Sunday, 13 September 2015

Pre-election bidding

Two months I uncompromisingly dissected the economic agenda of PiS (or rather a string of joyous give-away proposals) laid out to lure benighted voters. Campaigners of PO, slowly bracing for retracting into new role of being the opposition, had done little to challenge the puffed up expenditure assurances made by their competitors and their efforts had boiled down to a simple message that if the promises were kept, Poland would follow the traces of Greece. Until now…

On Friday rumours that PO would unveil its revolutionary economic agenda leaked out. Somebody had not managed to keep their mouth shut until Saturday and highlights of PO’s new agenda came to the light one day earlier. Scrapping social security and health service contribution and shifting towards funding the two systems from the state budget looked appealing, since such modifications would simply workings of the state administration, however raised doubts right away – whether the changes would fall into line with constitution and how they would be financed?

Yesterday I was all day out, hence had no chance to listen to speeches during PO’s convention, however what could be put together from the media coverage of the event and what can be found in the underlying official agenda document, do not square. And does not hold water.

I thought PO, despite its numerous drawbacks, slip-ups, and general fatigue, would at least not stoop so low to join senseless bidding in terms of economic promises. I should have expected to have been wrong, yet another letdown aches. The other, par for the course anyway, was that after reading the agenda released yesterday, I can only concur with Mr Kukiz, who incidentally refused to present any agenda of his grouping and claimed all agendas are a sh*t. Cross my heart, I find no more suitable word to describe the essence of PO’s agenda.

I am not an expert in education, health service, defence, security, foreign policy, but if there is an area of my expertise, it definitely is economy. Under microscope then goes the part of PO’s agenda dedicated to economic stuff.

First nuance which should grab attention of a careful reader is that the agenda is full of target solutions, not changes that are about to come into effect in 2016 or 2017, but when circumstances permit. On one hand the approach looks wise, since legislation passed in haste or reforms pursued when the government cannot afford to pursue them, would do more harm than good, while on the other, the “conditional promises” are the easiest to go back on.

The first pledge of PO is to crack down on “junk contracts”. Revisions to the labour law include obligation for employers to withhold social security contributions, minimum hourly wage of 12 PLN for junk contracts (only?) and introduction, within a few years, of an “uniform job contract”, a legal agreement having features of regular job contracts, to be applied whenever the bond between employer and employee appears long-lasting. Poland has a problem with abusing junk contracts. Employers save on labour costs (which are not exorbitant in comparison to Western Europe), while employees are deprived of basic security. For the government junk contract decrease proceeds from payroll-related contributions, causing shortages of money in social security and healthcare systems. Yet one needs to keep in mind junk contracts add flexibility to the labour market, beneficial for students, or people taking up a second job and these benefits need to be retained. A missing piece is the proposal to instate regular taxation to taxpayers actually employed by corporations, but theoretically employed as contractors. These are senior managers who are not entrepreneurs and do not risk their own money in business and thus should not be entitled to pay 19% corporate income tax, instead of 32% personal income marginal tax! I cannot quote the source at the moment, but I recall the data showing 2% of the richest PIT taxpayers accounted for 26% PIT proceeds. If senior managers / executives (whose annual pre-tax earnings are between PLN 300,000 and PLN 1,000,000) were taxed like ordinary employees, this would bring substantial inflows to the government and help decrease budget deficit!

The second proposal echoing in the media is the alleged introduction of 10% PIT rate and scrapping social security (ZUS) and health service (NFZ) contributions. I do not know what was declared by PO leaders in their yesterday’s speeches, but according to the agenda: (1) 10% will be the effective (not statutory) tax rate for the poorest families, (2) the solutions put forward are long-term targets.

There has been a lot of confusion about these proposal. For the first time in my life I heard of “uniform” tax, which unlike journalists have interpreted it, is not a flat tax, but presumably one tax which replaces regular income tax and other tax-like contributions. PO most probably suggests progressive taxation with pro-family allowances or deductions with tax rates not specified at this stage. What is however more disturbing is that in return for scrapping ZUS and NFZ contributions, income taxes would need to be increased.

The rest of the chapter on economic agenda is full of general, hackneyed proposals. I could comment on any of them with little hope anyone would take the trouble to read the whole post from cover to cover, but will confine to a few main conclusions:

(1) I could write such agenda as well. You could hire a bright 20-year-old student who will list and elaborate on everlasting modest proposals, such as: decreasing unemployment, reducing taxes, simplifying tax systems, improving tax collection, cutting down on red tape, boosting exports, supporting innovations, fostering investments, effectively using EU funds, building new roads, and go on and on…

(2) Most proposals are very general and lack specific solutions. For instance the sentence: “we will help mortgage borrowers who struggle to service their debt in a manner which will ensure equitable treatment of debtors repaying mortgage in Polish zloty and in foreign currencies and will not put at peril stability of the banking system” is not only too long, but also does not specify measures the government would use to achieve the goal, as well as the cost for the taxpayer. Lack of precision is the key drawback not only of political agendas, but is the broader problem of the whole politics in Poland – just bring to mind how questions in the bygone referendum or the one proposed by president Duda (especially the one asking about decreasing retirement age) were formulated…

(3) Some proposals include the total cost of the proposed solution, but the readers get only the final number, not how it was arrived at. I realise few people read agenda, even fewer would read attachments with calculations and assumptions, even fewer would be able to verify their reliability, but for the sake of transparency and credibility, would it hurt to back the final figures with calculations.

While I watch the drowning man (PO) desperately trying the catch the straw (regain its disgruntled electorate), I am being put off tactical voting (as many people I am weary of the current government, yet wary of PiS wacky government) but lean towards voting for… When the association was established in May 2015, I was sceptical towards the grouping and its founder. Mr Petru is more a celebrity and representative of “survival of the fittest” approach to economy, than an economist, leaders of often represent the cruellest face of corporate capitalism, not something I hold dear, yet something I live off. If there is grouping that would best represent my vested interests and future financial well-being, it appears to be, oddly enough Yet by no means should such party head the government. It could only tip the scales in decision-making as coalitional partner of a less economically liberal party. I may wish enters parliament, but it should have a tiny tally of seats there, simply because it does not represent ordinary people, whose, not mine, well-being should be primarily fostered!


Michael Dembinski said...

Today's has a lovely cartoon summing up all this madness - it is of a party convention. From the top table we hear:
"We will abolish ZUS, NFZ and junk contracts."

"We will lover VAT and raise the income tax threshold"

"We will reduce the number of bureaucrats by half"

"Only for God's sake don't vote for all those populists!"

Point to bear in mind is this. PO might be clutching at straws, but given the latest clutch of poll results, it may still be able to form a coalition government with United Left (Zlew) and Petru's .nowocześni (who's overtaken Kukiz). PiS will likely end up the largest grouping in the new Sejm, but it's only possible coalition partners are the failing and the flailing - Kukiz and PSL.

I'll be voting for Petru.

student SGH said...

The scenario in which PiS wins the election, but does not gain the simple majority is apparently the most plausible. I would bet it would scoop 40% (as PO did in 2011) of votes and would need to search for coalitional partner, while there's none on the horizon after Kukiz's movement fell into pieces. The broad coalition of other parties - PO, Zlew, PSL and seems exotic - in social issues there is room for compromise, but try reconciling economic agendas of SLD and

Petru is also a populist, liberal, yet populist and in the long-run harmful, since if his agenda was pursued, hoardes of not the fittest and not the most resourceful disgruntled voters, would bring into power populists, more dangerous than current ones. Plus I cannot forget (and will not forgive unless he takes back his words) how fiercely he stood up for OFE. This will be a bitter pill to swallow... And a risk of a wasted vote, since balances on the edge of 5% threshold securing seats in the lower house.