Poland appears to be in a recovery phase, both in terms of Covid-19, after a bad recent outbreak, and the economy. How do things look from your perspective?
I am trying to grab the silver lining, while the others worry about the clouds. As far as the pandemic is concerned, the good news is that the third wave seems to be dying down, but obviously we have to be careful until everything is behind us.
As far as the economy is concerned, we are very lucky, because in the years from 2017 to 2019 we reduced the public debt by about 6%. Also, at the beginning of 2020, we had a balanced budget in place, so that put us in a good position from the public finances point of view. When the pandemic broke out in February 2020 we could afford to plough unprecedented amounts of money back into the economy, and it worked because we forecasted that unemployment would rise to 8% at the end of the year and it rose to only about 3.2%.
We did expect the pandemic to finish much earlier, and we did not expect the third wave to take so long, so our forecast for this year is slightly more conservative than we were expecting in 2020 – but still we are expecting a 3.8% increase this year and 4.3% for 2022, and that is without calculating the use of EU resilience and recovery funds. Once we include that next year, we should be going above 5%, and that is the Ministry of Finance forecast so it is a conservative forecast. All in all, like everybody we had problems – it was our first recession in 30 years – but going forward there is plenty of opportunity for Poland. We can see investment year on year is growing – in fact in 2020, despite the recession, we had a 10% increase in foreign direct investment [FDI].
We have done a lot to make it difficult for Poles to leave and I don’t mean putting handcuffs on them, I mean by actually giving them lots of carrots.
To what do you attribute this rise in FDI?
Two things are happening. One is the supply chains have changed and Poland is in a perfect place [to capitalise on these changes]. We also have a big internal market – we have 18 cities with a market of 200,000 or more people and with universities, so we have a lot of young, well-educated people – and of course we are a part of the EU, so we have access to the broader 500 million-strong market there.
The other aspect is now that [so many people have started working from home] I wonder how much shared services will now migrate to Poland. I expect this area will start increasing as well.
In terms of the workforce and talent on offer in Poland, there is a lot of discussion about more Poles returning home from elsewhere in the EU or from the UK. Do you think that is a trend that will accelerate now and how have you capitalised on that?
We have done a lot to make it difficult for Poles to leave and I don’t mean putting handcuffs on them, I mean by actually giving them lots of carrots. We reduced the income tax in 2019 from 18% down to 17%, we zeroed it for those 26 years of age, so young people are not paying any income tax at all. We recently announced the Polish Deal, which is a historic change in the tax-free [threshold]. It was 8,000 [Polish zloty], but in fact it was 4,500 [Polish zloty], because it was regressive tax-free amounts; now it is going to be 30,000 [Polish zloty] for everybody. In the past, 5% of the average salary was tax free, now it will be 45–55% of the salary tax free. So it is a big change.
It is about making sure we use the money that Poland gets from the EU cleverly, to drive the innovation agenda that we have.
We are in the process of announcing a lot of tax breaks [through the Polish Deal]. First of all, if a company is registered in Poland, it will have 5% corporate tax. There is also to be tax relief for research and development, implementing prototypes, automation, employing specialists such as engineers and IT people. Also, we will be announcing a tax relief on repatriation of capital for Poles who live abroad, and also a package for Poles who come back – for the first year or two after their return there will be a much higher tax-free band for them.
So hopefully a number of these projects that we are bringing in will stop people from migrating and encourage them to migrate back. Also, as the economy will be growing along with FDI, there will be lots of interesting opportunities that are not necessarily present in the stagnant economies in the West.
What are your main worries going forward?
All the global players, the IMF, the World Bank, the OECD, the European Commission, rating agencies, they are all giving us positive reports, which I find dangerous, as they can only get worse and I worry about that.
We have a lot of work to do. We still have to kick-start the Polish economy and that is based on consumption, which is always a dangerous game to play because what we are doing is ploughing a lot of money into people‘s pockets by reducing the taxes, by not cutting government expenses, which means people will start spending money and drive the economy to open. However, this is a double-edged sword – we could overheat the economy and then inflation could take hold, so inflation is something we have to keep an eye on and we don’t necessarily have instruments to control that.
Apart from that, it is about making sure we use the money that Poland gets from the EU cleverly, to drive the innovation agenda that we have, to develop the health sector, to develop the digital sector and to get the economy going so that we can also increase the amount of private investment that we bring in. Hopefully, through managing the economy appropriately, investors will start feeling comfortable and will start taking some of that cash out of their pockets, so we are doing everything possible to force that money out.
