OECD Economic Surveys: Poland 2018
Executive summary
Abstract
Growth is strong, and the labour market is booming
Economic growth remains strong. Rising social transfers and a booming labour market are underpinning rapid consumption growth. The unemployment rate is at a record low level, labour shortages are spreading, and there are early signs of accelerating wages. The labour market is expected to tighten further, leading to somewhat faster wage and price inflation. After a severe contraction in 2016, investment is projected to recover, driven by faster disbursements of EU structural funds, capacity constraints and low real interest rates.
New public benefits have helped to bring down poverty
Unlike in many other countries poverty and income inequality have fallen, and large family benefits introduced in 2016 have helped to bring down child poverty further. They are also meant to promote fertility in the context of very rapid ageing. On the other hand, there is a risk that the benefits might induce less-skilled women to leave the labour market for longer after childbirth, shortening their contribution periods to pensions. Together with the recent lowering of the retirement age back to only 60 for women, this will heighten risks of old-age poverty. The government is working to improve currently limited access to affordable childcare services. Insufficient institutional care for the elderly is another barrier to female employment and improved well-being for seniors.
Raising Poland’s capacity to innovate would ensure continued convergence to higher living standards
Poland’s income convergence has mainly resulted from efficiency gains thanks to sectoral restructuring and foreign technology absorption. As its labour productivity is still 40% below the OECD average, Poland now needs to strengthen its technology adoption and own innovation capacity. Research and development (R&D) investment is weak as is innovation activity, in particular in small and medium-sized enterprises (SMEs). Infrastructure is still a bottleneck, and there is much room to improve its environmental impact. In its Strategy for Responsible Development the government plans higher R&D tax incentives along with increased public support for innovation in SMEs, venture capital market and infrastructure development, largely dependent on EU structural funds financing.
Investment in higher education and research will strengthen innovation and technology absorption
Poland’s spending on higher education and research, the quality of its research and the supply of researchers are all relatively low but rising. The government plans a much needed reform of higher education and public research to strengthen the quality of training for students and researchers and currently weak science-industry collaboration. The new agency for academic exchange is an opportunity to work more closely with Polish and foreign researchers trained abroad to build on their knowledge and networks. Developing mentoring and consulting services for small firms to help them cope with often complicated procedures to draw on innovation support and find partners in science would ensure policy effectiveness.
Raising skills promoting stronger employment will be key for long-term growth prospects
Too many workers have weak basic and digital skills. Reaching out to employers, in particular among Poland’s many relatively unproductive SMEs, to involve them in planning vocational education and adult training and in providing work placements would create more learning opportunities in line with labour market needs. Continued expansion of high-quality early childcare will improve opportunities, in particular for children from disadvantaged families. Strong immigration from Eastern neighbours is helping alleviate labour shortages, but a migration policy strategy and better monitoring mechanisms and integration policies are needed.
Higher tax revenues or spending prioritisation will be needed to finance planned spending increases
The authorities implemented a set of measures to boost tax compliance that succeeded in shrinking the public deficit despite rising social transfers. Yet, more revenues or spending prioritisation are needed to improve public infrastructure, health care and higher education and research in line with the government’s plans. The government should also prepare for a possible fall in available EU structural funds in the next financing period. Limiting reduced VAT rates, increasing environmentally related taxes and giving a stronger role to the progressive personal income tax would yield additional revenues, while contributing to more equity and better environmental outcomes. Modernising energy infrastructure and shifting away from coal would lower urban air pollution and CO2 emissions while securing more reliable energy supply with favourable knock-on effects on public health.
MAIN FINDINGS |
KEY RECOMMENDATIONS |
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Maintaining macroeconomic stability and sustainable growth |
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If many people do retire at the lowered statutory pension age of 60 for women and 65 for men, the share of minimum pensioners and old-age poverty will rise, particularly among women, entailing fiscal costs and lower average income. |
Evaluate the reform’s effects, and make corrections such as aligning male and female retirement ages and indexing them to healthy life expectancy. Inform the public about the impact of working longer on pension income. |
Women’s labour force participation and thus their pension contribution histories could be impacted negatively by the new child benefit. |
Invest in childcare and long-term care facilities. Taper the phase out of the child benefit for the first child. |
Higher social spending along with improved public infrastructure, skills and research quality requires higher tax revenues. |
Strengthen environmentally related taxes, limit the use of reduced VAT rates and exemptions, and make the personal income tax more progressive, e.g. by introducing a lower initial and more intermediate tax brackets and ending the preferential tax treatment of the self-employed. |
Macroeconomic policy settings are quite stimulatory: real interest rates are near zero, and the budget is moving to an expansionary position. |
Implement a tighter fiscal stance through revenue-raising tax reforms or increased spending prioritisation. If the NBP’s economic assessment suggests considerable upward risk for price stability, it should raise interest rates in a timely fashion to ensure that inflation remains well within its target range. |
Regulatory uncertainty is holding back investment in the energy sector and elsewhere in the economy. The transition to auctions guaranteeing prices as a new support mechanism for renewable energy has taken several years, and there is still uncertainty about future auctions. New legislation has created prohibitive conditions for establishing wind farms. |
Develop and implement clear and stable climate-change policies aligned with European and international objectives to reduce uncertainty for innovative green investments. Ensure the stability and clarity of policies affecting investment decisions. |
The government improved tax compliance successfully, but tax procedures remain overly time consuming for SMEs. |
Include a simplification component for SMEs to the government’s tax compliance strategy. |
Strengthening higher education, research and innovation |
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Funding for higher education is relatively low, and research quality and industry-science collaboration are weak. University fundraising through business collaboration, adult learning and voluntary giving is limited. The government is preparing a major reform of the higher education and research systems. |
Enhance industry-science collaboration. Continue to increase funding for higher education and research over time, 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. |
Doctoral training is unstructured and lengthy with low graduation rates. Employment conditions for post-doctoral researchers are unstable, pay remains low, and career progression is insufficiently tied to research quality. Addressing this would help attract more qualified researchers, including those trained abroad. |
Improve the quality of doctoral training by structuring it through coursework and tutoring and tightening entry criteria. Offer well-remunerated academic positions, and base career progression on an evaluation of research and teaching quality by faculty and external experts. |
Private-sector R&D spending is very low, notably for SMEs, which hinders new technology adoption and innovation. R&D financing is overly dependent on EU funds. |
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 budgetary cycle, if necessary. |
Boosting skills to promote strong and inclusive growth |
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High immigration from Eastern neighbours is alleviating labour market pressures, but a lack of monitoring hampers the ability of policies to improve its impact on the labour market, and there is widespread abuse of simplified procedures to hire foreigners. |
Develop a migration policy strategy to better monitor integration of foreigners in line with labour market needs, the protection of their rights and access to education and training for them and their children. |
Too many adults have weak basic skills. Vocational education suffers from poor alignment with labour market needs. There is a lack of work-based tertiary vocational education programmes. |
Develop a national skills strategy with a strong basic skills component. Incentivise employers to develop workplace-based vocational education and adult training. |