OFE – the epilogue

A meaningful event of the passing week (incidentally noticed by me with a two-day delay) was the ruling of the Constitutional Tribunal that cancellation of government bonds held by public pension funds run by private asset managers and subsequent choice between state-run pay-as-you-go and private-run pension systems were both no violation of law.

The ruling is anything but a bolt from the blue, if sound judgement and common sense are in use. Public character of assets accumulated by the pension fund has been reiterated many times (including Supreme Court ruling in 2008), moreover a simple logic leads to you the conclusion that by no means Poles’ “savings” in individual accounts allocated to their names have never belonged to them.

Experts point at potential consequences of the verdict. Firstly, it given green light to reckless politicians to reach out for the assets remaining in pension funds to finance their otherwise undeliverable promises. When government bonds were cancelled, I did support the move of PO government which finally eliminated hollow circulation of money, but this time other assets are at stake. Pension funds hold now nearly only shares of Polish public companies, in many of them are an important shareholder. Grabbing those assets and attempting to dispose of them, or just taking them over by the government could have disastrous effects (especially in terms of corporate governance). Regardless of my scepticism towards OFE, I am wary of silly attempt to scrap the remnants of the system. And if it is to be wound down, it needs to be carried through slowly and with care.

I doubt PiS will aim at full liquidation of private-run pension funds, as Mr Orban did in Hungary, but pursuit of the party’s economic agenda remains in the realm of the unknown. Shortly after the ruling Nowoczesna.pl declared it would submit a draft of a decree stating assets in pension funds are private property of pension fund participants. Such new law, in order to make any sense, would need to empower citizens whose pension contributions were paid into pension funds, to have discretion over their assets. Sell-off on the Warsaw Stock Exchange would be in the cards then, I suppose. I voted for Nowoczesna.pl, yet it does not mean their agenda is fully in line with my views. Defence of OFE by Mr Petru and his henchmen is not what I would have ever put up with.

Two weeks since the memorable have gone by and speculations over the line-up of the would-be PiS government are to be cut off tomorrow, when names of particular ministers are to be unveiled. Just like some prominent politicians of PiS were locked away during the campaign, after the voting day Mrs Szydło has enjoyed the well deserved rest. She confirmed in social media she was doing well, but did not seem to be involved in designating new government members. The more nasty commentators imply it is the Mr Kaczynski who is actually dealing out cards.

The inaugural session of the new parliament is scheduled for 12 November. By coincidence, an informal EU summit on migration problems is held on the same day. The collision between the two days is now a matter of squabbling between PiS and PO and bears a very poor testimony of Mr Duda’s stance towards importance of foreign policy. The topic of the summit is too significant to shrug it off and let Poland lack its representation. I confess not to know who (president or prime minister or any of the two) has the right to represent Poland, but in my view, if allowed by law and diplomatic protocol, the one who has stronger mandate (not the outgoing prime minister) should show up there and the inaugural session should have been planned for earlier or later date.

Could have done with a longer commentary, but spent most of this weekend catching up with overdue work. There have been some staff redeployments within the New Factory and my scope of duties has increased well beyond what can be handled within 40 – 45 hours a week. Hope things shape up within a few weeks.

Sense of justice – follow-up

Tuesday, 17 December 2013

I knock off near six p.m., being still behind with work. Enough is enough, I call it a day. Before seven p.m. odds of getting stuck in stationary traffic on ul. Puławska are negligible. Indeed, the traffic moves smoothly and as I drive at steady speed of 60 kpmh, I even manage to cross most intersections on green light. While approaching home, I get stuck in a queue of cars before intersection of ul. Raszyńska and ul. Mleczarska. Something is afoot, drivers are perplexed. After a minute I trundle forward to the intersection, pass by several damaged cars and turn right, barely avoiding being scraped by a driver of black Volkswagen SUV who thinks he’s a master of the road, and head to park my car in the garage. Then I put my father in the picture and we wander to the intersection to find out what happened. Prangs involving two vehicles are not infrequent on the nearby intersection, as ul. Mleczarska is narrow and visibility is poor, but this looked like a bigger smash-up – four cars damaged.

Some 30 minutes earlier... (full story in Polish here)

Auchan shopping centre in Piaseczno. Droves of people are roaming around the hypermarket and the adjacent shopping mall. Pre-Christmas rush is conducive to getting preoccupied and losing one’s mind. The owner of red Honda Civic walks out of the shopping centre and approaches his car. He pulls the car keys out of his pocket, press the button to unlock the door and… notices someone inside his vehicle. The thief cranks up the engine and swiftly drives away. The incident is witnessed by other shoppers. One of them instantly picks up the Honda owner, who in the meantime calls a police patrol) and they set off on a chase.

After running away one kilometre the thief comes upon a small traffic jam on his way and is caught up with by the Honda owner. In a desperate attempt to make his way through the busy road the thief crashes into three cars, forsakes the car and tries to make a getaway on foot. Some of the aggrieved (in info who exactly) jump out their cars, overpower the thief, knock him down on the road do not let him make off before the police arrives. As my father and I turn up, the criminal with a bleeding nose (probably the effect of scrimmage, serves him right) lies on the cold tarmac, cuffed in and awaits facing the music.

Sounds like a story with a happy ending. The thief didn’t manage to escape and was (temporarily) arrested. Nobody was injured. Justice triumphed again!

But on the other hand, four cars of innocent people were damaged. Who will pay for the repairs? Will they be paid from Civic owner’s third party liability insurance? If so, who will compensate him for losing discounts for damage-free track record? If not, what if some of those cars weren’t insured against own damage? What about those which were, but the repair will make them lose their discounts? The inebriated thief will be held accountable for theft and property damage, but even if convicted, will the Polish justice system manage to pull the last zloty out of his (shallow?) pocket to compensate the victims of his wrongdoing?

The exemplary, swift and sympathetic reactions of crime witnesses is profoundly reassuring. Such positive illustrations of civic attitude should be exposed to the public (and even rewarded) to induce others to follow their example. Actually by disenabling the criminal, their contributed to increasing well-being of the society.

With hindsight, I again pondered upon the borderline that should not be overstepped, when you are faced with a criminal and need to crack down on them. Recollect this post from February 2010. I’ve harked back to it instantly, read over and could write the same, in terms of content, today. When I return to my early posts of pension system, monetary policy and other issues I have clear views on, I see over almost five years of blogging my beliefs not only have not evolved, but even have become more entrenched. Does it mean my formative years have gone by so early?

Taxation and justice - again

Prompted by yesterday's discussion with a fellow blogger on the donation tax, I settled on revisiting the topic of justice in taxation, once brought up here... This time the aspect of effectiveness will not be touched upon, but instead I will try to focus on justice.

From my short research done while cycling around I conclude there are four main bases of taxation.

1. The mere being or existence, as in the case of poll tax. The concept can be traced back to middle ages and assumes that everyone should pay the same amount of tax, regardless of their income and wealth. Today this form of taxation is generally deemed to be unfair, as people's and entities' ability to bear the burden of taxation varies, depending on their income or wealth, and is hardly ever used by local or state governments to raise revenues.

2. Consumption, with the most popular VAT. I have to say I would struggle to provide you with a rationale of this form of taxation, but it surely can be categorised as an effective way of collecting money, as value added tax, or sales tax is hard to avoid. When it comes to justice, here it is quite possible to adjust the tax rate to taxpayers' ability to pay taxes to their capacity to bear tax burdens. Basic goods, such as bread, diary products, medicines, utility services can be taxed at lower rate, while cars, petrol, foreign trips and other luxurious goods can be taxed at the higher rate, as their consumers can afford to spend more on them. The state can tamper with VAT rates to affect the structure of consumption, e.g. merit goods may have a low tax rate levied, while demerit goods will have not only higher VAT rate, but also another tax, especially for sinners, imposed. The tool is effective and no wonder Polish government, when at a pinch, decided to raise VAT rather than income taxes.

3. Wealth. I don't even know if there is a Polish equivalent of 'wealth tax', as this tax does not function in Poland at all. This form gives much room for tax avoidance, as the wealthiest people would move their assets to tax havens. The concept behind this is that the well-off should somehow share their wealth with the poorer. I am generally against it, as people should be taxed as they are coming into wealth, not as they are already wealthy. A proper property tax is not used in Poland. I would be glad to see it levied, as it would bring prices on property market into balance. Prices would surely fall and better reflect real values or properties.

4. Income. The broadest issue, so I'll take the liberty of omitting corporate taxes and focus on four forms of personal taxes.

A) Personal income tax. It is generally accepted that flat and progressive taxes are said to be most fair. Tax rates and brackets are supplemented with tax deductibes items and tax allowances. My own take on the best personal tax system has been laid out in the post linked at the beginning and has not changed since then.

B) Capital gains tax. Is a standard in all civilised countries. There have been proposals to scrap it in Poland, as when it had been introduced in 2001 it had been meant to be a temporary measure to bring people on spending in economic slowdown, then in stayed on. My sense of justice incites me to a strong disapproval when I hear proposals to lift it; for two reasons. Firstly, I live in an area when lots of ex-farmers sold their plots of land for millions of zlotys in 1990s and 2000s and now they don't have to go to work every day and toil away nine hours a day as I do, but they sit on their arses and live off interest of the money their got from selling the land. If my work was taxed and their income not, that would be despicable. Secondly, I am a stock market speculator. With a bit of knowledge and luck it might be a great way to earn (or lose) quickly a lot of money without much effort. I would be a slap on the faces of all hard-working people, if I and the likes of me didn't have to pay tax on our 'murky dealings'. The main argument agianst capital gains tax is that it creates a 'double taxation', which is wrong, because you once earn some money and you pay income tax, then you invest that money and pay tax only on the interest or gains you earn.

C) Inheritance tax. The government of Law and Justice lifted this form of tax for the closest relatives of the deceased. From my point of view, this wasn't a fairly good decision. An inheritance is a windfall, your wealth increases, although you usually haven't put any effort into working for it. Therefore I think this tax should be levied even on the closest relatives, but they should pay a lower rate than people who have been bequeathed something by a person from outside their family.

D) Donation tax. If you are given some money, property or anything that has a significant value for free, this is also a windfall. As in the case of inheritance tax, this is also a form of coming into some wealth without making an effort. In Poland closest relatives are also exempted from donation tax payments. It is not fair actually, often children get money, flats or cars from their parents, but they haven't contributed to creation of such wealth. This means children form well-off families are better-off in comparison to those who have to accumulate their wealth on their own. Thank God donations from third parties are taxed, but taxation rates are in Poland lower or similar to the ones on income taxes. In my opinion they should be higher, as those who put effort into coming into wealth, should be tax at lower rates than ones who simply get the money.

Voices of disagreement are strongly encouraged! Nothing does as good as exchange of opinions!