Economic Policy Reforms 2019

Poland

Convergence to higher living standards has continued steadily, driven by strong labour productivity growth and increasing labour utilisation. The unemployment rate is at a record low level, however, the employment rate remains below the OECD average, particularly for women and older workers.

Inequality, as measured by the Gini coefficient, is below the OECD average and has declined in recent years as a wide range of households have benefitted from the labour market recovery, and the large family benefits introduced in 2016 have helped to bring down child poverty. Greenhouse gas emissions per capita are slightly below the OECD average, but population exposure to air pollution is elevated leading to adverse effects on public health.

The government stepped up support for innovation and new social benefits have helped to bring down poverty. The authorities introduced business simplification measures and aim to improve the clarity of tax regulations.

Strengthening efforts to make pensioners aware of the benefits of working longer would lower old-age poverty risks, especially among women. Investing further in early childcare facilities would support women’s employment and attenuate the growth-inhibiting impact of population ageing. Increasing environmental taxes would provide stronger incentives to invest in green infrastructure, while developing a national skills strategy with strong basic and digital skills components would promote strong and inclusive long-term growth.

Growth performance, inequality and environment indicators: Poland

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

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Policy indicators: Poland

Source: Panel A: OECD, Main Science and Technology Indicators Database; Panel B: OECD, Family Database.

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Beyond GDP per capita: Poland

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

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Poland: Going for Growth 2019 priorities

Lower barriers to product market competition. Stringent entry regulations and heavy administrative burdens on start-ups induce significant resource misallocation, and public ownership remains pervasive in many sectors.

• Actions taken: The government has streamlined some business regulations in 2018. Key measures include an increase in the annual income eligible for the status of small taxpayer to EUR 2 million (from EUR 1.2 million). Natural persons with a turnover below 50% of the minimum wage will no longer be required to register. Start-ups will benefit from a six-month exemption from social contributions and reduced rates for up to two years. Ministries will be required to publish simple explanations of administrative rules and tax laws. The 2018 inheritance law aims at ensuring business continuity after the entrepreneur's death. From 2019, low-income self-employed pay lower social security contributions for up to three years. The corporate income tax rate for SMEs was also cut from 15% to 9% in 2019 and the government intends to take additional measures to simplify their VAT payments.

• Recommendations: Further reduce administrative burdens and other regulatory barriers to firm entry. Include a simplification component for SMEs to the government’s tax compliance strategy. Ensure the full independence of the sectoral regulators, and pursue privatisation in competitive segments of the economy.

Reform the welfare system and reduce labour taxes. Some taxes and transfers hold back employment, especially for older and low-skilled workers, and encourage the use of temporary contracts.

• Actions taken: The statutory retirement age was reduced to 60 for women and 65 for men in 2017. A network of pension advisors has been set up to inform potential beneficiaries about the impact of combining pensions and work income. Since 2017, the tax-free allowance of the personal income tax is higher for low-income individuals. The personal income tax of individuals earning over PLN 1 million increased in 2019. The government also intends to make its child benefit programme universal in 2019.

• Recommendations: Evaluate the fiscal and employment effect of the extension of the 2016 child benefit programme. Strengthen efforts to inform the public about the impact of working longer on pension income, evaluate the pension reform’s effects, and make corrections such as aligning male and female retirement ages and indexing them to life expectancy. Make the personal income tax more progressive, e.g. by introducing a lower initial and intermediate tax brackets and ending the preferential tax treatment of the self-employed. Continue to better align social contributions applying to different labour contracts, and move towards individual taxation.

Improve the efficiency and equity of education. Deficiencies in basic skills, particularly of older generations, hinder productivity and equity. Funding for higher education is relatively low, and the limited availability of early childcare facilities holds back women’s employment.

• Actions taken: Places in early childhood education and care have increased, and funding for the development of childcare institutions rose in 2018. Funding for the higher education system also increased in 2018. The 2018 law on higher education and science encourages universities to co‑operate and promotes industry-science collaboration. Sectoral skills councils are being set up with business representatives to define skills needs and to offer work placements for vocational students.

• Recommendations: Invest more in early childcare facilities. Develop a basic skills strategy with a strong focus on digital skills. Incentivise employers to develop workplace-based vocational education and adult training. Continue to increase funding for higher education and research, to merge small universities and independent research institutes to build strong research universities, and to allow underperforming institutions that do not improve over time to shut down.

Make energy infrastructure greener. Regulatory instability has hampered the development of renewable energy and other technologies that would improve environmental and health outcomes.

• Actions taken: In 2018, the government has launched a programme to bolster energy efficiency of residential buildings and boost the purchases of cleaner heating systems (Clean Air programme). The government defined quality requirements for solid fuels, and announced a freeze in households’ electricity price in 2019. The transition from green certificates to auctions guaranteeing prices as a new support mechanism for electricity generators has taken several years, and a lack of clarity about volumes, reference prices and support periods for future auctions has created much uncertainty. An electricity capacity market will be operational in 2019. The government also strengthened the powers and funding of the environmental inspection in 2018.

• Recommendations: Develop and implement clear stable climate-change policies aligned with European and international objectives to reduce uncertainty for innovative green investments. Strengthen environmentally related taxes and continue to improve enforcement of environmental rules. Reform tax incentives to foster the demand for innovative and green investments by raising taxes on fossil fuels to help finance investment in, and the demand for, green innovation.

Improve R&D support policies. The weak diffusion of innovation reduces productivity growth.

• Actions taken: The R&D tax allowance was increased in 2018 and the list of eligible costs has been clarified. Programmes for supporting innovative start-ups at various stages of development are being set up. Training programmes designed at boosting management practices regarding innovation are being implemented.

• Recommendations: Improve stability and impact assessment of public support for innovation by making more extensive use of impact analyses, notably by engaging with stakeholders in ex ante consultative processes and ex post evaluations. Enhance industry-science collaboration, notably by ensuring sufficient funding for technology transfer offices, and encouraging mergers of offices from different universities. If the take-up of the new R&D tax allowance is low among small innovative firms, adjust its provisions. Plan for national financing of business R&D and innovation programmes beyond the current EU multiannual financial framework.