Difficult questions about the policy of the government
Boguslaw Kowalski
After the presidential elections the Civic Platform gained full power in Poland. It means that the party carries full responsibility. But most media focus on criticising the opposition. An example is the conflict concerning the cross outside the Presidential Palace. It was evoked and escalated by the decision of the new President and his collaborators. Although representatives of various centres of power concentrated in the hands of the politicians of the Civic Platform declare their desire to end this conflict as soon as possible their activities contradict that. The impression is that the conflict is profitable for them because the public opinion is focused on what is going on in Krakowskie Przedmiescie in Warsaw and not on the numerous essential current issues. Since the debate on these issues is uncomfortable for Donald Tusk’s team.
Why is there no consent to the reform of the Open Pension Funds?
The most important problem is the condition of the public finances. Poland is increasing its debts at a dangerous rate. During the rules of Tusk the state debts increase in the amount of almost 100 billion zloty a year. And despite the official statistics that our economy was constantly growing even in the years of the worst crisis the state budget has less and less money. Tolerating such a situation can make us share the fate of Greece.
For over two years Labour Minister Jolanta Fedak (Polish Peasant Party) has proposed an improvement programme. She proposes changes in the second pillar of the pension system, i.e. the Open Pension Funds. These are financial institutions founded and run by big banks, mainly international ones. They are to invest in financial markets part of the pension fee deducted from the employees’ salaries. In Poland there are 14 Open Pension Funds. Four of them belong to the financial institutions, which are fully or partly in Polish hands. The remaining funds are big international corporations with such firms as ING, Generali, Aviva, Allianz, Nordea, Amplico, Axa and others.
The Labour Minister wants to decrease the current means directed to the Open Pension Funds. Instead of 7.3% of our salaries she wants to have only 3%. The remaining 4.3% would be left in the Social Insurance Institution. And recently, facing the increasingly bad situation of the state budget she proposes to stop the transfer of all fees to the Open Pension Funds for two years. She refers to the examples of the Baltic countries: Lithuania, Latvia and Estonia, which introduced this solution in the financial crisis and the solution was successful.
If the fees transferred to the Open Pension Funds were suspended the deficit of the state budget would have a ca. 22 billion zloty decrease per year. And if only the amount of the tax allowance was decreased the budget would gain ca. 10 billion zloty per year. The reason for this situation is that every year the state pays extra several billions to the Social Insurance Institution to ensure its current payments. If more money from the contributions remains in the Social Insurance Institution its current deficit will decrease and the state budget will have to spend less extra money.
The acceptance of the changes concerning the Open Pension Funds would not affect economy and ordinary people. It would be the international corporations running the Open Pension Funds that will have losses since their commissions will be lower to a considerable extent or even they will have no profits for two years. But the environment of the Prime Minister, led by his main counsellor Michal Boni, successfully opposes these changes. He uses very general and demagogical arguments, speaking about the need to complete reforms and interests of future pensioners. These are doubtful statements if we consider the functioning of the Open Pension Funds and their successes in multiplying the capital of future pensioners.
After receiving the fees the Open Pension Funds deduct their commission to cover their costs. This commission till the end of 2009 was very high, about 10% of the transferred sum. Taking into account the average profit rate from safe financial investments one can assume that within the first two years our contributions work for the commissions of the Open Pension Funds. If the current assets are ca. 201 billion zloty (at the end of July 2010), making a simplified calculation it means that within 10 years the managers of the Open Pension Funds have earned ca. 20 billion zloty, on average ca. 2 billion zloty a year. Currently, the rate of the commission is limited to 3.5%, but it is still very high.
Let us look what the financial institutions ask us to pay so much for. Because the money gathered for future pensions must be maximally safe OFE must invest only up to 40% of the gathered means in the stock exchange, including not more than 5% in foreign stock exchanges. The remaining money is invested in safe state bonds. We can see a specific chain of relations and transfers. A contribution is deducted from every employee’s salary by the state Social Insurance Institution. Then some part of this contribution is transferred to the Open Pension Funds only so that OFE could buy state bonds and make their profits.
Within 10 years the Open Pension Funds increased the capital of future pensioners for ca. 22 billion zloty, mainly from the interests gained from state bonds covered by tax-payers. During that period the Open Pension Funds took commissions in the amount of ca. 20 billion zloty, which they mainly transferred abroad. Additionally, 5 % of this capital, i.e. ca. 10 billion zloty, was located abroad, thus financing foreign and not the Polish economy. This is the balance of the first decade of the functioning of the Open Pension Funds. One can see clearly who has made the biggest profit.
Therefore, we need a public debate during which the Prime Minister and his officials would explain Poles why they tolerate such a system and why they do not want to allow its transformation.
Why will VAT and food prices go up?
The basic VAT rate is to increase from 22 to 23 % for at least three years. Practically, it means that the prices of all goods and services will go up respectively. So we will pay more for new cars, electrical appliances and RTV equipments as well as for electricity, gas, fuel and communal services: waste disposal and sewage. We will also pay more for services of hairdressers, telephone calls, city transport and railway tickets. The experts predict that the prices of fuel will increase ca. 0.2 zloty per litre. And so will energy. And since these are the ingredients of the production costs of almost all products their prices will rise much more than the planned one percent of VAT.
Currently, the worst situation is on the food market. The prices of food products will go up considerably. On the one hand, it results from bad weather and poor crops and on the other hand, from the VAT rate. The worst situation is on the grain market. We are dealing with a panic. It is predicted that the prices of flour, and consequently such products as bread and noodles, will increase at 10-20%. The prices of vegetables and fruit have already gone up. Grain is the main ingredient of fodder for farm animals. Consequently, the prices of meat will go up.
In such conditions an increase in VAT means that a decrease in the deficit of the public finances and stopping the increasing debts will occur at the cost of lowering the standard of living of all citizens. The least rich social groups, including pensioners and multi-children families will be affected most. Those groups spend most of the salaries on current needs. That’s why even a slight increase in prices will affect their lives. A decrease in consumption of these big strata will surely influence the Polish economy. It is slowly growing but these decisions can hamper its development.
The Civic Platform has promised not to raise taxes many times. Now they are breaking these promises and at the same time they are deliberately giving up other possibilities to improve the condition of public finances. Why? Why are the poorest to carry the biggest burden of these changes? These are the questions for which all citizens in a democratic country have the right to receive understandable answers.
Why do we sell out the properties of the State Treasury?
Apart from raising taxes the government seeks other solutions, including an increasing sale of the state properties. In three years the amount of income from this sale is to reach the level of 50 billion zloty. The state shares in such standard companies as PZU, PKO BP and KGHM have been sold or will be sold soon. Moreover, the energy and chemical companies are to change their owners. The following companies: Stock Exchange, PKP Cargo, Lotos and health-resorts will be sold as well.
It is planned that the income from privatisation is to reach 25 billion zloty. And the government openly says that these intensified activities are connected with the need to cut the budget deficit. It is also revealed that these means will be simply consumed without bigger profits for economy and future generations. And as far as the future income to the budget is concerned the situation will get worse in a longer perspective.
The income from privatisation is a single injection at the cost of stable dividend revenues. It especially concerns the sale of shares of big exchange companies. The fewer exchange companies belong to the state the lower income from the profits they gain. And the profits are considerable, e.g. Bank PKO BP had net profit of 1.5 billion zloty in the first six months of 2010.
The decrease in income from dividends is confirmed by numbers. In 2009 the state treasury gained 7.84 billion zloty. In 2010 the government predicts to receive only 4 billion zloty, half less than last year. These are the effects of the sale of the state assets. Therefore, one can dare to state that the government is conducting a wasteful politics at the cost of near future.
There should be wide debates on these issues. Is that a proper policy? Where does the policy lead to and how will the income from dividends and privatisation be replaced after all properties have been sold?
Why did the plan to build motorways and roads fail?
The government proudly announced that they would spend a record sum of 27.6 billion on new motorways and roads in 2010. Thanks to that the plans of creating a new transport infrastructure for the UEFA EURO 2012 were to be realised. By the Central Board of Roads and Motorways announced a change of the budget and a decrease in the planned amount to 20.5 billion zloty. The amount to be invested in new projects will be smaller because it will also include money for repairing the roads destroyed by the floods. So the reduction will embrace some one third of the planned amount.
Such a reduction compared with the original plans has happened for three years in a row. This year’s reduction is especially painful because according to the government the record expenditure in 2010 was to result from making up for the delayed projects of the previous years. In result, the plan has failed and the fundamental investments promised for EURO 2012 have been stopped. By 2012 1,070 km of motorways and almost 2,000 km of new express roads were to be built. But only 181 km of motorways have been finished and ca. 500 km are being constructed. The situation concerning express roads is much worse. Only 315 km of express roads have been built and 340 km are under construction.
It is known that the serious delay was caused by the change of financing the road investments. Last year the investments were transferred from the budget to the National Road Fund. The aim of this operation was that the Minister of Finance could show a lower budget deficit. It was a purely technical action of propaganda character and it did not heal the public finances at all. It only enlarged the costs of service and caused big delays in the investments. The opposition warned against it but the government is not providing any explanation because journalists, who are to ask about it on behalf of the society, are not doing it.
And many more such questions can be asked. They should concern the labour quality of the state administration, functioning of the self-governments, supplies of energy for the needs of our economy, improvement of health care, the needs of the Polish Army and ineffective foreign politics. Because of the size of this article I have posed only four questions, which in my opinion are the most important ones because they decide about the quality of life of all Poles at present and in the near future.
However, despite their importance the themes are not newspaper headlines. Therefore, it is right to ask whether the public debate in Poland has been conducted reliably.
"Niedziela" 36/2010