500 days of truth
Polish economy needs radical profound reforms and not next 500 days of politics of love and doing nothing.
During his election campaign President-elect Bronislaw Komorowski appealed for ‘500 days of peace.’ But if it means another postponement of reforms of state finances we will undoubtedly face the Greek scenario and those who are 30 years old today can be sure that they will not have state retirement allowances.
Civic Platform has the monopoly of executive power in the country. Although Hanna Gronkiewicz-Waltz stressed that Civic Platform had only executive power and according to the Montesquieu’s division of political power it is only one third of rights, its actual parliamentary domination, together with the Polish Peasants’ Party and the political sympathies in the legislative system, allows us to think that we deal with the concentration of power in the hands of one party.
Any ruling party has not enjoyed such comfort for years. That’s why the voters can expect Civic Platform to realise its programme with its main motto: profound market transformation in which the reform of state finances plays a key role.
According to the calculation made by Dr. Cezary Mech the present income of the Social Insurance Institution, after the valorisation in 1999, oscillates around 500 billion zloty. But the financial obligations are over 3.5 times bigger and amount to 1,765 billion, i.e. 138% of the GDP. It should be stressed that these are future obligations, not including the present obligations for the retired, people working under the old retirement system, the privileged groups (uniformed services, judges, prosecutors, minors), 4 million people entitled to allowances, not having the initial capital, and, what is perhaps more important, not including the outstanding health service liability.
It means that the Polish state owns its citizens so much that the amount to be paid in the future is up in the air. Every year of functioning of the public finances in the old system worsens the situation additionally.
Prof. Dariusz Gatarek thinks that the main reason for bankruptcy of the social welfare state is the demographic catastrophe. In 2050 the global population will be 9 billion people. 2 billion of them will be old, including 10% of people over 80. In that year, according to the prognosis of the Central Statistical Office the proportion of working-age people and not working (in pre and post-working-age) will be equal.
It means that the average life expectancy will increase, the number of those entitled to retirement allowances will increase whereas the number of those who will support the retirement system will decrease dramatically. Despite the pro-social image the politicians have made us get used to, the social welfare state as we know it now can have no right to exist and should disappear as soon as possible if we do not want to face the spectre of bankruptcy.
Poland, Lithuania and Slovakia have the lowest fertility rate in the EU – on the level of 1.3 children per woman. The generation replacement is endangered. The median age of population is growing. The only solution for the present social system would be a decrease of population because of bigger percentage of deaths than births and mass immigration. In the case of Poland it should be 1.5 % of its population, i.e. 600,000 new immigrants a year. It is hard to imagine that in our culture.
That’s why the state should conduct family oriented politics, especially supporting families with multiple children. It does not necessarily mean pro-family policy because it most frequently means increased social expenditures: benefits, aids. It seems that the most reasonable solution is reducing taxes for families or – in the transitory period – dependency of paid taxes on the number of family members, like it is in France where families with many children pay practically no taxes.
The family-oriented policy has a very essential financial aspect. Since it allows preserving proper proportions between working-age people and those who receive allowances and benefits. It allows saving: the cost of living of children is three times smaller than the one of the elderly. The health expenditure is four times lower; home care and nurse services are 10 % and 30% respectively more costly. Therefore, the state has more profit by having its population as young as possible.
However, to have balance we need a profound reform of public finances, first of all a reform of public expenditures. The liquidation of the monopolies of the National Health Fund, the Social Insurance Institution and the Agricultural Social Insurance Fund as well as the introduction of competition mechanisms to health service and social insurance must be the indispensable elements of such reforms. Can the ruling coalition afford to endure in conflict with the privileged groups if the election campaign was an extravaganza of promises and nice words?
We will learn that during the next 500 days of Bronislaw Komorowski’s presidency, which, let’s hope, will not be a lost period.
The Author is the President of the Globalisation Institute.