The head of Poland’s investment promotion agency has urged the government toconsider plans for a flat tax system,in a bid to maintain competitiveness, as investors express concerns on privatization delays and high levels of emigration.
Speaking to Emerging Markets, Pawel Wojciechowski, president of the Polish foreign investments agency, said: “Simplifying the tax and social security systems is the most important thing the government can do” to maintain Poland’s competitive position as wages converge with those in the rest of the EU.
“Social security contributions in Poland account for two-thirds
of the costs on labour, compared with one-third in most other EU countries,” Wojciechowski told Emerging Markets. “The contributions are also
regressive, which creates confusion for investors because of the differences from the tax system, which is progressive.”
He said that finance minister Zyta Gilowska was seeking to eliminate the 40% top rate of personal income tax, but that the “complexity” of the of the overall system was prompting many employers to keep staff off their full-time payroll as a means of lowering their tax liabilities.
These views were echoed by Tomasz Sandomierski, director of Polish agro-industrial firm Indykpol, who warned that the inflexibility in the labour market was contributing to the outflow of Poles to western Europe, which is estimated at 1.1 million to date. Sandomierski considered the resulting shortage of workers “one of the main obstacles for Poland to achieving higher rates of growth.”
“After this mass exodus, part of the remaining labour force is immobile within Poland, and many of these people have been unemployed for some years,” he added.
Investors also expressed concern about the slowdown in privatization, and even the possibility that the government was seeking to renationalize some parts of the energy sector. Wojciechowski sought to reassure investors, saying that the government’s focus was on “slower, but better privatization,” and expressing confidence that the energy sector would be privatized after a consolidation process.
However, Dragica Pilipovic-Chaffey, director of the EBRD’s Poland banking team, said she believed that Poland could move faster on privatization. “The government is more concerned about asking questions on past privatizations that were done in haste, rather than answering these questions and moving on,” she told delegates.
However, she agreed with Wojciechowski that further sales were likely, given the government’s revenue needs, and she anticipated a greater number of initial public offerings, rather than the stake sales to strategic investors that had provoked controversy in the past.