Sunday, 31 March 2013

VAT Cut Stalled?

In 2011 the Polish government raised VAT from 22% to 23%, in what was meant to be a temporary measure to help deal with the effects of the economic crisis. From the beginning of 2014 this should automatically go back down to 22%, however it now seems increasingly likely that the government will reverse this decision. The reason for this is the worsening state of public finances caused by the present slowdown in the Polish economy. Yet, the possible decision to maintain this high rate of VAT exposes the unfairness of the Polish taxation system. 

Like most other Central-Eastern European (CEE) countries, the tax system in Poland is characterised by high indirect taxes; a low business tax rate and a low level of progressive redistributive personal income taxation. The income tax rates and corporation tax rates are generally far higher in Western Europe than in CEE, whilst VAT is slightly lower in Western Europe than in CEE.  

The Polish taxation system is heavily reliant upon indirect taxes (such as VAT), that are regressive in nature as everyone pays the same whilst lower earners spend a greater share of their income on basic consumption. 

The major change to the Polish income tax system occurred in 2008, when the conservative Law and Justice Party (PiS), introduced a reform that moved from 3 personal income taxation bands to 2. The top income tax rate was cut by 8% points to 32%, whilst the bottom band was lowered by just 1% to 18%.  Although the top rate of personal income tax is relatively high compared to some other CEE countries, this reform essentially introduced a flat-tax rate in Poland, as just 1.5% of personal income tax payers now pay the top rate (while previously 10% had done so).

A similar trend is observable in changes to the business tax (CIT) in Poland. Up until the mid-1990s, CIT was actually higher in Poland (40%) than the average in Western Europe. In 1997 and 1998 the business tax rate was progressively cut, eventually reaching 27% in 1998. However, the most fundamental change occurred just as Poland was entering the EU in 2004, when the Democratic Left Alliance (SLD) government reduced it to 19%. 

The relatively low and non-progressive rate of direct taxes is balanced by higher indirect taxes such as VAT. This is both unfair and economically inefficient, as it suppresses the consumption of basic goods and reduces domestic demand. 

Top statutory income tax rates and standard VAT rates (%)[i]

Income Tax
Corporation Income
EU 15 Average
EU10 Average
Sweden: 56.6
France: 36.1
Hungary: 27
Bulgaria: 10
Bulgaria: 10
Luxemburg: 15


Friday, 29 March 2013

Self-Immolations in Bulgaria


Whilst the world focusses on the social catastrophe unfolding in Cyprus, the politics of austerity are having some tragic consequences in Bulgaria. 

Mass demonstrations in February brought down the right-wing government that had been imposing a package of neo-liberal policies, including the privatisation of basic services and public spending cuts. This resulted in unemployment rising above 12% (its highest level since 2005), with more than 22% of the society living below the official poverty line (the average monthly salary in Bulgaria is €400.) The country is now being run by a technocratic government, with parliamentary elections scheduled to be held in May. 

The fall in living standards has led to some Bulgarians resorting to desperate actions. In less than a month 6 people have protested by setting themselves alight. The death by self-immolation of the 36 year old Plamen Goranov has caused particular shock in society and he has become a symbol of those opposed to the government’s policies. 

Jan Palach, who carried out a similar act in 1968 in protest against against the Soviet invasion of Czechoslovakia, remains an important symbol in the Czech Republic. Similarly, the recent events in Bulgaria stand as an awful reminder of the social and personal hardships caused by the economic policies sweeping through Europe.

Thursday, 28 March 2013

Private Pensions Will Not Be Provided For Whole Retirement

Elsewhere I have written about the compulsory private pension system in Poland and at how it fails to provide stable pensions, favours the financial markets and sucks resources out of the public finances. I have also looked at how the government partly reformed this system and reduced the amount of money going from the state social insurance system to the private pension schemes. 
(For example see: here, here and here)

This week new information came to light that the Polish Pension Funds Chamber is proposing that these private pensions are not paid throughout the whole period of an individual’s retirement. Instead pensioners will receive so-called ‘programmed payments’ that will be calculated according to average life expectancy. Therefore, if someone retires at 67, then s/he can expect to receive payments for  around 16 years. The most elderly in society would therefore lose their pensions at a time in their lives when they are weakest and the most vulnerable. 

The Finance Minister has responded by saying he is shocked and disturbed by this news (although he does not explain how politicians allowed such a system to exist in the first place) as pensions are a benefit that people should receive till the end of their lives. He has said that the government will be reviewing the pension system. 

It is now imperative that the compulsory private pension scheme is scrapped and that a fully funded state pay-as-you-go system that guarantees pensions to all is reintroduced.  

Wednesday, 27 March 2013

General Strike in Śląsk

Trade Unions successfully organised  4 hour general strike in the region of Śląsk on Tuesday. Around 100,000 workers took  part in the strike, which affected amongst others the public transport system, the railways, mines, steel works, hospitals and schools. 

The trade unions were protesting against the economic policies of the government and raised a number of demands. These included: halting the closure of schools, providing tax relief for companies that retain their employees; recompensing companies that are affected by regulations to cut carbon emissions and reducing the amount of workers employed on temporary insecure contracts (so called junk contracts). 

It is noticeable how these demands extend beyond the specific concerns of the trade unions and appeal to the frustrations of society at large. It has been reported that these strikes received a positive reception from the wider population in the region.

Friday, 22 March 2013

Changing the Voting System Will not help the 'Outraged'

Polska Wersja Tutaj..

The American sociologist David Ost, in his book The Defeat of Solidarity, puts forward a very straightforward although accurate thesis. He argues that the abandoning of the working class by the  liberal intelligentsia, and its espousal of neo-liberal economics, led to a sense of betrayal and anger within the Polish working class. The marginalisation of the working class and the weakening of the trade unions resulted in those excluded from the benefits of the transition to capitalism, looking towards the politics of nationalism and conservatism as an alternative to the liberal consensus that had consumed the intelligentsia and ruling elite. 

There can be no doubt that feelings of frustration and anger are growing in society. 72% of the population presently negatively assess the work of the government and 67% that of the Prime Minister. Trade unions in Śląsk have confirmed that they will be holding a 4 hour general strike next week, protesting against the economic policies of the government. The background to this growing sense of unease is a slowing economy, rising unemployment, the employment of huge swathes of the labour force on insecure temporary contracts and falling real wages.  All of this exists after a period of relatively robust economic growth, whose benefits have not been enjoyed by large sections of society that are now seeing their living standards once again decline. And of course the liberal elite repeat ad nauseam that this is the best period in Poland’s history.  

It is in this context that the Solidarność trade union organised a congress of the new Platforma Oburzonych (Platorm of the Outraged) last weekend, in the historically significant venue of Sla BHP in the Gdańsk Shipyards. Solidarność were joined by the leaders of other trade union federations (such as the OPZZ and Solidarność '80) and other smaller organisations in an attempt to crate a new movement protesting against the present econmic situation in Poland and the policies of the government. As ever the representatives of businesses showed their understanding towards the trade unions, when the President of the employers association stated in a letter the leader of Solidarność that businesses in Poland 'couldn't care less' about the trade unions' demands such as raising the minimum wage and abolishing insecure civil-law contracts (his language in Polish was actually much more colourful: przedsiębiorcy mają głęboko w dupie, jaką Pan zechce ustanowić płacę minimalną oraz czy zlikwiduje Pan umowy cywilno-prawne

 Another argument of Ost has been that trade unions in Poland should represent the interest of labour and channelling the anger felt by the working class, rather than becoming submerged into the politics of conservative-nationalism. The present leader of Solidarność, Piotr Duda has certainly come some way in achieving this, breaking from the previous leaders and many current members and representatives of Solidarność, who are closely associated with the political formations of the conservative right.

However, if trade unions have no strong political representative then they are unable to change the course of economic policy. This is precisely the current situation for Polish trade unions; as the twin parties of the right struggle over issues of history and culture, whilst (despite some rhetoric) converging on economic policy. 

The new Platforma Oburzonych is therefore attempting to create a wider movement to give expression to society’s  frustrations, whilst simultaneously putting forward a new political programme. However, it is this latter element that is the weakest part of Platforma Oburzonych and reveals how no viable political project yet exists within the trade unions. 

The representatives of Platforma Oburzonych have focused on the weakness of the democratic system in Poland and at how it favours the privileged elite and maintains them in power. This reaches back to the perceived betrayal of the mass of society by the former leaders of  Solidarność and the opposition movement and the perceived creation of a corrupt system of government. There is therefore a need to reform this system and allow the expressions of the mass of the people to be represented properly politically. It essentially assumes that the economic system itself is sound, but that a corrupt elite is preventing it from working properly (this essentially translates the old Solidarność slogan of ‘Socialism Yes, Distortions No’ into ‘Capitalism Yes, Distortions No’).

The proposed solutions of Platforma Oburzonych are therefore to reform the political system through allowing for more direct referendums and bringing in a new electoral system based upon the First Past the Post system (FPTP). The first of these demands is understandable, considering how the trade unions had collected millions of signatures for a referendum on the proposal to increase the retirement age that was completely ignored by the government. However, the idea that Poland could become similar to Switzerland (only without the gold) is dubious; and is a rather poor imitation of the historical demand of Solidarność for the creation of a self-managed republic. 

What is more puzzling is the call for the establishment of an electoral system based upon JOW. As someone bought up in Britain, where this electoral model exists, I am at a loss to understand how this would allow any new political movement to challenge the existing status quo. Certainly there are some benefits of FPTP. The direct election of representatives in local areas brings the Members of Parliament closer to the local electorate and at times makes them more responsive to the needs and opinions of those that vote for them. However, at the same time, it means that any new or smaller political party finds it almost impossible to make a political breakthrough. A party may gain 5% or more nationally, however if it cannot gain a majority of the vote in any one area then it remains outside of parliament and on the margins of politics. 

There are advantages and disadvantages in the different electoral systems and therefore I believe that a judgement on which one should be adopted should be a purely pragmatic one. For example, the FPTP system in the UK has allowed the Labour Party to remain a strong political force in British politics, although it also makes it difficult for an alternative progressive left force to emerge. FPTP favours those political parties that have strong local structures and that have large sources of funding – with the British Labour Party continuing to be mainly financed by the trade unions. 

If the trade unions in Poland wish to introduce a FPTP voting system, then they must also prepare to create and fund a strong political party that can take on the political elite. Certainly the emergence of a party of labour, with strong trade union backing, would rejuvenate Polish politics, whilst simultaneously helping trade unions to strengthen and build their membership. However, this would be an extremely difficult task for the disparate trade union federations – that represent just 11% of the workforce. 

Unfortunately the task of creating a real political alternative involves more than reforming the electoral system. A political democracy – with all its dysfunctions – exists in Poland, alongside the legal possibility for any new party or formation to gain power. The problem however is how to create a political party, that represents the interests of labour, and can effectively challenge the dominating political parties. The recent events in Cyprus show how the economic crisis is far from resolved. This is a deep and systemic crisis of the present economic model and the political solutions being promoted by many European governments at the moment involve reducing the living standards of their populations. Any progressive political alternative has to first address these issues and offer a viable alternative route out of the crisis. By focusing on the  electoral system, Platforma Oburzonych are evading these matters and helping to keep the political debate restricted to issues of secondary importance.