Where do things stand in Poland three months after parliamentary elections?By Tony Repa - Senior Consultant
As we observed in November, Poland’s main opposition party for the last eight years, Law and Justice (PiS), soundly defeated the ruling centrist Civic Platform (PO) in the country’s parliamentary elections a month earlier. A few months earlier still the incumbent PO president lost the presidential elections to Andrzej Duda, also of the PiS party.
PiS’s victory at both the government and presidential levels marks a dramatic comeback to power for the party and for Jarosław Kaczyński its party leader. Jarosław co-founded PiS with his late twin brother, Lech, in 2001 and served as prime minister in 2006-7 while his brother was president. Lech died tragically in an airplane crash in Smolensk, Russia, in 2010, along with several senior cabinet members and party supporters. Jarosław, a moderate Eurosceptic in the past, is now advocating an informal regional Central European alliance focused on Poland, Hungary, Czech, Slovakia and the Baltic states, partly against Vladimir Putin’s Russia but also as a counterbalance to what is seen by many in the region as an overwhelming German and Brussels influence, particularly in domestic affairs. This of course is a tricky one given the colossal support provided by the EU since these countries’ accession.
PiS’s electoral campaign promised:
- tax on bank assets (banks currently pay a regular 19% corporate income tax banks and contribute to the banking guarantee fund)
- new tax on foreign-owned and domestic supermarkets of a certain scale (supermarkets presently pay the 19% corporate income tax)
- the reversal of a previous hike in the legal retirement age (from 67 to 65 for men)
- ban on abortions and in-vitro fertilization
- lower taxes for the poor
- family-focused welfare spending for low-paid Poles (including a monthly subsidy of 500 złotys per child).
- PiS also took a pro-coal stance (which supplies roughly 90% of the country’s electricity) in the face of environmentalist meddling from Germany and the EU.
Poland’s economic prospects
All this has left investors and analysts worried about Poland’s future macroeconomic direction—but should they be? The country has made great strides in recent years and current economic indicators are positive. Poland grew by nearly 24% between 2008-2014, and was the only economy in the EU to avoid recession in 2008. It is expected to grow by 3.5% this year and unemployment recently fell below 10%. Public debt is only 50% of GDP, lower than in most other EU countries.
Poland has a firm economic foundation that will be hard to derail—even with the populist program put forth by PiS. Since economic transformations began in 1990 the country has never been in a recession.
Questions for 2016 and beyond:
What impact will new policy measures have, such as the tax on bank assets and the tax on foreign-owned and large Polish supermarkets?
Our current view is that these will not impact national growth directly in the short term but may dent bank profits in 2017 and beyond and contribute to a slight rise in inflation. It is likely that both taxes will be automatically passed on to consumers and customers with the likely effect of raising consumer prices. However state owned banks will be under pressure not to do so hence potentially weakening their balance sheets.
What impact will PiS’s “purging” of state institutions of employees with different party allegiances have on the stability and sound administration of the country?
This regular purging of management in state owned companies is an unfortunate recurrence in Polish politics and will continue this time around. The impact on such economic entities is predictable and negative. In addition to state-controlled companies, the National Broadcasting Council, and the Office of Competition and Consumer Protection will be affected. The National Bank of Poland (Poland’s central bank) will likely not be affected but the current highly respected governor will be coming to the end of his tenure this summer, so await further updates.
What impact will Kaczyński’s growing power and influence from behind the scenes have on the country and the wellbeing of the body politic?
As the party’s co-founder and leader, Kaczyński seemingly controls PiS’s parliamentary group in a way that is incomprehensible to more mature parliamentary democracies. In spite of a Prime Minister and President as formal leaders, many commentators suggest the real power is instead in the hands of the President of the PiS party. For example all of the party’s Sejm candidates and even the appointment of the Prime Minister, Beata Szydlo, were allegedly vetted by him. Mr Kaczynski will invariably have a say in all of Poland’s major policy decisions going forward, and often in a clandestine fashion, as his recent meeting with the Hungarian Prime Minister suggests – neither the Polish PM nor President were at the meeting.
Will there be any improvements to Poland’s inefficient commercial court system, rigid labor code, bureaucratic red tape, and burdensome tax system?
Not likely. If anything the number of civil servants will continue to grow, with some 8000 new staff predicted alone to implement and manage the aforementioned family focused welfare spending programme. Regions are likely to increasingly differentiate themselves, with the more affluent west and south of the country continuing to outpace the more backward eastern parts, both in good civic management and efficient budgetary planning.
Will Poland continue to benefit from the second round of EU structural and cohesion funds?
Very much so. A strong stimulant for growth since EU accession a decade ago, the next round of approved funding will run through 2020 and will serve to further support infrastructure projects, develop the energy industry, and stimulate innovation. This financial support equates to close to 1% of Poland’s predicted 3-3.5% annual GDP growth.
Will there be greater tensions with Brussels?
The verdict is still very much out on this but the beginnings certainly suggest that Kaczyński will live up to his reputation as a Eurosceptic. Thorny issues on the table in Brussels include the ongoing migrant crisis, climate change and the EU’s target of 27% renewable energy sources by 2030, a possible Brexit (a large number of Poles live in the UK), and fellow Pole Donald Tusk, the current president of the European Council, who is disliked by Kaczyński. However, a “Europe in crisis” is itself lurching further right in many of its more popular sentiments and politicians across the board are beginning to reflect this which may yet play well into PiS’s own position in the future. Unfortunately the home of Solidarity is no longer seen by many in Europe, notably Germany, as sharing those values with its EU partners in their moment of need.
Will there be greater tensions with Russia?
Vladimir Putin is very clearly the external threat for Kaczyński (Lech died on Russian soil and in circumstances that Kaczyński suggests are the result of Russian foul play). The Russian bogeyman will be used by the government to encourage NATO to take a more aggressive approach in stationing troops and bases in eastern Poland.
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