Let Donald Tusk’s new government take care of the entrepreneurs because before the government divides, it must multiply.
Donald Tusk outlined priorities for the Polish government for the next months. In his expose, he paid a lot of attention to entrepreneurs, promising to limit inspections of micro-entrepreneurs, introduce a cash-based personal income tax for entrepreneurs settling this tax with the tax authorities, and a vacation for entrepreneurs, i.e. one month a year free of social security contributions and a benefit of half the minimum wage.
Representatives of business organizations invited to the parliamentary committee on economy and development spoke about their expectations of the coalition government. Several demands of the business community were also collected by experts of the CRIDO consulting firm in the document “Strategic Demands for the New Government.”
One hopes that politicians in the ruling coalition will take the expectations of these circles seriously. The Polish economy is losing the dynamism it owed primarily to the catch-up effect. It was the one that made our economy grow faster than that of our Western neighbors despite not-so-good economic policies. The importance of the catch-up effect is slowly fading, and investment levels are dramatically low. To sustain the momentum, better economic policies are needed, including improvements in the environment in which business operates.
The new government should include the demands of entrepreneurs in its program not to gain favor with a few million voters, but to make the economy more dynamic. The ability to fulfill other promises made during the election campaign depends on this.
Deregulation
Poland’s systemic transformation, which began in the autumn of 1989 when a package of laws was passed to stabilize the economy, was preceded by important reforms introduced by the last communist government a year earlier. In particular, the December 23, 1988 Law on Economic Activity, drafted according to a proposal by Industry Minister Mieczyslaw Wilczek, was important. It stipulated that everything that was not forbidden was allowed. However, since it was difficult to know which regulations applied in a rapidly changing reality, officials turned a blind eye to the chaos from which the market order was emerging.
Today, a return to the letter of the Wilczek Act is impossible if only because much of the business legislation is anchored in EU law. New regulatory institutions have also emerged, whose recommendations companies must adhere to. Nevertheless, it is possible to return to the spirit of the Wilczek Act – that is, to the principle that an entrepreneur can do anything in their business that is not prohibited by law.
The government should also urgently review various regulations and remove those that are too restrictive and detailed and do not derive from EU law. A good solution that the PO-PSL governments tried to implement (but quickly gave up) is to adopt the principle that introducing a new regulation should be accompanied by eliminating two others. This principle will curb the uncontrolled proliferation of regulations over which politicians and officials have no control.
Justice
The task of improving the efficiency of the courts is extremely urgent given the legal chaos left behind by the Law and Justice (PiS) governments. The new justice minister should restore constitutional order and simplify court procedures, lengthening criminal, civil, and administrative processes. Disputes between companies should be settled primarily by arbitration courts at business organizations. It is necessary to speed up bankruptcy proceedings and those involving mergers and acquisitions. There is a need to change how judges are evaluated and motivated, promote the most efficient ones, and increase spending on the judiciary, including its computerization.
Business Ombudsman
The function of the Ombudsman for small and medium-sized entrepreneurs should be transformed into the Entrepreneurs’ Ombudsman. The Ombudsman should be able to review criminal and criminal tax proceedings against entrepreneurs. Suppose an entrepreneur accused of corruption, acting to the detriment of the company, or tax crimes is arrested. In that case, the Ombudsman’s office staff should have access to the prosecutor’s materials and be able to assess the seriousness of the charges.
Changing the Way Laws Are Made
In recent years, laws, especially tax laws, have been passed and enacted in a non-transparent manner that violates the principles of proper legislation – without public consultation, often through bogus parliamentary initiatives. This introduced great uncertainty among entrepreneurs. The legislation often contained errors, and for this reason, the laws passed were repeatedly amended.
New regulations that are introduced should be reviewed for consistency with the legal solutions already in place. Legislators should also be mindful that they do not lead to overregulation or overreporting. Consultation time for laws important to business, especially tax laws, should be extended beyond the statutory 21 days.
Legislation increasing taxes or of a systemic nature should, as a rule, be introduced with a one-year vacation legis. It is necessary to limit “throw-ins,” i.e., the introduction of new tax legislation into ongoing legislative processes that have nothing to do with the substantive content of the amendment.
Change Officials’ Habits
The state administration, including local government, should receive a clear message from key politicians in the democratic coalition: officials are supposed to support entrepreneurs, not prosecute them. The new government should ensure that entrepreneurs do not suffer repression and mistreatment from the state administration, especially the tax apparatus, the judiciary, and the secret services. This requires not only a change in legislation but a different official culture.
It is unacceptable, for example, to presume that certain operations carried out by companies were aimed solely at reducing tax assessments. It must be incumbent on the state to structure tax laws in a way that is unambiguous and effective for the budget.
Taxes
The development of Polish companies is hampered not so much by the amount of taxes but by their poor design, ambiguity, and lack of uniform interpretation by the tax service. Tax changes introduced by Mateusz Morawiecki’s government called the “Polish Deal”, have led to tax chaos. Fixing the tax system will be one of Donald Tusk’s government’s most important yet most difficult tasks.
It is necessary to bring the VAT rate to a uniform level of about 20 percent, with very few exceptions subject to a preferential rate. This will not only help companies but also provide more revenue to the budget.
To encourage investment, the government should lower the CIT to 10 percent. Budget revenues from this tax are relatively small. Lowering the rate would encourage the establishment of companies in the form of limited liability companies, as well as reduce the pressure to artificially raise costs.
Entrepreneurs have long demanded uniform tax rulings, which would be available in electronic form. It is scandalous when tax chambers issue different rulings on the same issue.
PiS governments have introduced several sectoral taxes (trade, banking), as well as many quasi-taxes. Their drawback, in addition to burdening taxpayers’ pockets, is their flawed design. For example – the bank tax is imposed on loans that banks give to companies, which is absurd. These taxes simply need to be abolished. The capital gains tax, including the interest we receive on our savings, must be modified. If it were to be maintained, it should be levied on real income – minus the rate of inflation.
One of the effects of the “Polish Deal” is the revised rules for calculating the health insurance premium for entrepreneurs. The method of calculating the premium has been made dependent on the chosen method of taxation. In addition, the possibility of deducting a portion (7.75 percent) of the health insurance premium paid from the tax due was dropped for both employees and entrepreneurs. The new government should get out of the way by introducing a unified model for determining the basis for the National Health Fund premium and allowing some or all of the health insurance premiums paid to be deducted from tax.
In the longer term, the government should consider returning to a flat tax including both PIT and Social Security contributions (with a large tax-free amount).
Housing Supply Must Be Increased
The government’s subsidization of installments on loans taken out for housing purchases has led to a significant increase in housing prices. A sensible housing policy should stimulate housing supply, not demand. The bottleneck is primarily land for housing. The government should review land held by state entities (e.g., the Polish Railways, State Forestry, and power companies) and exclude some of it, transferring it to a new entity with the working name State Land Resource, which would hold open auctions, selling the land to developers.
To encourage local governments to make more efficient use of the land they own, it would be worthwhile to introduce a cadastral tax, the proceeds of which would feed municipal budgets. With differentiated rates, this tax would encourage better use of vacant land suitable for housing construction. The increase in municipal revenues, thanks to the cadastral tax, would make it possible to reduce other taxes, especially CIT.
In many countries, housing development is financed by REITs – Real Estate Investment Trusts. These are special real estate entities that generate income mainly through owning and managing real estate. Some REITs are listed on stock exchanges, others operate outside the stock market. The main goal is not to sell real estate but to generate a steady stream of rental income.
By investing in a REIT, investors have the opportunity to gain income from a broad real estate portfolio, which can include a variety of segments, such as offices, apartments, shopping centers, etc. This makes investing in REITs an attractive option for many investors, especially since their operations in many countries enjoy tax preferences.
Poland does not have a law allowing REITs, which makes construction financing difficult and narrows the options for savers. Many people with significant savings buy apartments for rent, but this is not possible for those with tens of thousands of PLN in their accounts – not enough to buy an apartment. Investing in a REIT would be a solution for them. The government should, therefore, prepare a law on REITs. It would be worth giving REITs tax preferences to increase the attractiveness of investing in real estate.
KPO for Companies
As CRIDO experts calculate, the plan prepared by the government provides for no more than 20 percent of the total available funds for enterprises, and most of this amount would go to a small number of recipients implementing large projects. Since the launch of the KPO (National Reconstruction Plan) is well behind schedule, it is unrealistic that large infrastructure projects requiring a lengthy administrative process will be implemented in time.
The KPO funds available to private entrepreneurs should, therefore, be increased. For example, more funds should be allocated to investments that support robotization and digitization in enterprises, with the recruitment of projects only through competitions.
Written by Witold Gadomski – journalist at Gazeta Wyborcza newspaper and author of a series of articles “Through the Eyes of a Liberal” published by the Economic Freedom Foundation.
