The Polish government has just revealed its forecast for this year’s budget deficit – PLN 109,3 billion ($29.4 billion). Next year, it’s expected to be as high as PLN 83 billion. It makes generous ideas such as lowering the retirement age and introducing additional old-age pensions difficult to finance and forces the government to be creative in looking for the necessary funds.
Thus, throughout the last couple of weeks, the Law and Justice party was busy searching for sources of financing such efforts. And it has finally found one... in our pockets.
-Since no elections are coming up in the nearest future, now is the best time to make unpopular policy decisions. If we wait, it might be too late – says our source in the government.
Civil law contracts and additional contributions to Social Insurance (ZUS)
We found out that one of the government’s ideas to find additional money will be to fully tax all civil law contracts. Currently, social security contributions with regards to civil law contracts must be paid at least up to the equivalent of the minimum wage. In practice, it means that if, for instance, someone is employed under two different contracts- receiving a minimum wage (PLN 2600 gross, and PLN 2800 gross starting next year) and the second wage of PLN 3000, contributions will be deducted only from the former. Once the new policy steps into force, however, paying contributions will be mandatory for both, regardless of the received wage.
- Of course, in the long-term perspective, it sounds like a good solution. If a person pays higher contributions, he/she should also receive a higher pension – says the legal advisor Dr. Marcin Wojewódka, a legal advisor.
– But today, above all else, it means increased costs for the employer and perhaps also lower net earnings for the contractor. We should be asking ourselves if this will not contribute to the expansion of a grey zone – he adds.
The idea isn’t new. The Ministry of Finance already had such plans before. In its updated convergence program for years 2019-2022, the ministry emphasized the importance of “limiting and countering social security tax avoidance (this will provide the budget with an additional PLN 2.54 billion) and increasing the efforts of the Polish Social Insurance Institution (ZUS) to seal the tax collection system (another 1.7 billion)”.
The new rules will step into force starting in January 2021.
Open Pension Fund (OFE)
Prime Minister Mateusz Morawiecki also announced his plans to finish the Open Pension Fund (OFE) reform next year.
In September, the government is supposed to pass legislation that would eliminate open pension funds.
It will be the biggest one-time cash injection.
The plan is this- we’re eliminating the Open Pension Fund and taking away up to PLN 19.3 billion from the taxpayers’ open pension fund savings (the entire fund includes circa PLN 130 billion).
After the funds have been liquidated, depending on the individual decision, the money will either go to the Polish Social Insurance Institution (if so, the government will have to pay out smaller subsidies from its budget) or to new Individual Retirement Accounts (IKE). In the case of the latter, the government will be able to immediately deduct a 15% transformation fee.
Thus, the government will take away even up to PLN 1.2 thousand from all future pensioners.
-The government desperately needs money and it’s the only rationale for this entire reform- explains the president of the Polish Pension Institute (Instytut Emerytalny), Dr. Antoni Kolek.
This attempt to get the taxpayers’ money will only disillusion people. No one will believe that they even receive any pension in 10 or 20 years – says Dr. Łukasz Wacławik, a social security expert.
Our sources have told us that Prime Minister Mateusz Morawiecki still wants to abolish the so-called contributions limit (also called the 30 times increase).
Today, the limit for accumulating pension and sickness contributions is at PLN 156 810 (30 times the average wage). It applies to all those whose net income is at least over PLN 8 000.
Morawiecki is eager to abolish this limit and wants to make everyone pay their contributions all year round, regardless of income. Of course, the extra money would be spent immediately, and the contributions would be only virtually credited to our retirement accounts as a future liability. The Ministry of Finance calculated that the trick with abolishing the limit would give the budget an additional PLN 5.1 billion per year.
But Jarosław Gowin, leader of the Agreement (Porozumienie) party which is part of the United Right coalition government, already announced his veto. Thus, for now, Morawiecki has given up on pursuing his plan. Even more so, since the talks between the coalition members about the government reconstruction are still taking place, and the Prime Minister hopes that Gowin will support his other ideas against Zbigniew Ziobro, whom he adamantly opposes.
New taxes and layoffs
But it doesn’t stop there. As “Wyborcza” already reported, starting January next year, the government wants to introduce several new taxes- a sugar tax, a liquor nip tax, and a rain tax. It also wants to tax limited partnership companies and stores.
Earlier, the Law and Justice government already pulled back from introducing generous pension adjustments (there’ll be an increase of PLN 50, instead of the promised 70).
Finally, paycheck cuts for public institution employees are supposed to be another solution to save the budget. By the end of this month, there will be a reduction in the number of jobs in ministries, local administration offices, and units of the National Health Fund (NFZ) and the Social Insurance Institution (ZUS).
The right to layoffs with regards to public service employees is guaranteed by the “anti-crisis shield 2.0 and 4.0” legislation.
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