into negative real interest rates which facilitate transfer of wealth from creditors to debtors, including the biggest debtors in the world, i.e. governments.

Those particularly worse off are savers who now either accept a depletion of their savings kept in bank accounts by 5% yearly in real terms, or search for havens which might shield their money from inflation. Unlike me and my parents, not everyone noticed the opportunity of inflation-indexed 4Y government bonds in 2019 (which has turned out to be an excellent nearly risk-free investment making me give up on my resolution made a decade earlier). Folks with substantial savings have rushed to buy properties, as they believe tangible assets should store value. I am putting it down to Poles’ inability to invest in any other asset class than properties. Had flats purchased for investment reasons been put on the market for rent, this would have been quite okay, since thosee dwellings would meet someone’s housing needs. Horrifyingly, a growing number of flats stay vacant, as the purpose of their purchase was purely speculative, i.e. to benefit from value appreciation, despite bearing upkeep costs.

Moving back to the core topic of the post, i.e. to inflation, we should understand what drives prices up and why there is little chance the price growth decelerates.

1. Far too much hollow money has been printed during lockdowns. If goods or services are not produced, but economic actors receive a pecuniary compensation for being idle from a government, the link between a payment and goods or services offered in return is broken. A first-year student in economics would recognise it!

2. Recovery programmes run by governments to stimulate economies – they raise prices of specific goods and services, i.e. construction materials and services if a programme is aimed at such sector.

3. Broken supply chains, which have not been fully restored since early 2020. This problem affects several industries and strikes several markets off balances. These days the shortage of brand-new cars or bicycles is driven by shortage of components, without which vehicles cannot be manufactured.

4. Deferred demand – after several sectors were shut for months and as the general uncertainty seems over, customers rush to catch up on spending and business want to make up for losses incurred during lockdowns.

5. Lack of incentive to save. As people see their money evaporating on real terms from bank deposits, they are more eager to spend it, i.e. consume rather than invest.

6. Climate change and environment protection. This is the foremost reason. The time is coming to bring the price of several planet-destructive goods real and make them reflect the harm caused to the planet. For such reasons cars will have to be less affordable, prices of electricity generated from burning coal are bound to go up. Same needs to happen about rubbish collection charges, plane tickets, packaging, clothes and other goods humans thoughtlessly use in excess.

Having written that, I am happy I bought and furnished my dwelling in 2018, do not need to purchase a car, nor a bike and price growth of several goods does not affect me.

The New Deal or the New Scam?

I have used the reverse translation method to do Nowy Ład into English, as Roosevelt’s New Deal agenda is commonly translated into Polish as such. The Nowy ład has also been immediately dubbed Nowy Wał by critics of the government, for which I use term in the title of the post.

It has taken me a few days to catch up with the document. Since the quality of media coverage in Poland is on decline, same as journalists’ grasp of economics, I have decided to take more than a glimpse at the source document, before drawing any conclusions. Despite my dislike for the government, I am trying to take an unbiased look.

The agenda is a leap forward, to keep up the support by the parliamentary election in 2023 and in the meantime to buy off some voters. People have to forget about the trauma of the pandemic and over 100,000 excess deaths the country will have reported by the time the epidemic is truly over.

The very document is just a blueprint of what PiSites want to reform in Poland by 2030, full of general catchwords, lofty intentions and bragging about recent successes. At such level and stage lacking details, but setting objectives. I shall focus on commenting just a few of them.

1.  Increasing the health care spending to 7% of GDP – a commendable goal, yet allocation of money must be wise between available resources. As three decades of not sorted out problems of the state-run health service in Poland prove, any government can sink an infinite amount of money into the system, but in order to make it operate efficiently and patient-friendly, structural problems need to be tacked.

2.  Raising the tax allowance to PLN 30,000 is a step that moves us closer to standards of taxation in the civilised world, where those earning the minimum wage pay almost no tax.

3.  The document mentions a deductible for the middle class, i.e. those whose yearly earnings are in the range from PLN 70,000 to PLN 130,000 – an interesting idea, yet without any details. This point has not appeared in the media coverage.

4.  The threshold for the second tax bracket is to be raised from PLN 85,528 (at which it has stood since 2009) to PLN 120,000 which still does not make up for accumulated inflation over the last 13 years, yet brings some relief to the middle class.

5.  Remote working in non-pandemic times should be finally governed by law (even sooner), ensuring the employee gets compensated for their house maintenance expenses related to home office – at last.

6.  I searched in the document for the provision under which the health care contribution will no longer be deducted from taxable income and have not found it. If such intention does hold true, it will offset positive effects of points 2, 3 and 4.

7.  Property purchase equity is to be guaranteed by the government. Here I am the most sceptical. All programmes aimed at the housing markets pump up property prices (making them less affordable) and benefit banks as mortgage lenders. The scheme is to include a cap on price per square metre, but it will either be sky-high or exclude most properties in large cities from the programme. I would call for a programme aimed at increasing supply of dwelling, yet in a civilised way.

8.  The state is to become an important investor and to create directly or indirectly 500,000 jobs. I am wary of this – free market allocates resources more efficiently, but in Europe and in the USA governments pursue sizeable recovery programmes, so Poland just falls into line.

9.  The tax burden for enterprises to be lower – fine, yet in Poland not the level of taxes, but the instability od regulations and extent to which they are complicated make up a problem.

10. The pension system with the current pension age (60 for women, 65 for men) is not sustainable and the document does not address that issue.

The costs of the agenda have been presented in the document, yet funding sources have not been specified. Any government before it begins to give out money has to collect it in taxes or run up debts. Do bear in mind there is no such thing as a free lunch in economics.

The last good year for the Polish economy

If you claim PiS has a macroeconomic agenda for Poland, I am afraid you would find it hard to convince me. The economic agenda of the ruling party rests on social allowances, this one pillar is fairly sufficient to prop it up and buy off several voters who, for the first time since 1989 have been given tangible cash into their hands.

The previous governments were pursuing systemic reforms, while this government neglects important spheres which require attention and investments, such as education, health service, efficient public administration. This is all done at the expense of money spent on social transfers. A new system of roads, modern trains, an improved schooling system prove not to improve the comfort of living as good as five hundred zlotys held in a palm.

Allowances generously given out by PiS are not correlated with what products or services put out in an economy nor anyhow linked to productivity. With the same amount of goods and services delivered, incomes of individuals rise. This in the short run spurs consumption and propels economic growth, but in the long run, as any student of economics should know, would spark off inflation, the phenomenon has already begun to materialise and apply most to basic products, such as fruits and vegetables, as well as to services.

The continuous price growth is consistently ignored by the central bank, whose officials obstinately point at its temporary nature, while in fact the inflation has not been caused by external shocks, but is driven predominantly by rising wages which are the component of a price of nearly any product or service. The central bank, by keeping its benchmark rate over one percentage point below (official) inflation rate not only facilitates transfer of wealth from savers to borrowers (including the biggest debtor, i.e. the government), but also fails to fulfil its statutory task which is ensuring price stability.

Savings of those have put some money aside are eaten up by inflation or actually the savers lose in real terms. When such situations occur, cash holders flee their cash and attempt to invest in assets which can potentially protect their savings from inflation. The biggest victims are first homebuyers priced out of the market, since the property market is the mostly afflicted by cash fleeing.

The cost pressures are hitting results of enterprises which have to raise wages (this pertains mostly to manufacturers), bear higher costs of energy (to be unfrozen in 2020) and transport. As an analyst covering corporate clients I have access to portfolio statistics which clearly show 2017 was the best year for corporates in Poland, then profitability of businesses dwindled in 2018, first half of 2019 have brought a further decline and number of distressed companies is further rising. With quick growth of minimum wages and increase in social security contributions the trend is unlikely to reverse.

Fellow bankers and I in unison are confident the Polish economy is anywhere but in the balance. It is overheated. I blame the Polish government, precisely their pursuit of policies of adding fuel to the fire and the central bank for not raising the interest rates when it should have been done, i.e. in 2017 for the overheating.

Regardless of my gripes, PiS is bound to win the election due in two weeks. As I once pointed out, it ought to win to pay the price for its reckless policy, but we have to mobilise ourselves to minimise the scale of their victory, at best not to let them win simple majority. Keep the faith!

By car? Whose car?

Time for a follow-up to last week’s post in which I have promised to compare a total cost of owning a car to using someone else’s car. In my analysis I assume whenever possible I use a bike or public transport and stick to four-wheel motoring whenever most convenient. My calculations pertain to my driving habits only and do not factor in any psychological or emotional elements, these are just hard numbers.

1. My driving profile, which will serve a base for comparison.

I drive on average 10,000 kilometres per year, of which:

- 4,000 kilometres are long-distance travels around Poland and abroad, they break down into one fortnight-long trip and four weekend (3 days) trips,

- 3,000 kilometres are mid-distance journeys are Warsaw and in the vicinity, each on average 15 kilometres from home and back, around two times a week,

- 3,000 kilometres are business trips around Poland.

2. Total cost of car ownership

The basic component is depreciation. I could claim my 8-year-old car does not lose value much and thus distort the comparison but I won’t. I assume I buy a brand-new compact car for PLN 80,000, I look after it, the car has no accident and I can sell it after 15 years of good service with 150,000 kilometres on the clock for one-tenth of its original value (in 2016 I sold my Megane II after thirteen years and five months for 15% of my father’s Megane IV price). Since I do not intend to get rid of it after a few years, I don’t care about high market value loss in early years; therefore I make a simplifying assumption that the car depreciates linearly.

After I buy the car, I need to pay fees in local transport and motoring office. PLN 180.50 gets amortised into 15 years.

Over the first 7 years I insure the car against theft, self-caused accident and other damages. I believe the risk is not very high, so I choose an insurance plan with the highest deductibles, which gives me insurance premium of 2% of car’s market value which then gets allocated over 15 years. Depreciation schedule for calculation provided by a leasing company (percent of original value after X years):

- year 1: 77%,

- year 2: 65%,

- year 3: 56%,

- year 4: 48%,

- year 5: 41%,

- year 6: 35%.

Good to realise after six years your car is worth little more than 1/3 of which you have paid for it.

Third-party liability insurance, with my highest 60% discount for accident-free track record of driving. PLN 586 is the exact amount of T-P liability premium paid by me in November 2018.

Just in case in take out also ancillary insurance policies, with the latter being required by my employer. Also the actual prices paid by me 8 months ago.

Annual servicing involves a thorough inspection of the car’s condition, changing oil and filters as well as fixing up minor (cost below PLN 100) malfunctions. PLN 700 is very close to actual price paid by me in April 2019 at Renault Dyszkiewicz.

MOT, in Polish a technical inspection confirming a vehicle’s roadworthiness. Over 15 years it has to be done 12 times (after 3^rd, 5^th and each next year), therefore the expense of PLN 114 is averaged out over 15 years.

A brand-new car comes with one set of summer tyres. To drive 150,000 kilometres in Poland you need two sets of summer tyres and two sets of winter tyres. Three sets of tyres to purchase over a vehicle’s life, each setting you back PLN 800 (of reasonable quality, yet a bargain in low season hunted), allocated over 15 years.

The tyres need to be changed twice a year. I have no-frill tyres, but in vehicles with pressure sensors are change is more expensive. My father was charged PLN 118 in April 2019 for such service.

Odds and ends are insignificant expenses, such as car wash, light bulbs, liquid washer, wiper blades, air fresheners, cosmetics, etc. They add up to PLN 200 per year on average.

Planned (due to wear and tear) and unplanned (breakdowns) maintenance and repairs – the most debatable item. How have I arrived at the amount? I have summed up all my expenditures on my previous car (aged between 8 and 13 while I had it) and current car (aged between 5 and 8 while I have had it) and divided by 8 years of car ownership. I have arrived at PLN 1,860 per year and then I multiplied it by 11 and divided by 15 (I assume over first 4 years since driving out of factory the car does not require outlays due to wear and tear and defects are covered by manufacturer’s warranty).

Petrol – I here assume price of 1 litre of petrol is PLN 5.00 and the average petrol consumption is 7 litres per 100 kilometres (if I drive at reasonable speeds beyond town and very rarely get stuck in traffic jams, perfectly doable).

As mentioned at the beginning, I take business trips by private car, therefore I am eligible for mileage allowance of PLN 0.8358 per kilometre which is the money (free of income tax) my car earns for me.

I believe I have included all the costs. Have I forgotten about something?

3. What if I do not own a car, but still need to use a car in the same manner?

With business trips the private car is replaced with a company car borrowed from a workmate. No costs to bear, mileage allowance goes away!

For a longer holiday trip, I need to hire a compact car for a fortnight. I return it 15 days after picking it up and pay a charge of PLN 99 per day, nearly the cheapest rate for a car found via search-and-compare engine.

For the weekend trips, I hire a compact car to return it 3 days 4 times over year after picking it up and I am charged a higher rate of PLN 129 per day.

The rented cars need to filled up. However if I can safely assume my well-looked-after car with carefully run-in engine repays me with lower fuel consumption, a hire car’s engine’s condition would not be that good and it would consume one litre of petrol per 100 kilometres more.

Finally, travels around Warsaw. Long before setting out to write the post, I have made a calculation of how much my “average journey” would cost, had I used Innogy go. I assumed price per minute of driving at PLN 1.19 and price per minute of sitting at PLN 0.19. A journey composed of 25-minutes-drive, 2-hour parking (I cannot finish my journey beyond Warsaw), 25-minutes-drive would set me back over PLN 80, meaning over one year I would spend over PLN 8,000 on local travels. Seeing total lack of cost-effectiveness, I started asking Uber for quotations of 15-kilometre rides in the evenings or over weekends. The average quotations were between PLN 30 and PLN 35 per ride (Uber beats traditional taxis at night and beyond Taxi zone 1), so I assumed the cost of PLN 32 per ride, meaning there-and-back cost is PLN 64, this repeated 100 times a year, which squares with my pattern of local driving roughly twice a week.

Besides, I own a parking space in a garage beneath my flat, which I would own anyway, so I do not include the cost of it, but if I did not have a car, I could sublet it. As I have observed, people seldom appreciate merits of shielding their vehicles from elements of weather and the key factor shaping demand for parking lots in underground garages are problems finding an open-air free-for-all parking lot around. Sadly in my neighbourhood this is not a problem, besides in a nearby building a private investor has bought up several places in the underground garage and is still struggling to find tenants. I believe the maximum price I could get is PLN 140 per month (not a trouble to find a garage in Ursynów for PLN 150 at OLX or Gumtree) and the space would be rented for 11 out of 12 months, besides I pay a flat property rental income tax of 8.5%.

I leave the figures without comments, you should reach the conclusion yourself.