kom (2017) 0090 - Ingen titel

Europaudvalget 2017
KOM (2017) 0090
Offentligt

EUROPEAN

COMMISSION

Brussels, 22.2.2017

SWD(2017) 86 final

COMMISSION STAFF WORKING DOCUMENT

Country Report Poland 2017

Accompanying the document

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE

EUROGROUP

2017 European Semester: Assessment of progress on structural reforms, prevention and

correction of macroeconomic imbalances, and results of in-depth reviews

under Regulation (EU) No 1176/2011

{COM(2017) 90 final}

{SWD(2017) 67 final to SWD(2017) 93 final}

kom (2017) 0090 - Ingen titel

CONTENTS

Executive summary

Economic situation and outlook

Progress with country-specific recommendations

Reform priorities

3.1.

3.2.

3.3.

3.4.

3.5.

3.6.

Public finances and taxation

Financial sector

Labour market, education and social policies

Investment

Sectoral policies

Public administration

Overview Table

MIP Scoreboard

Standard Tables

References

LIST OF TABLES

1.1.

2.1.

3.2.1.

B.1.

C.1.

C.2.

C.3.

C.4.

C.5.

Key economic, financial and social indicators

Assessment of country-specific recommendations for 2016

Financial soundness indicators, all banks in Poland

The MIP scoreboard for Poland

Financial market indicators

Labour market and social indicators - part 1

Labour market and social indicators - part 2

Product market performance and policy indicators

Green growth

LIST OF GRAPHS

1.1.

1.2.

1.3.

Contributions to real GDP growth, 2006-2018

Estimated composition of potential GDP growth, 2006-2016

Working age (15-74) population, 2015-2080

kom (2017) 0090 - Ingen titel

1.4.

1.5.

1.6.

1.7.

1.8.

Selected stock market indices, 2012-2016

Employment, wages and unemployment rate, 2012-2016

Current account balance by components, 2006-2016

Net international investment position by components, 2006-2016

Average quality rank in the 5 biggest exporting manufacturing sectors to the EU28, 2010

and 2015

1.9.

1.10.

3.1.1.

3.1.2.

3.2.1.

3.3.1.

3.3.2.

3.4.1.

3.4.2.

3.4.3.

3.4.4.

3.5.1.

3.5.2.

3.6.1.

GDP growth and fiscal balances (% of GDP)

Yields of 10 year government bonds, 2015-2017

VAT gap in Poland and in EU-27

Medium-term public debt scenarios

Annual credit growth rates

Projected size of student cohort starting the 1st grade of general upper secondary schools

Projected pension replacement rates – the impact of lowering of the retirement age

Public and private investment, 2006-2018

Investment by components as a % of GDP, 2006-2016

Gross investment in intangible assets as a % share of total investment (2013-2015 average)

Local government investment

Highly-cited publications vs public R&D intensity

Annual average concentrations of benzo[a]pirene (BaP) in 2014 in ng/m³

Legislative practice: number of laws passed in the first year of subsequent governments by

the promoter of the draft

LIST OF BOXES

1.1.

2.1.

3.4.1.

3.5.1.

State-owned enterprises (SOEs)

Contribution of the EU budget to structural change in Poland

Investment challenges and reforms in Poland

Selected highlights in Poland

kom (2017) 0090 - Ingen titel

EXECUTIVE SUMMARY

This report assesses Poland's economy in light of

the European Commission’s Annual Growth

Survey published on 16 November 2016. In the

survey the Commission calls on EU Member

States to redouble their efforts on the three

elements of the virtuous triangle of economic

policy – boosting investment, pursuing structural

reforms and ensuring responsible fiscal policies. In

so doing, Member States should put the focus on

enhancing social fairness in order to deliver more

inclusive growth.

Poland has benefitted from a very fast catch up

process.

In 2015, Poland's GDP per capita

expressed in purchasing power standards reached

69 % of the EU average, up from 53 % in 2007.

Rising incomes and living standards have been

accompanied by gains in employment, which

reached an all-time high reducing unemployment

to a record low.

The economy is experiencing strong growth

despite some weakness in investment.

Driven

predominantly by domestic demand, especially

private consumption, real GDP is expected to grow

at robust rates between 3.1 % and 3.2 % per year

in 2017 and 2018, well above the EU average.

These growth rates add to a long period of

uninterrupted economic expansion, since 1992 —

with Poland being the only EU country that

weathered the post-2007 global financial and

economic crises without undergoing a recession.

The overall economic outlook is positive, with

risks mainly related to domestic policies.

Private

consumption is set to remain the main growth

driver in 2017, given rising wages, employment

and fiscal transfers. Private investment is expected

to gradually recover from its 2016 weakness due to

strong domestic demand and a high degree of

capacity utilisation. The impact of policy and

regulatory uncertainty is a key risk and may dent

business confidence and investment. Public

investment is expected to recover strongly

following a decline in 2016, predominantly due to

progress in the implementation of projects

financed from the EU structural funds. Inflation is

projected to pick up moderately, driven by global

commodity prices and subdued domestic price

pressures. Export performance is expected to

remain robust. However, with strong domestic

demand fuelling imports, the overall contribution

of net exports to growth is projected to be close to

zero.

There are significant structural challenges to

the long term growth outlook.

A continued

improvement in living standards is more difficult

when the population of working age is falling and

when productivity growth, initially facilitated by

transition and integration processes, becomes more

challenging to achieve. This increases the

importance of further gains in labour force

participation and creating an environment

conducive to investment and further productivity

gains. Progress on these fronts depends on a range

of policies that are discussed in this report.

Overall, Poland has made limited progress in

addressing

the

2016

country-specific

recommendations ( ).

No progress was made in

addressing the extensive use of reduced VAT rates

and in establishing an independent fiscal council,

although some progress was achieved in improving

tax compliance. No progress was made on

ensuring the sustainability and adequacy of the

pension system, including for special pension

regimes, and in fact a key recent measure goes in

the opposite direction. No progress was made on

increasing labour market participation and recent

measures may also go in the opposite direction.

Limited progress was reached on removing

obstacles to investment in infrastructure and on

spatial planning coverage.

Regarding progress on reaching the national

targets under the Europe 2020 strategy, Poland is

performing well in the following areas: emissions

of greenhouse gases, poverty, energy efficiency,

tertiary education, reducing early school leaving

and the employment rate. Progress is limited in

R&D investment and renewable energy.

The main findings of the analysis in this report and

the related policy challenges are as follows:



Returning to fiscal consolidation in the short

term

and

addressing

long-term

sustainability are key fiscal challenges.

Although the 2016 general government

headline deficit is estimated to have reached its

lowest level since 2007, it is set to rebound

(

) This overall assessment does not include an assessment of

compliance with the Stability and Growth Pact.

kom (2017) 0090 - Ingen titel

Executive summary

and, without corrective measures, is expected

to reach 3 % of GDP by 2018. This would

happen in the context of strong GDP growth.

Consequently, the structural balance is

expected to widen significantly in 2017-2018.

Poland faces no major fiscal sustainability risks

in the short term. However, risks become more

pronounced in the long term due to the

unfavourable initial budgetary position and

age-related spending, recently aggravated by

the decision to significantly lower the statutory

retirement age.



Despite significant steps taken, there is still

scope to improve budget revenue.

Tax

compliance, in particular as regards VAT, is

markedly below the EU average. Budget

revenue could benefit from more efficient tax

administration. Many reforms to address some

of these issues have recently been put in place.

Their impact on the costs of tax compliance

and revenue collection remains to be felt.

Poland continues to use reduced VAT rates

extensively. The government has plans to

create mechanisms to improve the efficiency

and effectiveness of public spending. The

public finance framework lacks an independent

fiscal council.



The banking sector remains solid, and the

capital market is the largest in the region.

Credit institutions support the country's

economic performance through balanced loan

growth and the capital market is an important

source of funding for companies. The impact

on bank profitability of the new tax on

financial institutions remained contained.

Moreover, proposals concerning the mandatory

conversion of foreign-currency mortgages,

which could affect the stability of the financial

sector, have not materialised. In turn,

ownership changes have led to the state having

an increasing role in the banking sector.



Investment seems to be dampened by policy

uncertainty and other barriers.

Legal

certainty, trust in the quality and predictability

of regulatory, tax and other policies and

institutions are important factors that could

allow an increase in the investment rate. The

rule of law and an independent judiciary are

also essential in this context. The current

systemic threat to the rule of law creates legal

uncertainty. With the government aiming to

increase its role in the economy, ensuring the

economic viability of investment decisions will

be important.



Securing robust productivity growth is

becoming

increasingly

challenging.

Efficiency gains are harder to achieve as

Poland gradually catches up with the more

developed EU Members States. Long-term

economic prospects will depend on the

country's capacity to move from the production

of relatively low-technology goods to more

advanced products and services. This will

emphasise the importance of inclusive

education that provides people with adequate

skills and competences, and of improving the

quality of higher education and applied

scientific research.



Despite its strong performance, the labour

market faces constraints as regards

participation,

skills

and

mobility.

Employment rates have continued to increase,

but several recent policy measures may act

towards reducing labour force participation

going forward. These disincentives are likely to

be concentrated on groups that are currently

characterised by employment rates lower than

the EU average: women, low-skilled people

and older people. Labour market segmentation

continues to be high with negative effects on

productivity and the accumulation of human

capital in the longer term. With unemployment

at a record low, lifelong learning becomes even

more crucial. Geographical and occupational

labour mobility is hampered by factors such as

housing policies, transport infrastructure,

access to childcare, skills mismatches and

preferential sector-specific social security

arrangements — in particular the highly

subsidised pension systems for farmers.



The efficiency of the social protection system

merits monitoring.

Poverty and income

inequality were declining in recent years and

the new child benefit is expected to further

improve both indicators. However, there are

still questions about the social protection

system's overall efficiency, incentives for

social integration through work, and the

kom (2017) 0090 - Ingen titel

Executive summary

availability of resources to support other

important social policy areas, such as long-term

care.



Research and innovation are increasingly

regarded as engines of long-term growth in

Poland, but challenges remain.

The quality of

science and innovation' outputs are still far

below EU standards. R&D investment has been

gradually increasing supported by public

financing with a large role of the EU structural

funds.



Poland has been rapidly improving its

infrastructure,

but

key

structural

bottlenecks persist.

EU funding has facilitated

the fast development of the road network, but

the road fatality rate is still among the highest

in the EU. The railway sector continues to face

challenges and bottlenecks in project

implementation.

Despite

gradual

improvement, the Polish economy remains

energy- and carbon-intensive; the power

generation infrastructure is ageing, power

generation is heavily reliant on coal and may

be insufficient to match projected growing

electricity demand. Recent policy initiatives

may limit the potential for the renewable

energy generation. Improving Poland's air

quality, currently among the worst in the EU,

remains a major challenge.



Poland

gradually

improving

international 'doing business' rankings, but

the regulatory framework weighs on the

business environment in some areas.

Frequent changes in regulations often passed

with limited public consultations impact on

business confidence. The weakness of spatial

planning increases administrative burden

related to construction permits. The business

environment is also affected by shortcomings

in the justice system which contribute to

lengthy legal proceedings and contract

enforcement. In its Strategy for Responsible

Development the government has proposed a

number of measures to make it easier to do

business.

kom (2017) 0090 - Ingen titel

ECONOMIC SITUATION AND OUTLOOK

3.1 % in 2018, just above potential. Private

consumption is set to rise strongly in 2017, and

moderate in 2018 as employment growth

decelerates and the temporary effects of new social

transfers fade out. Public investment is expected to

rebound strongly in 2017 and 2018 on the back of

a higher utilisation of EU funds. Private

investment is projected to recover gradually,

helped by solid domestic demand and an outlook

for further export gains. This will also be driven by

relatively high capacity utilisation, still solid

corporate profits and low interest rates. However,

investment decisions are likely to be affected by

uncertainty about the future direction of economic

policies. The main risks in this scenario are the

prolongation of uncertainty, which may start

affecting not only business but also household

spending decisions, and the very limited fiscal

space available to react to possible negative

shocks.

Potential growth

GDP growth

Poland is experiencing strong economic growth.

Domestic demand has been the dominant growth

driver since 2014. In 2016, following a contraction

in investment activity, GDP growth supported by

private consumption was 2.8 %, well above the EU

average. Private consumption expenditure has

benefited from very favourable labour market

conditions, a significant increase of social transfers

and low lending rates.

Graph 1.1:

forecast

Contributions to real GDP growth, 2006-2018

%, pps

-2

-4

06 07 08 09 10 11 12 13 14 15 16 17 18

Inventories investment

Consumption

Real GDP growth

Investment (GFCF)

Net exports

Source:

Eurostat, European Commission

In 2016, investment activity declined

significantly due to a low utilisation of the EU

structural funds and increased uncertainty.

Investment fell by 5.5 % in 2016, with a

particularly strong contraction of public

investment (estimated at around -15 %). This was

mainly related to the slow start of projects financed

by the EU structural funds in the 2014-2020

programming period. Private investment also

weakened substantially, especially due to

decreased activity by state-owned and state-

influenced enterprises. The slowdown of private

investment appears to be related to increased

uncertainty about the future course of economic

policies (e.g. changes to taxation, strategic

decisions on energy policy and the role of state-

owned enterprises).

The short-term growth outlook remains

favourable, with some risks to the downside.

GDP growth is projected at 3.2 % in 2017 and

Poland has experienced fast per-capita income

convergence with the EU in recent years.

GDP

per capita in purchasing power standards increased

from 53 % of the EU-28 average in 2007 to 69 %

in 2015 (

). Poland (alongside Lithuania and

Romania) was thus the country with the fastest

catch-up process. Estimated potential growth has

stabilised at around 3 % since 2013. Together with

stable capital accumulation and solid gains in total

factor productivity (despite the slowdown

observed since 2012), labour has also contributed

positively to potential growth (see Graph 1.2). This

was mainly driven by a falling natural

unemployment rate and rising labour force

participation that more than compensated for a

decrease in the working age population.

A decrease in the working age population is

expected to limit growth potential in the

decades to come.

Fewer people aged 15-45 means

that even if fertility rates were at the highest level

currently observed in the EU (2 instead of 1.32, as

in 2014), this would not change the negative

outlook for the working age population (see Graph

1.3). With the natural unemployment rate already

low, labour force participation is a key factor in at

(

) Purchasing power standards is the artificial common

reference currency unit that eliminates price level

differences between countries.

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

least partly mitigating the effects of a decreasing

working age population. Immigration can be

another factor improving the employment outlook.

Graph 1.2:

Estimated composition of potential GDP

growth, 2006-2016

4.5

3.5

2.5

PPS

TFP

Capital

Labour

from low-productive agriculture to other sectors.

This emphasises the importance of addressing

mobility barriers caused by e.g. very limited skills

upgrades and some features of the special pension

regime for farmers. Other important factors

include improvements in the quality of human and

physical capital and business’ ability to adopt new

technologies and to innovate.

Graph 1.3:

millions

Working age (15-74) population, 2015-2080

-19% by

2050

-12% by

2050

1.5

0.5

2015

zero-migration with fertility

rate equalling 2

zero-migration variant

Source:

European Commission

The medium- to long-term investment outlook

hinges on a number of policy-related factors.

Significant contributions from EU funds should

help support public investments in coming years,

but fiscal space will be needed to maintain public

investments after the end of the 2014-2020

programming period for EU funding. A stable

development of the banking sector, but also of

capital markets, would secure sources of funding

and create conditions conducive for household

savings increase. Legal certainty, trust in the

quality and predictability of regulatory, tax and

other policies and institutions are an important

factor in the assessment of risks related to

investment decisions. All these factors, alongside

the macroeconomic outlook and stability, will

ultimately determine investment decisions. There

are also strong links between investment and the

availability of skilled labour and productivity

growth (see Section 3.4.).

After several years of fast productivity growth,

further increases will be more difficult to

achieve.

The slowdown in productivity in recent

years is a phenomenon observed in many advanced

economies. Continued productivity gains depend,

inter alia,

on the inter-sectoral mobility of factors

of production, including the reallocation of labour

2025

2035

2045

2055

2065

2075

(1) Zero-migration variant of the Eurostat's 2013 population

projection. (2) High fertility scenario assumes fertility rate

rising from current levels to reach 2 by 2020 and staying at 2

throughout the projection period.

Source:

Eurostat, European Commission

Macroeconomic

stability

and

the

implementation of structural reforms are

crucial for keeping potential growth high.

reiterated in the 2017 Annual Growth Survey,

pursuing structural reforms and ensuring

responsible fiscal policies are important elements

of economic policy. Whether Poland’s economy

will be able to continue the catching-up process

will depend on the extent to which the

sustainability of public finances can be ensured,

taking into account expected future costs related to

an ageing population and the adequacy of future

pensions. This will also depend on maintaining the

soundness of the financial sector, ensuring social

fairness, including by stronger promotion of labour

market participation in the social protection

system, and success in implementing a range of

other structural reforms. Key reform areas include

addressing challenges related to ageing, the

adequacy of skills, quality of the public

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

administration, and functioning of state-owned

enterprises (see Section 3 and Box 1.1).

Price developments

Labour market

The period of consumer price deflation has

come to an end, but price pressures are set to

remain subdued.

The deflation that started in

mid-2014 came to an end in late 2016, with

inflation standing at 0.9 % in December 2016.

Recent price developments were to a significant

extent driven by swings in global prices of energy

commodities. In 2017 and 2018, consumer prices

are expected to pick up only moderately remaining

below 2.5 %, which reflects very limited demand

pressure, low foreign inflation, and a gradual rise

of wages.

Graph 1.4:

160

Selected stock market indices, 2012-2016

Labour market conditions continued to

improve in 2016.

Employment increased by an

estimated 0.9 %, which marked the third year of

strong job growth (Graph 1.5). Employment rates

reached record highs, while still staying below the

EU average due to the low labour force

participation of certain groups. The unemployment

rate continued to decline in 2016, reaching 5.9 %

in the third quarter, a record low since comparable

data are available. This was accompanied by rather

modest nominal wage growth of around 3 %

throughout 2015 and into early 2016. From the

second quarter of 2016 onwards, wage growth in

the whole economy increased to above 4 % in

nominal terms. However, since wages have

increased broadly in line with productivity over

recent years, Poland has experienced only

moderate growth in unit labour costs with little

effect on cost competitiveness.

Graph 1.5:

Employment, wages and unemployment rate,

2012-2016

140

120

Poland

Czech Republic

Hungary

Eurozone

100

-2

Feb-12

May-12

Aug-12

Nov-12

Feb-13

May-13

Aug-13

Nov-13

Feb-14

May-14

Aug-14

Nov-14

Feb-15

May-15

Aug-15

Nov-15

Feb-16

May-16

Aug-16

Nov-16

(1) Rebased, average 2010 level = 100

Source:

IHS DataInsight

Asset prices remained stable in 2016.

House

prices have remained broadly flat throughout 2016,

with both demand and supply at historically high

levels. Mortgage lending increased modestly, with

a substantial proportion of transactions financed

without the use of bank loans. In 2016, the stock

market did not recover from heavy losses in the

second half of 2015 (Graph 1.4). The weakness of

the Warsaw Stock Exchange was related to a

combination of factors, including low commodity

prices, uncertainty regarding government influence

on listed companies with a substantial share of

state ownership (see Box 1.1), uncertainty about

future fate of the open pension funds, and on future

government regulation of the financial sector, in

particular concerning foreign currency mortgages.

employment growth y-o-y

nominal wage growth y-o-y

unemployment rate

Source:

Eurostat and Central Statistical Office

Several recently introduced or announced

measures are expected to limit labour force

participation.

A lowering of the retirement age,

an increase of the school starting age, a new

universal child benefit, the abolition of the

preschool obligation for five-year-olds and a

significant increase of the minimum wage are all

expected to limit labour force participation. The

relative importance and time horizon of these

effects will differ. Work disincentives are expected

in particular for groups that already have

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

employment rates below the EU average. This

includes the population aged 55 and over,

low-skilled people, and women including those of

child-bearing age (see Section 3.3).

Labour market tightening is expected to lead to

faster wage increases and the possibility of

labour shortages.

The combination of a falling

working

age

population,

record

low

unemployment, measures discouraging labour

force participation and skill shortages among

people who are currently economically inactive

leads to projected employment growth decelerating

further in 2017 and stagnating in 2018. This is

expected to be accompanied by faster wage

growth, as employers find it increasingly difficult

to fill vacancies with workers who have the

necessary skills and competencies. In subsequent

years, labour market trends are set to be

determined by migration flows, both outward and

inward, and the mobility of labour both across

sectors and geographically (see Section 3.3). Other

important factors are encouraging the employment

of older people and equipping people with better

skills and competencies, ranging from basic skills

in numeracy and literacy to entrepreneurial and

digital skills.

Inequality

Poland up to 2015 may be linked to the substantial

growth of employment and some wage growth in a

deflationary environment. Changes in the benefit

system (mainly a new child benefit) introduced

since 2016 are likely to have further lowered

inequality, but relevant data are not yet available

(see Section 3.3). Inequality in net wealth (

) was

within the range observed in several other EU

countries for which data were collected in 2013-

2014 (ECB 2016).

External position

Poland’s external position improved with a

current account close to balance in 2015 and

stable thereafter.

This was mainly driven by a

gradual increase in the services trade surplus

(Graph

1.6).

The

performance

telecommunications, computer, information and

business services has been particularly strong in

2015-2016. Strong merchandise exports and a fall

in energy commodity prices translated into a

positive balance of trade in goods in 2015.

Graph 1.6:

Current account balance by components,

2006-2016

Inequality has fallen below the EU average,

following several years of robust income

growth.

Income inequality has steadily decreased

since the mid-2000s to stand slightly below the EU

average in 2015 (

). This accompanied fast growth

of median income and the income of the lowest

10 % income group (1

income decile), even if in

real terms median income growth was minimally

slower than the growth of GDP per capita. The gap

between incomes in the 1

income decile and the

median was below the EU average. The upward

income mobility for people in the 1

income decile

improved substantially in 2015 (

). The

improvement in various inequality indicators for

(

) As measured by the Gini coefficient of income, as well as

by the ratio of income of high earners to low earners

(S80/S20). In 2015, the latter ratio equalled 4.9, below the

EU average of 5.2. S80/S20 is the ratio of total income

received by the 20 % of the population with the highest

income to that received by the 20 % of the population with

the lowest income.

( ) An upward income mobility is measured by the share of

population who were in the 1st income decile but moved

upwards over the three year period (up to 2015).

% of GDP

-2

-4

-6

-8

-10

Trade balance - goods

Trade balance - services

Primary income balance

Secondary income balance

Capital account (KA)

Trade balance (G&S)

Current account

Net lending/borrowing (CA+KA)

* For the year 2016 - data till Q3-2016

Source:

Eurostat

Poland’s negative net international investment

position (NIIP) narrowed visibly in 2015-2016.

The private sector’s large contribution decreased

during this period. An accumulated stock of

foreign direct investments constitutes the major

(

) Difference between total assets and total liabilities.

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

part of the NIIP, amounting to close to 36 % of

GDP and more than half of the NIIP (Graph 1.7).

This limits the potential risks associated with a

highly negative position, as rapid and large swings

in international capital flows that can destabilise

markets are less likely in the case of direct

investments. The NIIP is expected to further

decline in coming years.

Poland’s export market share has continued to

rise.

Poland’s share of world exports increased by

close to 40 % between 2005 and 2015, which was

one of the fastest improvements in the EU. Cost

competitiveness was supported by the contained

growth of unit labour costs and the relative

stability of the euro-zloty exchange rate, with some

weakening in 2015-2016. Export growth gradually

decelerated during 2016.

Graph 1.7:

computer, electronic and optical products and

furniture products. The continuation and

intensification of this trend will be an important

driving factor for the export outlook, given that the

expected acceleration of wage growth is likely to

put pressure on cost competitiveness.

Graph 1.8:

Average quality rank in the 5 biggest

exporting manufacturing sectors to the EU28,

2010 and 2015

20%

15.4%

1.0

Average Quality Rank (1 = highest)

15%

10.8%

9.9%

7.9%

6.7%

0.5

10%

Net international investment position by

components, 2006-2016

0.0

Motor

Vehicles,

Trailers And

Semi-Trailers

Food

Products

Computer,

Electrical

Electronic And Equipment

Optical

Products

Machinery

And

Equipment

N.E.C.

-20

-40

2010

2015

2015 share in total manufacturing exports to EU 28 (rhs)

% of GDP

-60

-80

-100

-120

Net portfolio investment, equity and investment fund shares/units

Net portfolio investment, debt securities

Other investment and derivatives (net)

Net direct investment

Net portfolio investment, debt securities

Net int'l investment position

Marketable debt (portfolio debt instr., other invest. and res. assets, net)

Source:

European Commission calculations based on

Comext and Orbis databases

Public finances

16-

Source:

NBP, Eurostat, European Commission's calculations

Some sectors are moving towards high-tech,

high-quality exports, but overall exports remain

concentrated in low- and medium-technology

products.

Relatively low production costs in

Poland due to low labour and other input costs

imply that export gains were in general

concentrated on low- and medium-technology

products. The average quality of Polish exports in

the five sectors with the most exports to the EU

market was below the average for EU

imports (Graph 1.8) (

). Nevertheless, there was a

gradual move towards higher value added, higher

quality products in some sectors, such as

(

) The quality is proxied by an index estimated using the

methodology of Vandenbussche (2014).

The

gradual

growth-friendly

fiscal

consolidation has come to an end.

Between 2012

and 2015, Poland succeeded in significantly

reducing its structural fiscal deficit, while at the

same time ensuring a rebound and subsequent

strengthening of economic growth with a gradually

closing output gap. This appears to have come to

an end in 2016 and the winter 2017 Commission

forecast suggests a strong widening of the

structural deficit despite a stabilisation of GDP

growth rates close to Poland’s potential growth

rate (Graph 1.9).

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

Graph 1.9:

8.0

GDP growth and fiscal balances (% of GDP)

to reach around 56 % of GDP in 2018, mainly as a

result of the increasing deficits.

Graph 1.10:

Yields of 10 year government bonds, 2015-

2017

forecast

7.0

6.0

4.5

5.0

4.0

3.0

3.5

2.5

2.0

1.0

1.5

0.0

2009

2011

2013

2015

GDP growth

2017

0.5

structural fiscal deficit

headline fiscal deficit

Source:

AMECO

The pursuit of an expansionary fiscal policy in

2017-2018 comes with certain risks.

Poland’s

headline general government deficit has been

gradually decreasing for the last five years, to

stand at an estimated 2.3 % of GDP in 2016, its

lowest level since 2007. The 2016 decrease

resulted mainly from one-off revenue from the sale

of mobile internet frequencies (0.5 % of GDP) and

a significant drop in public investment

expenditure. Looking forward, based on the

Commission winter 2017 forecast, the deficit is

projected to widen to 2.9 % of GDP in 2017 and

3.0 % of GDP in 2018. This development is

expected to be driven mainly by increased social

spending (a lowering of the retirement age and a

universal child benefit). Simultaneously, the

outcome of Poland’s continued efforts to further

improve tax collection remains uncertain. The

current expansionary fiscal stance risks leaving

very limited fiscal space to absorb potential

negative shocks.

The general government debt-to-GDP ratio

continued its upward trend but remains below

60 %.

Since a drop to 50.2 % of GDP in 2014,

which was mainly due to a one-off transfer of

funds from the private pension system (

), the

general government debt level has continued to

rise. It reached more than 51 % of GDP in 2015

and according to Commission estimates exceeded

53 % of GDP in 2016. The public debt is expected

(

) Under ESA 2010 rules this statistically counted as a public

debt reducing measure.

(1) monthly averages

Source:

Eurostat

Interest rates on government debt increased

relative to other EU countries with negative

implications for future debt service costs.

Interest rates on Polish debt rose substantially

relative to regional peers during the period 2015-

2016 (Graph 1.10). In late 2016, interest rates on

Polish debt were among the highest in the EU.

This appears to be partly driven by internal factors,

notably the worsening fiscal outlook.

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

Box 1.1:

State-owned enterprises (SOEs)

SOEs form a large part of the Polish economy, are dominating certain sectors and their role might

increase even further.

Poland is among the group of EU Member States where SOEs play an important

role (

). During its economic transformation Poland underwent extensive privatisation. However, this

process slowed down during the 2010s and stalled in 2014. The list of companies of ‘strategic importance’

under Ministry of Treasury special surveillance includes 30 SOEs. In total there are several hundreds of

companies in public ownership. SOEs are widespread across sectors and their market value relative to GDP

is amongst the highest in the EU. Their share in total employment is sizeable but not outstanding compared

to other Member States. 18 SOEs are listed at the Warsaw Stock Exchange (WSE) and have a share of

around 57% in the WIG20 index (see Graph 1a). Some of them are among the largest firms not only in

Poland but also in Central and Eastern Europe, and are dominant players in sectors such as energy, rail and

forestry (

). The government intends to increase the role of SOEs even further. In the financial sector, state-

controlled institutions have been taking over banks from private investors, increasing the share of

government-controlled banks in bank assets from around 16% in 2010 to 36 % after acquiring Pekao S.A. by

PZU S.A. in 2016.

Graph 1:

The role of SOEs in the Polish economy by main stock market indices and sectoral performance

1a Share of SOEs in the main stock market

indices

1b Return on equity, 2014

AGRICULTURE, FORESTRY AND…

12*

MINING AND QUARRYING

MANUFACTURING

ELECTRICITY, GAS, STEAM AND…

WATER SUPPLY; SEWERAGE,…

CONSTRUCTION

WHOLESALE AND RETAIL TRADE;…

TRANSPORTATION AND STORAGE

Private

Public

ACCOMMODATION AND FOOD…

INFORMATION AND…

REAL ESTATE ACTIVITIES

PROFESSIONAL, SCIENTIFIC AND…

ADMINISTRATIVE AND SUPPORT…

ARTS, ENTERTAINMENT AND…

PL*

OTHER SERVICE ACTIVITIES

* with takeover by gov.-contr. PZU of Pekao S.A.

-10

-5

1) Data on return on equity come only from entities which employ more than 49 persons

2) SOE on stock exchanges- companies, in which state has at least 10% share (directly or indirectly); companies

which belong to foreign SOE's are not perceived as SOEs

Source:

European Commission calculations based of ORBIS database for share of SOE in the main stock market

indices; the Ministry of Development for return on equity in private and public sector

While profitable overall, SOEs tend to perform slightly worse compared with their private

competitors.

Although the scope of possible conclusions is limited by comparability of circumstances,

private firms tend to somewhat outperform SOEs (see Graph 1b). Efficiency indicators suggest lower

profitability of Polish SOEs relative to their private counterparts, especially in certain sectors such as

mining, transport and manufacturing. In the banking and insurance sectors, performance of state-owned and

private entities used to be on par e.g. concerning return-on-equity (ROE) and return-on-assets (ROA) as well

as regulatory capital ratios and the shares of non-performing loans (NPLs).

) SOEs feature prominently in

some new Member States such as Poland, Croatia, Romania, Slovenia but also in

France, Italy and Sweden, whereas their role is very limited in other MSs such as the Netherlands, Estonia or the UK

(European Commission, 2016f).

(

) In terms of yearly turnover 17 out of the biggest 25 at the 2015 Wprost list (Wprost, 2015) and 13 out of 25 at the

2014 Forbes list (Forbes, 2014) are SOEs.

(Continued on the next page)

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

Box (continued)

The quality of SOE governance, which ultimately determines the companies’ performance and the

scope for fiscal and financial risks, has so far been perceived as relatively good with potential for

improvement in some areas.

Although mainly driven by the capital market development and a mean of

privatisation, the SOEs listing has also contributed to improved performance and governance (e.g. better

qualified management teams being able to introduce operational efficiencies, increased disclosure and

reporting requirements). Until recently, oversight was organised with a fairly centralised role of the Ministry

of Treasury, which issued and improved guidance on corporate governance (management priorities, board

composition, etc.). It monitored annual reports, albeit at an aggregate level. However, despite positive

governance developments, access to information was perceived as low, the accountability and transparency

of non-listed companies lagged behind that of those listed, and the application of guidelines on board

member nominations (e.g. professional merits) was questioned in several cases (OECD, 2016a). Stock

market analysts give various examples of government policy objectives appearing to have prevailed over the

economic interests of SOEs and their non-state shareholders, including pension funds, and hence most of the

population. These examples include the introduction of a tax on copper and silver extraction in 2012, an

increase in the share capital of one energy company in 2016, and the involvement of the energy sector SOEs

in the restructuring of coal mining companies facing economic difficulties in 2015-2016 (Wise-Europa,

2016). The subsequent lessons for market participants include: i) fair competition in sectors with strong SOE

presence can be difficult, ii) political interests can prevail over companies’ economic interests, and iii)

private investment in SOEs is associated with high risk of loss of value with implications for SOEs

valuations.

The SOE governance in Poland is to be overhauled from 2017 onwards, which paves the way for the

government’s intention to increase the role of SOEs in the economy.

The January 2017 reform contains

two key elements: i) the transfer of final oversight rights from the dissolved Ministry of Treasury to the

Prime Minister’s Office and ii) the transfer of the supervision of SOEs to sectoral ministries (

). The latter

does not necessarily follow the OECD guidelines (

) and comes with the risk of mixing political and

economic objectives, potentially weighing on performance. The SOE Council, to be appointed by the Prime

Minister, will have a decisive vote on management and supervisory appointments and will issue opinions on

governance policies. The law also explicitly puts an end to the privatisation process, assigning to the SOEs

certain responsibility for carrying out certain tasks stemming from state's economic policies. In addition,

some uncertainty remains regarding the future fate of Open Pension Funds (OFEs) and their assets. In recent

years, market participants were concerned with the potential nationalisation of part of OFEs assets, with the

state effectively taking over control of several companies. Given the importance of SOEs in the stock

market, its recent underperformance compared with other regional indices may reflect market uncertainty

about the state's plans concerning ownership policy (Berenberg Bank, 2016). Finally, the reported intention

to investigate former privatisation cases has casted doubt on the duration and certainty of government

decisions and existing contracts (

(

) In the energy sector, the reallocation of the SOE governance from Treasury to the Ministry of Energy already took

place in the first half of 2016.

( ) According to the OECD guidelines on SOE governance, centralisation of ownership rights helps its more consistent

implementation, is beneficial for financial reporting, and is an effective way to clearly separate the exercise of the

ownership function from other potentially conflicting activities performed by the state, particularly market regulation.

(

) Examples are PKP Energetyka S.A., Ciech S.A. and KGHM Polska Miedź SA.

kom (2017) 0090 - Ingen titel

1. Economic situation and outlook

Table 1.1:

Key economic, financial and social indicators

2004-2008 2009

5.2

2.8

5.5

3.6

4.0

3.5

11.7

-2.7

9.5

-5.9

11.6

-12.4

0.0

1.5

3.7

4.0

5.9

0.3

-1.0

0.2

1.4

2.1

-5.0

-2.9

0.9

0.7

-46.5

-12.4

38.3

68.9

8.7

-3.2

1.9

8.0

50.5

19.9

30.7

0.6

22.0

-1.4

3.5

3.4

2.8

4.1

2.2

1.9

-1.4

5.2

4.8

27.6

25.0*

16.7

13.5

7.3

29.0

63.7

37.4

11.2

-3.6

34.3

45.8

2.2

-2.5

3.1

0.3

1.9

1.8

-4.0

-0.8

3.2

1.6

-57.3

-22.3

47.0

45.8

0.3

-1.8

2.8

4.4

67.1

31.6

35.5

5.5

23.9

-0.3

-5.3

3.4

3.8

4.0

3.4

2.4

0.9

-2.8

-20.5

-14.7

24.4

22.2

8.7

12.6

9.1

6.4

8.1

2.6

20.6

64.7

27.8

6.9

-7.3

32.0

49.4

2010

3.6

2.7

3.1

0.0

13.1

14.3

1.2

3.9

2.3

1.9

-0.6

0.4

1.8

-5.4

-2.1

-1.5

1.8

-65.1

-24.4

50.8

34.9

-1.7

-1.8

2.4

4.3

69.7

34.2

35.5

6.0

24.0

-1.7

-6.1

3.2

1.7

2.6

8.9

6.4

2.4

0.7

9.3

6.0

24.6

22.4

13.0

11.5

12.5

6.4

9.7

3.0

23.7

65.3

27.8

7.3

-7.3

32.3

-8.0

53.3

2011

5.0

3.1

-1.8

8.8

7.9

5.8

2.1

4.2

3.4

0.9

0.7

0.6

2.0

1.6

-5.2

-2.2

-1.5

2.0

-62.4

-25.2

54.4

25.7

-1.4

-2.6

-1.1

6.6

73.9

35.1

38.8

5.8

24.6

-3.7

-4.6

3.0

3.2

3.9

5.3

4.4

0.8

-2.3

-2.9

-2.2

24.6

22.5

4.9

11.2

13.8

6.0

9.7

3.6

25.8

65.7

27.2

6.9

-4.8

32.7

-5.9

54.4

2012

1.6

0.7

-0.3

-1.8

4.6

-0.3

0.2

3.5

0.0

-0.5

2.1

0.6

1.7

1.2

-3.7

-0.6

-1.2

2.2

-65.3

-25.9

54.3

13.6

-2.3

-1.2

-1.1

4.9

73.4

34.1

39.3

6.4

24.6

-4.0

-6.6

3.2

2.3

3.7

3.6

1.5

2.0

-0.3

-3.2

-2.4

24.7

22.7

7.6

12.0

11.7

6.4

10.1

4.1

26.5

66.5

26.7

6.9

-3.7

32.9

-3.9

53.7

2013

1.4

0.3

2.5

-1.1

6.1

1.7

-1.3

3.0

0.4

-1.0

1.9

0.6

1.4

0.9

-1.3

1.9

1.1

2.3

-68.9

-26.2

53.3

9.4

5.8

-0.8

-0.1

3.2

75.5

35.1

40.4

8.1

25.0

-2.5

-4.8

3.0

0.3

0.8

1.7

1.5

0.2

-0.1

0.2

23.7

20.8

7.1

13.4

9.7

6.0

10.3

4.4

27.3

67.0

25.8

7.2

-4.1

32.8

-3.3

55.7

2014

3.3

2.4

4.1

10.0

6.7

10.0

-1.1

3.0

4.1

0.5

-1.3

0.6

1.6

0.8

-2.1

1.4

1.9

2.4

-69.1

-25.6

55.1

13.2

5.1

-2.4

-0.5

4.6

78.1

35.6

42.5

6.8

25.3

-3.1

1.1

3.0

0.5

0.1

2.2

1.5

0.6

0.1

0.4

1.0

23.8

21.0

0.5

13.2

8.6

5.4

9.0

3.8

23.9

67.9

24.7

7.3

-3.4

32.9

-2.7

50.2

2015

3.9

3.2

2.3

6.1

7.7

6.6

-0.2

3.0

3.5

-0.2

0.6

0.5

1.7

0.9

-0.6

3.1

2.4

-62.5

-23.9

54.2

12.07

2.5

-2.1

-1.0

3.4

78.8

36.1

42.7

8.1

25.8

-3.0

2.9

3.1

0.6

-0.7

1.1

2.4

-1.2

-1.8

-3.8

-2.1

23.9

21.2

3.7

14.0

6.4

5.0

7.5

3.0

20.8

68.1

23.4

6.9

-2.6

33.3

-2.4

51.1

2016

2.8

3.6

3.7

-5.5

7.3

7.9

-0.2

2.7

1.7

1.1

-0.1

0.4

1.3

1.0

1.5

6.9

25.1

-2.5

0.7

-0.2

3.9

2.0

1.3

-2.7

-3.5

6.3

18.2

-2.3

34.0

-2.6

53.6

forecast

2017

3.2

3.9

2.4

2.7

6.0

6.4

0.2

2.8

3.2

0.0

0.3

1.3

1.2

-0.8

7.6

25.1

-2.7

1.6

2.0

4.7

1.8

0.2

0.8

-1.2

5.6

-2.9

34.3

-3.1

54.5

2018

3.1

2.9

2.5

5.3

6.4

6.9

0.4

2.9

3.2

0.0

0.3

1.3

-0.1

7.7

25.3

-2.6

2.1

5.3

2.1

0.0

0.3

4.7

-3.0

34.3

-3.3

55.8

Real GDP (y-o-y)

Private consumption (y-o-y)

Public consumption (y-o-y)

Gross fixed capital formation (y-o-y)

Exports of goods and services (y-o-y)

Imports of goods and services (y-o-y)

Output gap

Potential growth (y-o-y)

Contribution to GDP growth:

Domestic demand (y-o-y)

Inventories (y-o-y)

Net exports (y-o-y)

Contribution to potential GDP growth:

Total Labour (hours) (y-o-y)

Capital accumulation (y-o-y)

Total factor productivity (y-o-y)

Current account balance (% of GDP), balance of payments

Trade balance (% of GDP), balance of payments

Terms of trade of goods and services (y-o-y)

Capital account balance (% of GDP)

Net international investment position (% of GDP)

Net marketable external debt (% of GDP) (1)

Gross marketable external debt (% of GDP) (1)

Export performance vs. advanced countries (% change over 5 years)

Export market share, goods and services (y-o-y)

Net FDI flows (% of GDP)

Savings rate of households (net saving as percentage of net disposable income)

Private credit flow, consolidated (% of GDP)

Private sector debt, consolidated (% of GDP)

of which household debt, consolidated (% of GDP)

of which non-financial corporate debt, consolidated (% of GDP)

Corporations, net lending (+) or net borrowing (-) (% of GDP)

Corporations, gross operating surplus (% of GDP)

Households, net lending (+) or net borrowing (-) (% of GDP)

Deflated house price index (y-o-y)

Residential investment (% of GDP)

GDP deflator (y-o-y)

Harmonised index of consumer prices (HICP, y-o-y)

Nominal compensation per employee (y-o-y)

Labour productivity (real, person employed, y-o-y)

Unit labour costs (ULC, whole economy, y-o-y)

Real unit labour costs (y-o-y)

Real effective exchange rate (ULC, y-o-y)

Real effective exchange rate (HICP, y-o-y)

Tax rate for a single person earning the average wage (%)

Tax rate for a single person earning 50% of the average wage (%)

Total Financial sector liabilities, non-consolidated (y-o-y)

Tier 1 ratio (%) (2)

Return on equity (%) (3)

Gross non-performing debt (% of total debt instruments and total loans and

advances) (4)

Unemployment rate

Long-term unemployment rate (% of active population)

Youth unemployment rate (% of active population in the same age group)

Activity rate (15-64 year-olds)

People at risk of poverty or social exclusion (% total population)

Persons living in households with very low work intensity (% of total

population aged below 60)

General government balance (% of GDP)

Tax-to-GDP ratio (%)

Structural budget balance (% of GDP)

General government gross debt (% of GDP)

(1) Sum of portfolio debt instruments, other investment and reserve assets

(2,3) domestic banking groups and stand-alone banks.

(4) domestic banking groups and stand alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and

non-EU) controlled branches.

(*) Indicates BPM5 and/or ESA95

Source:

European Commission, ECB

kom (2017) 0090 - Ingen titel

PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS

Overall, Poland has made limited progress (

) in

addressing the 2016 CSRs.

Except for some

progress achieved in improving tax compliance, no

progress was made in addressing recommendations

related to public finance. Additionally, a new

challenge to the long-term sustainability of the

pension system due to lowering of the retirement

age is in striking contrast to the CSR. At the same

time, no progress was made on increased

participation in the labour market. What is more,

several measures in this area go in the opposite

direction. There was limited progress on removing

obstacles to investment in infrastructure and on

spatial planning coverage.

(

) Information on the level of progress and actions taken to

address the policy advice in each respective subpart of a

CSR is presented in the Overview Table in the Annex. This

overall assessment does not include an assessment of

compliance with the Stability and Growth Pact.

Progress

with

implementing

the

recommendations addressed to Poland in

2016 (

) has to be seen as part of a process

which started with the introduction of the

European Semester in 2011.

Poland corrected its

excessive fiscal deficit and the corresponding

excessive deficit procedure was closed in 2015.

The country also strengthened its fiscal framework

by enacting a permanent expenditure rule in 2013.

It didn't, however, establish an independent fiscal

council. Although efforts were made to tackle the

long-term sustainability of public finances with a

gradual increase of the statutory retirement age to

67 years (reversed in 2016, see below), only

limited action was taken to reform special pension

regimes, but not for miners and farmers. No

measures were put in place to limit the extensive

use of reduced VAT rates.

Poland took action to tackle labour market

segmentation.

Its measures included an

amendment to the Labour Code to reduce

flexibility in the take-up of temporary contracts, an

increase of social security contributions connected

to certain civil law contracts and most recently the

introduction of a minimum hourly remuneration

for those working under civil law mandate

contracts. Poland increased the availability of

childcare to foster the labour market participation

of women, although recent measures (see Section

3.3) may have the opposite effect. Some steps were

taken to address the recommendations related to

vocational education and training. The lifelong

learning strategy was adopted in September 2013,

but subsequently there has been limited progress in

increasing participation. Finally, in recent years

Poland was successful in liberalising several

professional services.

Progress was made on infrastructure.

Thanks to

massive EU investments over the past decade,

Poland has significantly upgraded its transport

networks, while progress was more limited in

railway projects. Progress was also observed in the

development of transmission and distribution

networks.

(

) For the assessment of other reforms implemented in the

past, see in particular section 3.

kom (2017) 0090 - Ingen titel

2. Progress with country-specific recommendations

Table 2.1:

Assessment of country-specific recommendations for 2016

Source:

European Commission

kom (2017) 0090 - Ingen titel

2. Progress with country-specific recommendations

Box 2.1:

Contribution of the EU budget to structural change in Poland

Poland is the largest beneficiary of the European Structural and Investment Funds (ESI Funds) with an

allocation of EUR 86.1 billion until 2020. This is equivalent to around 2.7 % of GDP annually (over 2014-

2017) and 54% of public investment (

). Out of the EU financing EUR 3.4 billion is planned to be delivered

via financial instruments, which is a three-fold increase compared to the 2007-2013 period. By 31

December 2016, an estimated EUR 18.9 billion, which represents about 22 % of the total allocation for ESI

Funds, have already been allocated to concrete projects. The contribution of the ESI Funds to the

development of public investment is discussed in Section 3.3.

Financing under the European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe

Facility and other directly managed EU funds is additional to the ESI Funds. By end 2016, Poland has

signed agreements for EUR 3.8 billion for projects under the Connecting Europe Facility. The EIB's Group

approved financing under EFSI amounts to EUR 1.4 billion (infrastructure and innovation windows), which

is expected to trigger nearly EUR 4.9 billion in total investments (as of end 2016). As regards SME

financing under EFSI, the European Investment Fund approved 5 agreements with financial intermediaries

(e.g banks and funds) in Poland. The financing totals EUR 44 million and is expected to trigger EUR 707

million in investments.

ESI Funds helped progress on a number of structural reforms in 2015 and 2016 via ex-ante

conditionalities (

) and targeted investment. Examples include the transposition of the public procurement

directive, preparation of the maps of healthcare needs which has laid down the basis for improved efficiency

of healthcare investments and the development of the transport plan which has facilitated the development

of mature road and railway projects. These reforms have prepared the ground for better implementation of

public investment projects in general, including those financed from national sources and from the other EU

instruments mentioned above. The fulfilment of ex-ante conditionalities is on track, except in the areas of

waste and water. Administrative reforms support is also available through targeted financing under the

European Social Fund, advice from the Structural Reform Support Service and, indirectly, through technical

assistance.

The relevant CSRs focusing on structural issues were taken into account when designing the 2014-2020

programmes. These included improving the business environment for SMEs via improving investment

conditions and easing registering business (see section 3.6), reducing obstacles to railway investment by

improving the administrative and technical capacities in the sector, and improving labour market access and

promoting social inclusion. The latter is done by enhancing education and training to improve the

employability of vulnerable groups. Poland has also received support from the Youth Employment Initiative

to combat youth unemployment. To date 79 000 young people have benefited from it and 70 000 young

people are in employment, education or training after the support from this initiative has ended. Details on

implementation progress in those fields in chapter 3.3.

In addition to challenges identified in the past CSRs, ESI Funds address wider structural obstacles to growth

and competitiveness. The funds support infrastructure investments increasing the coverage of fast broadband

internet (target of 100 % of households in 2023); they will improve transport accessibility through almost 3

900 km of roads and 2 450 km of railway lines expected to be built, reconstructed or modernised; 36 500

enterprises are foreseen to carry out investments using financial instruments created through ESI Funds. ESI

Funds are expected to generate 25 % of investments to reach the 2020 target of R&D expenditure increasing

to 1.7 % of GDP, to

increase the participation of children aged 3-4 in pre-school education (target

of 81 % in 2020) and to increase adult participation in lifelong learning.

(

) National public investment is defined as gross capital formation + investment grants + national expenditure on

agriculture and fisheries.

(

) Before programmes are adopted, Member States are required to comply with a number of ex-ante conditionalities,

which aim at improving framework and conditions for the majority of public investments areas. For Members States

that did not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the

temporary suspension of all or part of interim payments.

kom (2017) 0090 - Ingen titel

REFORM PRIORITIES

3.1. PUBLIC FINANCES AND TAXATION

Tax system

The Polish tax system underwent many changes

in 2016.

Two new sectoral taxes, on assets of

certain financial institutions and on retail sales,

were introduced with the aim of increasing budget

revenues. The application of the higher VAT rates

(previously legislated to expire at end-2016) has

been extended for 2017-2018 to limit the fiscal

deficit. The tax on assets of certain financial

institutions entered into force in February 2016

and is levied on assets of mainly banks and

insurance companies whose assets value exceeds a

certain threshold. The tax on retail sales was

suspended before it was actually levied (see

below). Simultaneously, Poland implemented and

legislated several changes to the value added tax

(VAT) and corporate income tax (CIT). They

aimed at reducing tax fraud and at improving tax

collection. Additionally, Poland reduced to 15%

from 19% CIT rates for the smallest taxpayers and

the taxpayers in the first year of their activity.

Finally, tax free allowance in personal income tax

(PIT) was amended and works to reform PIT and

social contributions were launched.

The high number and rapid pace of these

changes may lead to increased uncertainty for

businesses.

Some business stakeholders point to

increased uncertainty about the stability and

credibility of the Polish tax system, given that

changes are often introduced quickly and without

broad consultations (see Section 3.6). Data from

the National Bank of Poland show that since 2015

in enterprises' assessment, taxes and regulations

have advanced from fifth to second place on the

list of barriers to their development (NBP, 2015;

NBP, 2016a). At the same time, according to the

Global Competitiveness Report 2016-17, tax

regulations were the most problematic factor for

doing business in Poland in 2015 and 2016 (World

Economic Forum, 2016). The number of changes

introduced to the tax laws (including VAT, CIT,

excise duties and others) and the pace of their

implementation are the most likely reasons for the

increased uncertainty and are ultimately likely to

indirectly influence also the propensity to invest.

They may also impact on the quality of the

corresponding laws and of their effective outcome.

For example, in the case of the retail sales tax, the

legislative process from its submission to the

parliament to its signing into law by the President

lasted 1.5 months. However, the tax featured a

progressive rate structure based on turnover with a

tax-free threshold and two different brackets and

rates. Therefore it might breach the EU

competition rules as it favoured companies with

low turnover. Consequently, the European

Commission opened an in-depth investigation and

Poland suspended the tax before it was actually

levied.

Foregone revenues resulted from the continued

application of reduced VAT rates on an

extensive number of goods and services.

Reduced VAT rates limit the efficiency of the

VAT system and, as pointed out in the 2016

Commission Country Report for Poland, are not an

efficient social policy instrument. According to an

EU wide study, in Poland 15.9% of potential VAT

revenue was foregone in 2014 due to an

application of reduced rates (CASE/IAS, 2016).

This was the second highest loss in the EU, three

times higher than the EU average. Nonetheless,

despite

the

repeated

country

specific

recommendations in this area, at the current stage

Poland has announced no intention to change the

system of reduced VAT rates.

Fighting tax fraud remains a challenge.

The

VAT gap results from a combination of many

factors that require a systemic response. Part is due

to organised criminal activity and part to

undeclared revenues, overstatement of VAT

invoices, tax optimisation, bankruptcies and errors.

There was a very slight decrease of the VAT

compliance gap in 2014 compared to 2013.

However, the 2014 VAT compliance gap of 24 %

of the theoretical VAT liability remained

significantly above the EU average of 14 % (Graph

3.1.1). Authorities' own estimations do not suggest

a decrease of the VAT gap in 2015. However, the

authorities expect a significant decrease of the

VAT gap as from 2016, due to the introduction of

a number of measures focused on fighting VAT

kom (2017) 0090 - Ingen titel

3.1. Public finances and taxation

fraud (

). Poland also faces significant fraud

related to excise products. Ernst and Young

estimated the size of the shadow economy at

18.6 % of the total use of gas oil in 2013 and 24 %

of tobacco consumption in 2015 (EY, 2016).

CASE/IAS (2016) assessed that the smuggling of

excise goods accounted for 6 % of the VAT gap in

2014.

Graph 3.1.1:

VAT gap in Poland and in EU-27

introduction of fines in cases of lowering the

payment of VAT. To fight excise duties and VAT

fraud, additional reforms are being prepared: a so-

called alcohol package focusing on trade in

denatured alcohol as well as a so-called tobacco

package. Criminal sanctions are expected to be

introduced for VAT fraud and the relevant draft

law is at final stages of the legislative process.

Simultaneously, the implementation in 2016 of a

general tax anti-avoidance rule aims at limiting tax

avoidance.

Recent reforms may increase tax compliance

costs.

Poland has made strong efforts to strengthen

its legal framework to curb tax evasion and

avoidance. However, patterns of tax fraud are

constantly changing as fraudsters adapt to new

rules, exploit loopholes and move to new sectors.

Stricter rules and numerous changes to legislation

can disproportionately affect compliant and

smaller businesses. This is particularly important

in the context where Polish businesses already face

high costs of compliance with their tax obligations

(World

Bank,

2016a).

Simplifying

and

strengthening voluntary compliance, also by means

of a more efficient and customer-oriented

administration, is an important element to

complement actions on tackling tax fraud. In late

2016, the authorities presented a number of

proposals under the Strategy for Responsible

Development with a number of tax simplification

measures and an exemption from social security

contributions for new entrepreneurs.

Work is ongoing in the area of tax

administration reform to increase flexibility

and efficiency.

The European Commission

assessment highlighted structural weaknesses in

the Polish tax administration which limited its

efficiency and effectiveness (for instance European

Commission, 2016a). To tackle this issue,

regulations establishing the National Revenue

Administration were passed in late 2016. They will

enter into force in March 2017. The objective of

the changes is to improve tax collection and

simplify tax obligations for taxpayers via

consolidation of tax and customs administrations.

The law implies a profound change to the

functioning of the tax administration and requires

careful transition to avoid uncertainty and

instability. It is crucial for the modernisation of the

Polish tax administration to i) ensure that

authorities' actions are coordinated and ii) focus on

2010

2011

2012

EU-27

Poland

2013

2014

(1) percent of theoretical VAT liability

(2) EU-27 excl. Cyprus, data for Croatia available only for

2014

Source:

CASE/IAS (2016)

A number of reforms aimed at tightening the

tax system with a view to tackling tax fraud

were undertaken in 2016.

Amendments to several

laws, called the "fuel package", which entered into

force in August 2016, changed the rules on VAT

chargeability for intra-EU acquisitions of fuels and

is supposed to fight tax fraud in the fuel sector. It

was accompanied by changes in the energy law

regarding fuel licences. It is expected to be

complemented by a so-called transit package

which has been approved by the government in

early 2017. This package would require the

registration of excise products transiting through

Polish territory. Furthermore, many changes to

VAT legislation entered into force as from 1

January 2017. They include a number of tools to

tackle VAT fraud, for instance an extension of the

reverse charge mechanism, the extension of joint

liability, limitation of quarterly VAT returns and

(

) PwC in its recent analysis (PwC, 2016) expects the 2016

VAT gap in Poland to decrease to 2.5% of GDP, as

compared to 2.8% of GDP in 2015.

kom (2017) 0090 - Ingen titel

3.1. Public finances and taxation

fraudsters while facilitating tax compliance for

honest taxpayers.

Labour taxation remained broadly unchanged

in 2016.

The degree of progressivity of labour

taxation in Poland is limited (European

Commission, 2016b). Poland was considering a

major reform of its labour taxation that would have

seen an introduction of a single progressive tax

combining

personal

income

tax,

social

contributions and health insurance premium.

Ultimately, the government decided not to

implement the reform. In parallel, a reform of the

tax-free allowance in PIT was voted on in late

2016 and entered into force in 2017. It followed

the 2015 judgement of the Constitutional Tribunal.

The reform increased the tax-free allowance for

the lowest income earners (with annual earnings

equivalent to below 50 % of the minimum wage).

For the small group of taxpayers with the highest

revenue, the allowance was removed.

Long-term sustainability

country report for Poland, the key challenge for

improving fiscal sustainability is to contain the

projected increases of age-related expenditure.

This issue has gained further importance with the

recent law to lower the statutory retirement age as

from late 2017. This change (lowering the legal

retirement age to 60 years for women and 65 years

for men from a gradual increase to 67 years for

both sexes) will increase age-related expenditure

and have negative consequences for the labour

market (see Section 3.3). The direct impact of the

bill will require additional fiscal means for

supporting the pension system equivalent to

around 0.4 % – 0.9 % of GDP per year up to 2050.

Hence, unless effective measures are taken to

encourage people to extend their careers above the

statutory retirement age, the recent change will

worsen the sustainability of public finances. The

law lowering the statutory retirement age did not

include any measures going in this direction.

Graph 3.1.2:

Medium-term public debt scenarios

% of GDP

No major risks to fiscal sustainability have been

identified in the short term; risks are more

pronounced over a longer-term perspective.

According to the recent Commission analysis,

Poland does not face significant short-term fiscal

sustainability risks (European Commission, 2017).

However, the debt sustainability analysis in line

with the Commission framework indicates high

risks over the medium term. This reflects the still

increasing debt ratio at the end of the projections

under the various scenarios considered (Graph

3.1.2). The S1 sustainability gap indicator points to

medium risks, reflecting mainly the unfavourable

initial budget position but also age-related

expenditure. Long-term fiscal sustainability risks

are also identified, according to the Commission

framework (the S2 sustainability gap indicator

points to medium risks, also driven by the

unfavourable initial budgetary position and age-

related expenditure (

)).

The lowering of the statutory retirement age

will have a negative impact on the sustainability

of public finances.

As discussed in the 2016

(

) Based on European Commission projections which do not

take into account the lowering of the statutory retirement

age entering into force in 2017 (European Commission,

2015).

Standardized (permanent) negative shock (-1p.p.) to the short- and long-

term interest rates on newly issued and rolled over debt

Baseline no-policy change scenario

Standardized (permanent) positive shock (+1p.p.) to the short- and long-

term interest rates on newly issued and rolled over debt

(1) The no-policy change scenario assumes that during 2019-

2027 the level of the structural primary balance remains at

the level forecast for 2018 in the Commission winter 2017

forecast adjusted by the costs of ageing that are taken from

European Commission (2015). For more details see European

Commission (2017).

Source:

European Commission

Fiscal sustainability risks are exacerbated by a

projected fall in pension adequacy ratios.

The

projected pension replacement rate in the long run

is very low. The amount of the projected pension

in 2050 does not exceed one fourth of a person's

last salary (see Section 3.3). Transposing these

assumptions into today's framework, suggests that

the pension benefit of those earning the average

salary (around PLN 4,600 gross in December

2016) would be close to the minimum pension of

kom (2017) 0090 - Ingen titel

3.1. Public finances and taxation

PLN 1,000. Simultaneously, according to the latest

official data (GUS, 2016), 66 % of employees

earned salaries lower or equal to the national

average (

). This suggests that the government

may have to support the pension system for about

half of beneficiaries in order to avoid their pension

benefits falling below the minimum level. This

would result in additional fiscal costs. Moreover, it

cannot be ruled out that such a low replacement

rate may be perceived as unsustainable – requiring

either the statutory retirement age to be increased

sharply or the pension system to be supported by

significant additional fiscal means.

No material changes were made to special

pension regimes in 2016.

The special pension

regime for farmers (KRUS) continues to benefit

compared to the general pension regime (ZUS).

This not only constitutes a fiscal burden (currently,

the KRUS subsidy amounts to around 1 % of

GDP), but may also hamper labour mobility (see

Section 3.3). Similarly, Poland has not yet tackled

the issue of the special pension regime for miners.

Fiscal framework

The credibility of fiscal rules has been affected

by their frequent past changes.

The most recent

modification of the expenditure rule (December

2015) adjusted the expenditure ceiling to the

medium-term inflation target of the central bank

and allowed for increased expenditure in the event

of one-off and temporary revenue measures. These

changes significantly raised the expenditure ceiling

given current inflation levels. This created

additional space for higher expenditure in the 2016

budget, as also underlined by the National Bank of

Poland (NBP, 2016b).

The Polish fiscal framework lacks a fully-

fledged, independent fiscal council.

Currently

Poland remains the only EU country (

) that has

not adopted a legal basis establishing a dedicated

fiscal council or assigned such a role to an existing

body. Some of the typical tasks of fiscal councils

are being carried out by various institutions, but

they are scattered and some are not covered. As a

result, amendments to the fiscal framework or

fiscal implications of important policy measures go

largely unnoticed even though they have

significant consequences for public finances (

In 2016, Poland announced plans to strengthen

its budgetary process.

These plans aim at

improving medium-term budgetary planning by

reforming the medium-term budgetary framework,

more closely linking annual budgeting to medium-

term planning, redefining the role of the

government and ministries, reforming the budget

classification of expenditure and incorporating

spending reviews in the budgetary process. Given

the current situation in which an effective and

efficient management and reallocation of funds

poses challenges, the reform has a potential to

substantially improve public finance management.

In particular, it may allow a better control of the

budget, including an earlier identification of

inefficient spending and facilitating the

reallocation of funds.

(

) In the Czech Republic the parliament works on the relevant

legislation.

( ) This is even more important in the context of the limited

parliamentary and public debate on the key fiscal measures,

as illustrated by the process of adopting the 2017 budget

law and the law lowering the statutory retirement age.

Numerical fiscal rules are robust, while the

medium-term planning plays a limited role.

Fiscal rules (debt and expenditure rules for almost

the entire general government as well as individual

spending limits for local governments) are the

strongest part of the fiscal framework in Poland.

One of the fiscal rules – limiting government debt

to 60 % of GDP – is embedded in the Constitution

which ensures its stability (

). The rule is

supplemented by so called prudential thresholds

specified in the Public Finance Act, defining

specific actions to be undertaken when the public

debt exceeds the thresholds of 55 % of GDP and

60 % of GDP. There exists also a medium-term

budgetary framework (called the Multiannual State

Financial Plan, MSFP). However its effectiveness

as an instrument for long-term planning is limited,

for example the budget for a given year can

include a deficit higher than the one specified in

the most recent MSFP.

(

) Data covering companies with more than nine employees,

with microenterprises generally paying lower salaries.

(

) National definition, lower by around 3pps than ESA

definition.

kom (2017) 0090 - Ingen titel

3.2. FINANCIAL SECTOR

The banking sector remains stable, liquid and

profitable.

Over the past 18 months, system wide

capital continued to rise. The regulatory Core

Equity Tier 1 capital – a ratio that shows banks'

readiness to face shocks – reached 15.8 % at the

end of the first half of 2016, up by over 2

percentage points from end-2014. The loan-to-

deposit ratio of Polish banks continued to decline

and stood at 98.5 % at the end of June 2016

(3.2.1). Polish banks are funded mostly through

domestic deposits and benefit from a balanced

funding mix of retail and corporate deposits, which

made up over 58 % of the balance sheet total.

Longer-term wholesale funding reliance through

senior and subordinated bonds is low, at about 5 %

of the banks' aggregated balance sheet. The

profitability of the sector declined in 2015 but

broadly stabilised thereafter. Looking forward,

challenges to profitability include low interest rates

environment, the possible revision of the bank tax

and a proposal to deal with foreign currency

mortgages (currently under discussion).

The new tax on financial institutions has not

affected sector stability.

The asset tax on

financial institutions was introduced in February

2016 and is one of the highest bank sector levies in

Europe. To date, the tax is calculated on the basis

of an end-month value of taxable assets, which, in

the case of banks, excludes own funds and Polish

sovereign bond holdings. Although receipts from

the tax are not meeting budgeted revenue, the

feared economic and financial stability effects of

the levy are so far limited. Nevertheless, at the turn

of 2015 and 2016 banks have substantially

increased their holdings of Polish sovereign bonds,

a by-product of the bank levy. As a result, local

lenders have overtaken foreign investors as the

biggest holders of PLN denominated bonds, for the

first time since 2010.

The ongoing discussion on foreign currency

mortgages is nearing a conclusion.

Foreign

currency mortgages do not generate systemic risks

for the banking sector in Poland. At system level,

these loans represent about 8 % of the aggregated

balance sheet and account for less than 40 % of the

mortgage loan book. However, some banks still

have a sizeable mortgage loan book denominated

in foreign currency, which has dual consequences.

On the one hand, some banks are exposed to

valuation and compensation losses should their

loan book be converted into the domestic currency,

either through legislation or court judgement. On

the other hand, a sizeable foreign currency-

denominated position forces lenders to rely either

on a foreign parent bank, foreign currency bonds

or the derivative market for funding. The absence

of foreign currency deposit funding is apparent

from the loan-to-deposit ratio in foreign currency,

which reached a level of 250 % at the end of June

2016, more than twice the same ratio for the

domestic currency.

Table 3.2.1:

Financial soundness indicators, all banks in

Poland

2014

5.4

64.1

98.3

13.7

9.4

1.0

2015

5.0

61.6

97.2

14.5

7.7

0.9

2016Q2

5.0

62.0

96.8

15.1

(%)

Non-performing loans

Coverage ratio

Loan to deposit ratio

Tier 1 ratio

Return on equity

Return on assets

Source:

ECB

Ownership changes see an increasing role of the

State in the shareholding of domestic banks.

in all four Visegrad countries, the development of

the Polish economy over the past two decades was

based on attracting foreign direct investment (FDI)

to support economic growth and the development

of various industries. Foreign investors brought

capital, increased access to funds and financial

intermediation in an economy that is still catching

up with the core EU economies. In Poland, the

ratio of foreign-owned banks amounted to about

65 % between 1998 and 2008. After the outbreak

of the crisis in 2008, this share gradually decreased

and reached 49 % in 2016, taking into account the

acquisition of Pekao SA shares by PZU SA. On the

one hand, this trend is a natural result of the

growing importance of domestic enterprises

increasingly able to compete on international

markets. On the other hand, the government has

signalled its readiness to purchase foreign-owned

credit institutions. As a result a growing proportion

of lenders is controlled by the Polish State. With

the acquisition of Pekao SA by PZU SA, the share

of direct and indirect state-controlled banks has

increased to 36 % of the sector's total assets. In

addition, the two largest banks will be under direct

or indirect state control. It remains to be seen how

the state ownership will influence the sector (see

Box 1.1 in Section 1).

Credit institutions support the country's

economic performance through balanced loan

kom (2017) 0090 - Ingen titel

3.2. Financial sector

growth.

The pace of loan growth to the private

sector has been broadly in line with nominal GDP

growth. The increase in loans to non-financial

corporations has decelerated during 2016 possibly

reflecting investment slowdown (see Graph 3.2.1

and Section 1). The ratio of non-financial

corporation loans to GDP remained stable at about

51 %. Many firms finance working capital needs

and smaller operations either through own funds or

the use of some alternative means of funding

business (intercompany loans, leasing, factoring).

Poland’s capital market is the largest and most

developed in central Europe.

Total market

capitalisation amounts to EUR 150 billion, about a

quarter of Poland's GDP. The Warsaw Stock

Exchange has become a hub for foreign

institutional investors targeting equity investments

in the region. In addition to the equity market,

Poland has a special wholesale market dedicated to

the trading of treasury bills and bonds – Treasury

BondSpot Poland. This treasury market is an

integral part of the Primary Dealers System

organised by the Finance Ministry and part of the

pan-European bond platform. All wholesale

treasury bonds and bills denominated in PLN and

some securities denominated in EUR are traded on

the Treasury BondSpot market, while most non-

government bonds, now worth about EUR 18

billion, are traded on Catalyst, a Warsaw Stock

Exchange managed platform.

The capital market is an important source of

funding for Polish companies.

Companies raise

slightly more funds on the stock market (17 % of

GDP) than they receive from bank loans (16 % of

GDP). The role of corporate bond issuance is also

relatively high compared to other countries in the

region, with the total value of outstanding bonds

corresponding to 5 % of GDP. Yet, Polish non-

financial corporations are in general less leveraged

than all companies on average in the EU. Also, the

venture capital market is lagging behind, with total

investment of this type reaching only one fifth of

the EU average level. Besides financial market

funding, the annual gross operating surplus of

Polish firms (26 % of GDP) is higher than on

average in the EU, suggesting that companies have

the capacity to finance investment from retained

profits.

Graph 3.2.1:

Annual credit growth rates

-2

(1) Index of notional stocks, only transactions are taken into

account, the results of revaluations, reclassifications are

excluded

Source:

ECB

Poland is a large insurance market in the

region.

With over EUR 13 billion in underwritten

premiums and close to EUR 1.3 billion in profits

the Polish insurance sector represents nearly 40 %

of the Central and Eastern European market. The

top five insurers represent about 58 % of the life

insurance market, dominated by the publically-

owned PZU Zycie SA. The concentration ratio of

the top five insurers in the non-life segment is

slightly higher at 70 %, with PZU SA occupying

34 % of the market. Competition in the market is

high and profitability levels are forecast to be low

in 2016-2017. The sector performed well in the

recent stress test carried by the European Insurance

and Occupational Pensions Authority and remains

stable and profitable.

Bank supervision and macro-supervision may

be merged.

Over the crisis years Poland's financial

supervision proved to be prudent and forward

looking, ensuring a stable banking sector (see

above). Discussions continue on some form of

merging financial supervision with the NBP. The

reasons given for this are synergies between the

micro-supervision of banks and macro-supervision

of the banking sector. A continuous, efficient and

independent supervision function is key, also in

light of the ongoing restructuring process in the

financial sector.

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

Jan-17

Loans private sector

Loans to households

Loans to NFC

kom (2017) 0090 - Ingen titel

3.3. LABOUR MARKET, EDUCATION AND SOCIAL POLICIES

Labour market

Labour market conditions have improved

significantly but labour force participation

remains low for some groups.

Following a

substantial and steady improvement over the last

decade the employment rate stood at 69.7 % in Q3-

2016 (for the 20-64 age group) slightly below the

EU average of 71.5 %. The gap is mainly due to

the significantly lower participation rates of

specific groups (see Section 1). As outlined in the

previous country report for Poland, the lower

labour market participation of older workers is

linked to low skills and educational attainment

levels (European Commission, 2016a). The

employment rate of disabled people has hardly

changed in recent years, further widening the gap

with the gradually increasing employment rate of

people without disabilities. Barriers to geographic

mobility also reduce employment and activity.

A gender gap in employment is related to early

retirement, limited access to care facilities, and

disincentives in the tax and benefit systems.

Female participation and employment rates

continued to rise in 2015 and 2016, and for the 55-

64 age group both increased faster than they did

for men. Still, the gender employment gap

widened and, at 14.5 pps. for the 15-74 age group

in Q3-2016, was 3.5 pps. above the EU average.

This was driven by women’s longer participation

in formal education and earlier retirement.

However, the gender gap also widened and was

particularly high in the 25-29 age group, a

situation that is likely to be linked to young

mothers’ prolonged periods of labour market

withdrawal. The low participation of women and

notably mothers may be related to insufficient use

of childcare (see education subsection) and a fully

transferable parental leave, which encourages

women, as second earners, to stay out of the labour

market. Another important factor is the design of

financial support for families that provide

long-term care to family members; in practice, it

discourages the taking up of any paid employment.

Migration plays an increasingly important role

in the Polish labour market.

Following

significant emigration, especially in the years after

EU accession, the number of Polish citizens

residing temporarily abroad remains high

(estimated at around 2.4 million at the end of 2015

(

)). There is little evidence of emigrants returning

in significant numbers. At the same time,

temporary immigration, mostly from Ukraine, and

to a lesser extent from Belarus and other countries,

is an increasingly important phenomenon (

The special pension regime for farmers has had

an impact on labour mobility and undeclared

work.

The special social insurance system for

farmers (KRUS) is among the reasons for low

labour mobility and hidden unemployment in

agriculture. Some KRUS design features, e.g. the

conditions of transitioning from KRUS to the

general pension system, discourages farmers

working on low-productivity farms to take up

registered employment in other sectors. Average

old-age and disability benefits from KRUS are

close to the poverty threshold and often constitute

the main source of income, especially for single

beneficiaries. This limits the anti-poverty function

of KRUS and explains the geographical

concentration of at-risk-of-poverty households in

rural areas. At the same time, no durable systemic

solutions are in place to exclude high-income

farmers from the scheme (European Commission,

2016a).

Several recent measures may further reduce

labour force participation.

Lowering the

statutory retirement age in late 2017 is expected to

lead to some older workers withdrawing from the

labour force. The new child benefit may have a

negative effect on the labour market participation

of parents, mostly women. This applies

particularly to the low-skilled because of two

factors: first, the means-testing applicable to the

benefit for the first child may make some

households choose to reduce working hours to

lower their labour income and, second, the

increase in household income may tilt some

parents’

preference

for

leisure

time.

Microsimulation modelling results suggest the

incentives to work can decrease the strongest for

parents of two or more children and single

(

) An indicative measure: the number of people who retained

their registration in Poland but reside abroad for more than

3 months.

(

) The majority of immigrants work on the basis of the so-

called simplified procedure, which requires them to return

to their country of origin after 6 months, making the exact

assessment of the number difficult. Indirectly, the number

of issued visas could be used as an indicator. In 2015,

925 000 visas type D with working permit were issued,

while 2016 saw another sharp increase in this number.

kom (2017) 0090 - Ingen titel

3.3. Labour market, education and social policies

mothers (

). Surveys on intentions to work also

confirm the risk of inactivity (Work Service,

2016). The government’s

ex-ante

impact

assessment of the programme did not address this.

From September 2016 the obligation for

five-year-olds to attend preschool was removed.

This could induce some parents to stay at home

with their children for one more year; in particular

in families with low incomes (see also European

Commission, 2016a).

A significant increase of the minimum wage

may reduce in-work poverty and have a small

negative effect on employment.

The minimum

wage increased by 8 % in nominal terms in

January 2017, up to PLN 2000 per month. For

recent graduates taking up their first job, the

increase was as high as 35 %. The minimum wage

rise was higher than what was originally proposed

by social partners. The ratio of minimum to

average wage is now at around 47-48 % and some

10-15 % of employees earn close to the minimum

wage. Its increase may have a small negative effect

on employment for vulnerable groups and could

trigger shifts to non-standard labour contracts

(Kaminska and Lewandowski, 2015). On the other

hand, it could contribute to poverty reduction, in

particular in-work poverty.

Job creation in 2015-2016 was driven by hiring

on permanent contracts, but the proportion of

temporary employment remains high.

At 27.3 %

in the third quarter of 2016 (for the age group 15-

64) Poland continues to have a very high

proportion of fixed-term employment (

). This is

particularly true for young people aged 15-24. A

significant proportion of all temporary workers

have civil law contracts, rather than usual labour

code contracts. As highlighted in the previous

country reports for Poland, high levels of labour

market segmentation can hamper productivity and

human capital accumulation (see European

Commission, 2016a). However, since early 2015

permanent employment has been rising strongly.

(

) Tax-benefit microsimulations conducted by the European

Commission Joint Research Centre using the Euromod

model. See also Myck (2016).

(

) The temporary employment category covers a broad range

of agreements, from fixed-term regular labour code

contracts, to various civil law contracts, to informal work

without a written contract.

Measures have been taken to reduce

segmentation, but the use of open-ended

contracts remains discouraged.

Obstacles to

wider use of permanent contracts include in

particular high implicit costs associated with

lengthy and uncertain dispute resolution

mechanisms, the special protection against

dismissal for certain categories of workers (

), the

heavy reinstatement obligations in case of unfair

dismissal and the lack of differentiation in

protection against dismissal in large and small

firms. Two codification committees, which include

representatives of the government, experts and

social partners, were set up to prepare new draft

individual and collective labour codes by early

2018(

Some features limit the overall high flexibility

of the labour market.

Non-EU nationals can be

employed on a temporary basis with very limited

formalities. The ease of arranging atypical work

contracts, i.e. other than open-ended contracts

based on the labour code, also contributes to

flexibility. On average, Poland also appears to

have not very strict employment protection

legislation (Box 2.2.1 in European Commission,

2016a). However, the use of part-time employment

arrangements is limited (only 6.9 % of all

employed in 2016-Q3, one-third of the EU

average). This limited flexibility in terms of

working time arrangements may be particularly

problematic for older workers or people with care

obligations (often women).

Education

Educational performance has remained strong

over recent years.

Poland is one of the best EU

performers on reducing the number of early school

leavers at 5.3 % in 2015, compared to the EU

average of 11 %. Overall performance in basic

skills remains strong in comparison to other EU

countries (OECD, 2016b). Following a substantial

improvement in average results of the Programme

for International Student Assessment (PISA)

between 2000 and 2002 and then again between

(

) Including older workers with less than four years until

retirement age, but also e.g. workers during their absence

(leave or sick leave, pregnancy and maternity/paternity

leave), trade union activists and other particular categories.

(

) In addition, the Social Dialogue Council has been operating

since October 2015 and can create an opportunity for social

partners to play a bigger role in shaping the labour code.

kom (2017) 0090 - Ingen titel

3.3. Labour market, education and social policies

2009 and 2012, in 2015 the performance of Poland

in PISA worsened somewhat in all fields, and

especially in science. However, the country still

scored above both the EU and OECD averages in

all areas tested. The impact of socioeconomic

status on performance was rather limited and has

continued to fall since 2006 (OECD, 2016b).

The school system overhaul from September

2017 onwards raises a number of concerns

among stakeholders.

The key change phases out

lower secondary schools, practically returning to

the pre-1999 structure. This policy change has

raised concerns among many stakeholders,

including teachers, local governments, and

educational researchers. Two main risks have been

indicated. First, earlier tracking into either the

general or the vocational stream could negatively

affect the basic literacy and numeracy skills of the

most disadvantages students (IBE, 2014).

Evidence suggests that extending common general

education in 1999 played a role in improving the

performance of the weakest students in the PISA

survey between 2000 and 2012 (Sitek, 2016;

Jakubowski et al. 2016). Second, significant

changes in the organisation of the schools are

likely to have disruptive and long-lasting effects

on the organisation of education provision. In

particular, a strong variation in the size of school

cohorts is projected, especially at the upper

secondary level (Graph 3.3.1). There is also a risk

of suboptimal use of certain past investments in

lower-secondary schools. Changing the school

system does not appear to address the underlying

weaknesses of Poland’s education system and its

rationale does not seem to be based on

recommendations stemming from existing research

and comprehensive evaluation.

Participation in early childhood education and

care has increased but challenges remain in

quality and inequalities of access.

Since 2008,

the number of pre-schools has increased by around

40 %. At present, all four- and five-year-olds are

entitled to a preschool place and from September

2017 this right will also be extended to three-year-

olds. Abolishing the preschool obligation for five-

year-olds may weaken the educational chances of

children from socially disadvantaged backgrounds.

Formal childcare enrolment for children under the

age of three remained among the lowest in the EU.

Graph 3.3.1:

Projected size of student cohort starting the 1st

grade of general upper secondary schools

400

thousand

350

300

250

200

150

100

2016 2017 2018 2019 2020 2021 2022 2023 2024

(1) Simulations based on the assumption that the share of

students choosing this type of school (liceum) remains at the

average level observed during the period 2015-2016.

Source:

European Commission's calculations based on

Education Information System (SIO) data

The government has launched consultations on

the higher education reform to improve quality

and labour market relevance.

The tertiary

education attainment rate has increased rapidly

over the last 15 years. In 2015, it stood at 43 % in

the 30-34 age group, above the EU average of

39 %. A new algorithm for financing higher

education institutions will be implemented from

the academic year 2017/2018, with an aim to

strengthen the incentives for teaching quality.

Wide-ranging consultations on the planned broader

reforms have started including with academics and

researchers (see Section 3.5). The new law on

higher education is expected to enter into force in

the 2018/2019 academic year.

The average level of older adults’ basic skills is

low, hampering their employability.

In the

OECD Survey of Adult Skills (PIAAC), scores

testing the numeracy of Polish adults were on

average lower than for their OECD peers (OECD

2016c). In terms of basic digital skills, Poland

ranks only 26

among EU-28 Member States,

though slightly better for advanced digital

skills (European Commission, 2016c). Various

employers' surveys indicate increasing difficulty to

fill in vacancies (e.g. Manpower, 2016; NBP,

2016a). Migration also affects skill distribution in

the labour force, given that Polish emigrants are on

kom (2017) 0090 - Ingen titel

3.3. Labour market, education and social policies

average better educated than the rest of the

population. At the same time, many immigrants to

Poland work below their qualifications.

Adults rarely engage in job relevant learning

and every third adult does not see the need for

further education or training.

In 2015, only

3.5 % of those aged 25-64 reported participation in

education and training in a month before the

survey, down from 4 % in 2014. The percentage of

adults (aged 25-59/64) who in 2014 reported

having learned to improve their competences in the

previous 12 months was at 31 %, only minimally

increased from 2012 (PARP, 2016). Participation

is lowest among people who could benefit the

most, i.e. those with basic levels of education,

those aged over 50 and those who are inactive. The

results of the recent initiatives such as the National

Qualifications Register and the Database of

Development Services remain to be seen.

The labour market relevance of vocational

education is still limited.

Vocational education

and training (VET) often does not provide students

with basic skills and key competencies. The OECD

PIAAC survey revealed that graduates of basic

vocational schools have insufficient literacy and

numeracy skills. At the same time, the results for

technical secondary schools are considerably better

than for basic vocational schools. Employment

rates of recent vocational school graduates were

still slightly below the EU average in 2015. Local

governments are often unsuccessful in putting in

place strategies linking VET with sectors of

strategic importance for regional development

(Brandt, 2016). The organisation of vocational

schools will change as part of the overhaul of the

school system in September 2017. The potential of

this change to address shortcomings of the VET

system remains unknown.

Poverty and social assistance

poverty is concentrated on those with fixed-term

employment contracts.

Social benefits provide little incentives to take

up work.

The social protection system, due to its

limited resources, used to have little impact on

poverty reduction (European Commission, 2016a).

It also did not sufficiently promote social

integration through take-up of economic activity,

although the extension of child tax credits in 2015

and the tapered withdrawal of family benefits from

January 2016 (‘zloty for the zloty’ rule) improved

the situation to some extent. Still, the system

provides few incentives to take up work, especially

for second earners (Kurowska et al, 2015).

The universal child benefit programme is

expected to reduce poverty and inequality but

raises questions in terms of cost-effectiveness.

is estimated that the benefit could reduce

inequality as measured by the Gini coefficient by

0.02 and the at-risk-of-poverty rate by 5.2

percentage points. In particular, the reform is

expected to considerably reduce poverty among

households with three or more children and among

single parents (

). The cost of the programme is

substantial, at around 1.2 % of GDP in 2017. Its

size and limited means-testing leads to overlaps

with other social benefits offsetting limited work

incentives built into these programmes, and raises

questions of cost-effectiveness. The government

has announced an impact assessment of the

programme in 2017.

Pensions currently provide an adequate

protection against poverty, but the change in

statutory retirement age will further cut future

benefit levels.

The relationship between pensions

and average wages was projected to fall steeply

even if the statutory retirement age was increased

to 67 years (Graph 3.3.2). The legislated reversal

of the retirement age increase will further erode

future pensions. Women would be most affected if

they choose to retire close to the new retirement

age of 60, which seems likely in light of

international evidence. For women retiring from

2040 onwards, the statutory retirement age will be

reduced by seven years compared to the current

situation. This will have major implications on

(

) The analysis is based on the tax-benefit microsimulations

conducted by the European Commission Joint Research

Centre using the Euromod model.

Poverty is declining fast but making work pay

remains a challenge in Poland.

The rate of

people at risk of poverty or social exclusion has

decreased significantly in recent years. At 23.4 %

in 2015 it was slightly below the EU average of

23.7 %. At the same time in-work poverty for

those above 18 stayed at 11.2 % in 2015 (1.7 pps.

above the EU average). This is true mostly for self-

employed people and in the agriculture sector.

Among employees, the incidence of in-work

kom (2017) 0090 - Ingen titel

3.3. Labour market, education and social policies

pension levels given that retiring just two years

below 67 is projected to result in pensions that are

lower by around 10 % (

). A significant

proportion of women would then receive only a

minimum pension that - depending on its

indexation over the years - is likely to fall below

the poverty threshold. The government announced

also plan to introduce auto-enrolment into

occupational pension schemes.

Graph 3.3.2:

Projected pension replacement rates – the

impact of lowering of the retirement age

Healthcare

2010

2020

2030

2040

2050

2060

statutory retirement age gradually increasing to 67

Health outcomes stand below the EU average

with a potential impact on labour market

participation and poverty.

Life expectancy for

men and women and healthy life years for men are

below the EU average while infant mortality and

both amenable and preventable mortality are above

the EU average. Poland faces challenges to further

improving the cost-effectiveness of healthcare

spending. These challenges include strengthening

primary care, further development of co-ordinated

care, curbing the excessive use of specialist care,

improving cost-efficiency within the over-supplied

hospital care, improving governance including by

developing health-technology assessment for

medical equipment, and developing more

comprehensive public health policies (European

Commission/Economic Policy Committee, 2016).

Access to healthcare services remains an issue.

The system is characterised by low public

spending and few medical staff. In 2015, 7.8 % of

the population self-reported unmet healthcare

needs due to cost and distance, compared to the

EU average of 3.6 %. The authorities are trying to

improve access, for example by fast-track waiting

lists for cancer patients introduced in 2015 (

Staff shortages are particularly perceptible in some

regions and for some specialisations, hence

regional and sub-sectoral differences in care

availability are significant. The Ministry of Health

intends to increase public health expenditure up to

6 % of GDP by 2025.

Efforts are being made to tackle some existing

challenges.

The Ministry of Health has started a

mapping exercise of healthcare needs with an aim

to improve the efficiency of resource allocation.

Other plans such as the liquidation of the National

Health Fund, if implemented, could facilitate

governance but could lead to conflicts of interest

between different roles (regulator, payer and

provider) fulfilled by the same institution. It

remains to be seen whether changes in hospital

financing rules do not slow down the process of

hospital restructuring, impeding the needed

consolidation of the sector.

(

) Diagnostics and treatment within specified times is now

guaranteed, with no financing limits. Healthcare providers,

who ensure the timeliness and comprehensiveness of

healthcare services, face no financing ceilings.

reform reversal - return to 60/65 retirement age

(1) The replacement rate is a ratio between a first pension of

those retiring and an economy-wide average wage at the

retirement age.

Source:

Based on AWG (2013).

The system of long-term care has a number of

weaknesses.

Long-term care is predominantly

provided by family members who receive limited

institutional support and who are effectively

discouraged from reconciling employment and

care responsibilities. Formal care provision is very

low, reaching only 4.6 % of the dependent

population for home care and 3.4 % for residential

care. At 0.8 % of GDP, funding for formal care is

half the EU average (1.6 %). There is no efficient

integration between healthcare and social care

systems with regard to long-term care. With an

old-age dependency ratio expected to double from

22 % in 2015 to 45 % in 2045, long-care needs are

bound to increase substantially and securing

sufficient institutional support will be a challenge.

( ) Calculations based on scenarios developed in European

Commission and Social Protection Committee (2015).

kom (2017) 0090 - Ingen titel

3.4. INVESTMENT

In 2016, the investment-to-GDP ratio fell below

the EU average.

This was driven by a significant

contraction of public investment activity (see

Section 1). However, private investment-to-GDP

ratio also declined in 2016, widening the gap to the

EU average. The outlook for only a gradual

investment recovery (see Section 1) implies a

projected widening of this gap (Graph 3.4.1).

Graph 3.4.1:

Public and private investment, 2006-2018

private investment activity appears to be related to

increased uncertainty (see Section 1), but this

factor could be transitory. Finally, there are several

structural barriers to investment (see Box 3.4.1).

Graph 3.4.2:

Investment by components as a % of GDP,

2006-2016

% of GDP

forecast

2006

2008

2010

2012

2014

2016

PL dwellings

PL other construction

PL equipment

PL other

EU28 dwellings

EU28 other construction

EU28 equipment

EU28 other

Source:

European Commission

PL public investment

EU28 public investment

PL private investment

EU28 private investment

Source:

European Commission

Several factors can explain the relatively low

private investment-to-GDP ratio.

In terms of the

composition of investment expenditure, Poland

differs markedly from the EU average (Graph

3.4.2). Housing investment is significantly lower

than the EU average, possibly reflecting different

preferences concerning current consumption

versus housing investment and existing barriers to

the development of the private rental market. In

addition, as compared with other EU countries,

low labour costs encourage a predominantly

labour-intensive development model for the

business sector, limiting investment. However, this

factor seems to be more than compensated by the

still low capital stock in Poland compared with the

EU average, which encourages investment.

Equipment investment is well above the EU

average reflecting the high share of industry in

gross value added and on-going technological

catching-up. Investment in intangible assets

(software, intellectual property rights and R&D) is

particularly low in comparison to the EU average

and to some other Member States that are in the

catching-up process (Graph 3.4.3). A recent fall in

Key determinants of future investment are

identified in the government's responsible

development strategy.

The government has

outlined its objective to raise the investment rate to

above 25 % of GDP by 2030, yet its sources

remain to be determined. The key enabling factors

include improving the investment climate, also for

foreign investors, a stable macroeconomic and

regulatory environment, high-quality corporate

governance, including in state-owned enterprises.

The government also explicitly acknowledges the

important role of the capital market. However, as

highlighted in various parts of this report Poland

faces significant challenges in many of these areas

and some policy measures taken in 2016 may

worsen the investment climate. These include the

threat to the rule of law (see Section 3.6),

instability of the regulatory environment, e.g. for

the renewable energy sector (see Section 3.5), risks

from fiscal sustainability and the governance of

SOEs (see Section 1).

Local governments play an important role in

public investment and their capacity matters

for effectiveness and efficiency of spending.

Around half of gross fixed capital formation by the

public

sector

undertaken

local

kom (2017) 0090 - Ingen titel

3.4. Investment

governments (

) and investment expenditure stood

at around 20 % of their total expenditure in the five

years preceding 2016. In terms of share of GDP,

Polish local governments manage much higher

funds than the EU average (Graph 3.4.4). They

carry out large, infrastructure projects, which

requires relevant coordination, processing and

oversight.

Hence,

local

governments'

administrative, operational and management

capacity largely determines efficiency and value

added by investment projects.

Graph 3.4.3:

Gross investment in intangible assets as a %

share of total investment (2013-2015 average)

much more private investment and focus on

smart specialisation strategies.

This change of

approach is expected to strengthen impact on

productivity growth and innovation in the

economy. It is expected that support will reach

nearly one third of Polish SMEs (excluding micro-

firms), cumulatively responsible for the creation of

one third of added-value and jobs in the Polish

economy. Poland started inducing further

investment through a complementary use of the

ESIF and the European Fund for Strategic

Investments (EFSI). The capacity of authorities, in

particular at regional level, to identify more value-

added projects and to embrace higher risks will be

important for this to maximise possible positive

effects. Generally, the administrative capacity of

managers handling infrastructure projects will be

critical to their successful implementation.

Graph 3.4.4:

Local government investment

3.5

% of GDP

2.5

EU*

1.5

0.5

(1) EU* is a simple average for 21 countries for which data

are available. For some countries a shorter period is taken

for calculations

Source:

European Commission calculations

Structural funds strongly affect overall

investment performance.

Poland has fully used

the available funding for 2007-2013. At EUR 68

billion, EU transfers to Poland were among the

largest in Europe as a share of GDP (22 % of 2007

GDP). These funds significantly accelerated the

convergence processes by stimulating domestic

demand, boosting technological absorption and

improving connectivity. It is estimated that, in

2015, investment supported by Cohesion Policy

have increased the GDP level by around 4.3 %

compared to the counterfactual scenario of the

absence of the funding (Altus Consortium, 2016).

The 2014-2020 European Structural and

Investment Funds (ESIF) envisage mobilising

(

) In recent years, this ratio fluctuated between 45 % and

52 %.

European Union (28 countries)

Poland

Source:

European Commission (Eurostat)

The preparations for launching projects in the

2014-20 programming period are progressing

quickly.

By the end of January 2017 the value of

contracts signed amounted to EUR 18.8 billion

(EU share) representing about 22 % of the total

ESIF allocation for Poland. Poland’s Action Plan

for increasing effectiveness of EU funds envisages

higher volumes of certification in the coming

years. This creates the basis for future growth of

investment (see Section 1).

kom (2017) 0090 - Ingen titel

3.4. Investment

Box 3.4.1:

Macroeconomic perspective

Investment challenges and reforms in Poland

The length of investment cycles in Poland appears to have shortened in recent years. After falling in 2012-

2013, investment activity rebounded strongly in 2014-2015 before falling again in 2016. These swings were

driven by a combination of factors, including changing overall macroeconomic conditions and outlook, a

changing perception of uncertainty and risks, and peaks and troughs of using EU structural funds. A

recovery in investment is expected from 2017 onwards, but its pace remains uncertain. Public investment is

expected to rebound more strongly as the calendar of the EU funds programming perspective puts pressure

on Poland to accelerate spending. In contrast, the rebound of private investment will hinge on the

development of expectations concerning macroeconomic stability and the policy and regulatory

environment. For more information on the investment trends in Poland, please see Section 3.4.

Assessment of barriers to investment and ongoing reforms

Regulatory/ administrative burden

Public administration

Public

administration/

Public procurement /PPPs

Business

Judicial system

environment

Insolvency framework

Competition and regulatory framework

Labour

market/

Education

Legend:

EPL & framework for labour contracts

Wages & wage setting

Education

CSR

Sector

specific

regulation

Financial

Sector /

Taxation

R&D&I

Financing of R&D&I

Business services / Regulated professions

Retail

Construction

Digital Economy / Telecom

Energy

Transport

CSR

Taxation

Access to finance

Cooperation btw academia, research and business

No barrier to investment identified

CSR

Investment barriers that are also subject to a CSR

No progress

Limited progress

Some progress

Substantial progress

Fully addressed

In addition to macroeconomic conditions, Poland's investment climate is also affected by a number of

barriers in various policy areas. Some reforms were adopted in the areas of regulated professions, public e-

services for companies and skills mismatch. However, some barriers remain and reform measures to address

them are still to be taken. These are:

1. Inefficiencies and low stability in the regulatory environment. These include changes in the field of

taxation (e.g. fast-track introduction of sectoral taxes, on-going discussions on and implementation of

measures related to VAT, corporate and personal income taxes), lack of an updated, long-term strategy for

the energy sector, and regulatory changes (legal amendments significantly changing the conditions for the

renewable energy sector) or lack of spatial development plans in many areas. Some of these obstacles may

be addressed by ongoing legislative work (see Sections 3.5 and 3.6).

2. Deficiencies in the quality of existing infrastructure, such as railway, roads and energy networks diminish

potential investment gains. The last few years witnessed a rapid improvement in the quality of roads, and to

a lesser extent also railways, but bottlenecks in the implementation of investment projects persist. The strong

support of EU funds, however, offers an opportunity to speed up the development of infrastructure to match

investment needs (see Section 3.5).

3. Weak links between academia and the business sector and the quality of science are crucial barriers to e.g.

the development of in-house R&D activities and for investment in knowledge-intensive areas. The

government has launched a revision of the legislative R&D framework (see Section 3.5).

kom (2017) 0090 - Ingen titel

3.5. SECTORAL POLICIES

R&D and innovation

Highly-cited publications , 2013

(2;3)

Poland’s research and innovation performance

has marginally improved over the last decade.

R&D intensity increased from 0.6 % of GDP in

2007 to 1 % of GDP in 2015, which is still below

half of the EU average. The government is

committed to reaching the EU2020 national R&D

intensity target by 2020 (1.7 % of GDP). Poland´s

performance in all dimensions of the European

Innovation Scoreboard remains below the EU

average (EIS, 2016). R&D investment in Poland

currently relies predominantly on public financing,

with important support provided by the European

Structural and Investment Funds (ESIF).

Boosting innovation in the business sector

remains a key challenge for Poland.

Despite

recent increases, business enterprise expenditure

on R&D (BERD) remains one of the lowest in the

EU, although non-R&D expenditures significantly

exceed the EU average. R&D outlays of foreign

firms accounted for a large part of the rise in the

overall BERD in Poland. BERD dynamics in

recent years does not match the increases in

availability of public co-funding, as distributed by

NCBiR. (

). The 2016 ‘White Paper on

Innovation’ sets out legislative and organisational

proposals to improve the business environment for

innovation (MNiSW, 2016). Two new laws on

innovation will be entering into force in 2017 and

2018. As from 2016, companies benefit from new

R&D tax incentives. Although it is too early to

assess the uptake of these incentives, their

availability and size have been already extended in

2017, when the first Act on Innovativeness entered

into force (see Box 3.6.1 on Selected highlights).

A limited commercialisation of research results

and weak science-business links limit the

innovative capacity of the economy.

Recent

counts of joint patent applications and co-

publications are insignificant, as is the number of

enterprises declaring cooperation with scientific

organisations. The share of R&D expenditures in

higher education and research institutions funded

by business enterprises is also subdued (EIS 2016).

Poland is catching up in numbers of business

enterprise researchers. Work is on-going to

(

) Given the recognised issue of the BERD underreporting,

the data do not allow for full analysis of the public R&D

support effectiveness; for more details see: Klincewicz et

al. (forthcoming).

introduce a new legal framework to better adapt

academia to market needs (see Section 3.3. on

education).

Graph 3.5.1:

Highly-cited publications vs public R&D

intensity

ES PT

0.2

0.4

0.6

0.8

1.0

1.2

Public R&D intensity,

2013

(1)

(1) Values of public R&D intensity for Ireland and Sweden

are estimated or provisional;

(2) Scientific publications within the 10 % most cited scientific

publications worldwide as % of total scientific publications of

the country;

(3) Fractional counting method;

Source:

European Commission (European Innovation Survey)

Despite measures taken, strengthening the

quality of science and its internationalisation

remains a key challenge.

The quality of scientific

activities in Poland is still far below EU standards.

With only 5.0 % of Polish scientific publications

among the 10 % most-cited worldwide Poland

ranks 24th in the EU (Graph 3.5.1). Only two

Polish universities were included in the 2016

Academic Ranking of World Universities (and

both were in the last five hundred). Poland ranks

26th and 27th in the EU in terms of the number of

PhD graduates and non-EU PhD students,

respectively. Recent initiatives (e.g. Pact for

Horizon

2020)

are

support

the

internationalisation by e.g. moving the evaluation

focus from the quantity to the quality of

publications. Moreover, The Strategy for Science

and Higher Education comprises three key pillars

of reforms, focusing on higher education and

science system (‘Law 2.0’), science's links with

business and its societal impact. The first elements

of the reforms came into force in October 2016.

Reform of the Higher Education Sector is being

kom (2017) 0090 - Ingen titel

3.5. Sectoral policies

prepared with the Horizon 2020 Policy Support

Facility (

Although R&D is increasingly regarded as an

engine of long-term economic growth, the

effective design and implementation of policies

remains challenging.

The government has

launched a comprehensive revision of the whole

strategic and legislative R&D framework, as

presented in the Responsible Development Plan.

The Plan identifies the economy’s limited capacity

to innovate as one of five major growth barriers in

Poland and includes a number of measures to

overcome barriers to innovation. It proposes a

stronger thematic focus of R&D investment by

prioritising national and regional smart

specialisations. The delivery of this complex

revision of the whole R&D framework, will be

challenging in terms of avoiding discrepancies

between

policy

concepts

and

their

implementation ( ) and limiting overlaps between

numerous support measures.

Infrastructure and network industries

transport in cities is characterised by a very high

share of vulnerable users like pedestrians and

cyclists among all fatal victims of road accidents.

In 2015, pedestrians and cyclists accounted for

42 % of all people killed in road accidents, both in

and outside cities, much above of the EU average

of 29 %.

Despite the significant availability of EU funds,

the railway sector continues to face major

bottlenecks

project

implementation.

Significant agglomeration railway lines are still

awaiting modernisation to allow more passenger

traffic. Rail freight remains uncompetitive, with a

daily average speed as slow as 27 km/h, and main

modernisation projects are being further delayed.

Infrastructure (track access) charges remain

relatively high and cover the entirety of the rail

network, while only a fraction of road network is

subject to them. Cumbersome legal, financial and

administrative procedures linked with bottlenecks

within the railway infrastructure manager (PKP

PLK S.A.) still persist and lead to project delays

and insufficient investment.

Structural challenges in the rail sector remain.

Compared to the road sector, problems with

national co-funding for EU railway projects seem

to remain systemic. Equally, the effectiveness of

the railway infrastructure manager remains

subdued despite numerous restructuring attempts.

All this contributes to a very slow progress on

using the 2014-2020 EU funds in the railway

sector, with key contracts still to be concluded. In

light of these deficiencies, the timely spending of

earmarked budget and avoiding investment

bottlenecks at the end of the programming period

might be challenging. In addition, ensuring the

long-term effects of the current investment is

uncertain due to a lack of clarity if the long-

awaited multi-annual railway infrastructure

maintenance programme is introduced.

Energy

The road network continues to develop with the

strong support of EU investments.

In 2015-2016,

115.8 km of new or modernised motorways and

expressways were built. The EU funds allocation

for Polish roads in 2014-2020 is EUR 15 billion.

Moving further from public funding towards new

financial schemes remains challenging. Mobilising

additional private financing would enable Poland

to concentrate public funding on the parts of the

network that are key to ensuring territorial

cohesion and cross-border connections.

Poland’s road fatality rate remains well above

the EU average and is of a particular concern

for vulnerable users in urban areas.

Currently,

with 77 deaths per million inhabitants against 51.5

on average in the EU as a whole, addressing road

fatalities is a pressing challenge in Poland. At

municipal level, the high rate of road accidents and

fatalities is accompanied by increasing congestion,

which is due to the development of individual

motorised transport. The preference for such

transport also generates negative safety loopbacks;

(

) Policy

Support

Facility

website,

https://rio.jrc.ec.europa.eu/en/policy-support-facility

(

) For example the recent amendments in the Act on Research

Institutes withdraws, among others, the requirement of

open procedures for the directors' post.

Poland is among the most energy-intensive EU

economies, but improvements in energy

efficiency have also been among the fastest.

Strong economic growth over the last decade

implied that, despite reduction of primary energy

intensity, Poland was among few Member States

that did not reduce their final energy consumption

since 2005. The energy intensity remains high in

kom (2017) 0090 - Ingen titel

3.5. Sectoral policies

all final energy consumption sectors. Potential for

significant energy efficiency gains exists in

residential buildings (some 70 % of houses are

poorly insulated) as well as in the transport sector,

with Poland having one of the oldest passenger

cars fleets in Europe.

Polish power generation is heavily coal-reliant,

ageing, and risks being insufficient to match the

projected growth of electricity demand.

Still,

around 60 % of the installed fossil fuels capacity is

older than 30 years implying significant

investment for modernisation and extension of the

power infrastructure in coming years. Around,

80 % of power generation is still coal-fired. The

use of domestic coal has benefits for the security

of supply but ensuring economic sustainability

remains challenging. Poland is currently

restructuring its mining sector but a number of

mines may prove to be unprofitable in the context

of low global coal prices. Several Polish generators

have plans for new coal-fired generation units (up

to over 3GW of capacity). In the long term, this

may expose the sector to volatility of allowances

prices under the EU Emissions Trading System

(ETS). An update of the long-term vision for the

Polish energy system is missing.

Achievement of the binding national 2020 target

for renewable energy is at risk.

According to

government plans, 4 GW of additional capacity (as

compared to 2014 data) are to be installed in the

electricity sector by 2020 (

).The remaining

investment demands legal certainty and a stable

investment framework. In 2016, framework

conditions have, however, worsened as a result of

a long delayed revision of the Renewable Energy

Law introducing first auctions for new capacity

and a new law on investment in on-shore wind.

The latter creates prohibitive conditions for

establishing new wind farms, new burdensome and

costly administrative requirements for existing

installations, and a high degree of legal uncertainty

concerning several new provisions (notably

taxation). Consequently, the law entails significant

losses for generators engaging in new projects and

the banks underwriting them.

(

) 2015 update of the Polish National Renewable Energy

Action Plan. In 2010-2014, 2.7 GW wind capacity was

installed, but this dynamic development has now come to a

halt.

Securing energy interconnectivity remains

crucial.

Following the launch of the LNG

terminal, Poland has significantly improved its

security of gas supply. The country also developed

its national gas transmission and distribution

network. However, work on gas interconnectors of

regional importance has not advanced according to

the timetable (

). For the electricity sector, in 2016

the interconnection level was 4 % — the lowest in

the EU, exposing Poland to a risk of supply

shortages. The LitPolink electricity connection

with Lithuania became operational in 2016 and

improved the situation, but reaching the goal of

10 % of production capacity by 2020 seems

challenging. The current national arrangements for

congestion management and bidding zone

definition in central Europe do not necessarily

reflect actual congestion accurately. This is leading

to increasing limitations on cross-border flows of

electricity and there is no joint regional solution

agreed by all affected neighbouring countries.

Polish energy markets are becoming more

competitive, although progress is uneven.

recent years, the Polish electricity wholesale

market has become increasingly competitive, but

the gas wholesale market remains relatively

closed. Wholesale electricity prices are slightly

higher than in most neighbouring central European

countries. In 2015, wholesale gas prices were

comparable to those of neighbouring central

European countries, but higher than in Germany

and Austria. On the retail markets, Poland

continues to regulate electricity and gas prices for

households and gas prices for companies. The gas

retail market is dominated by the incumbent

company. On the retail electricity market, the

supply is dominated by regional power suppliers

with low competition pressures between and

within the regions.

Climate and environmental issues

Poland is well on track to deliver on the target

for greenhouse gas (GHG) emissions in sectors

outside the Emissions Trading System.

In 2014,

Poland’s non-ETS emissions increased by 2 %

compared to 2005 and the country already

(

) Notably the gas interconnector Poland – Lithuania (GIPL)

and the gas interconnectors Poland – Czechia (Stork II) that

are critical for the establishment of the North-South gas

corridor, are delayed.

kom (2017) 0090 - Ingen titel

3.5. Sectoral policies

performed better than the interim target for 2014

(+10 %). According to national projections, Poland

will reach its 2020 target by a wide margin,

achieving only a 6.5 % increase against a +14 %

target. Transport emissions in Poland still remain a

source of major concern, as emissions and energy

consumption from transport have increased in

recent years.

Poland does not yet use environmental taxes to

stimulate a more efficient energy usage and a

reduction of GHG emissions.

The implicit tax

rate on energy and fuels remains comparatively

low in Poland. There is a number of tax

exemptions (e.g. agriculture and energy-intensive

industries) and environmental taxes are not

automatically indexed. Vehicles' taxation in

Poland is not linked to environmental performance

(CO2 emissions).

Air quality continues to be a major concern,

with air quality standards among the lowest in

the EU-28.

Poland has not yet taken sufficient

measures to limit the emission of pollutants from

its main sources, which include heating of

individual houses by obsolete boilers and low-

quality coal. In 2014, the EU air quality standards

were often severely breached by pollutants mostly

emitted via the combustion of solid fuels,

including, e.g. emissions of particulate matter and

benzo[a]pirene limits (Graph 3.5.2). The recent

evidence confirms a further deterioration, with an

increasing number of premature deaths per year

associated with bad air quality in Poland (EEA,

2016).

Graph 3.5.2:

Annual average concentrations of

benzo[a]pirene (BaP) in 2014 in ng/m³

≤0.12

0.12-0.4

0.4-0.6

0.6-1

1-1.5

>1.5

no data

Source:

European Environment Agency

Waste management has improved, although the

separate waste collection system for all

municipalities is not yet launched.

In 2014, at

16 % the incineration rate almost doubled in

comparison with the previous year. Also the

recycling rate increased to 21 % (from 16 % in

2013) though still remains well below the EU

average of 28 %. The recently adopted Ministry for

Environment regulation setting out common

requirements for the collection of five waste

streams (paper, glass, metal, plastic and biowaste)

for all municipalities is expected to significantly

improve the quality of recyclables and their

economic value.

Box 3.5.1:

Selected highlights in Poland

In the years 2012- 2014, the country-specific recommendations for Poland recommended increasing the

intensity of private research and development (R&D) expenditures via the introduction of R&D tax

incentives. The Polish government addressed this challenge in a series of legislative measures. As from

January 2016 a new system of R&D tax incentives operates in Poland which has increased the deduction

rates for labour cost and other R&D costs. As of 1 January 2017, a further significant change to the design of

R&D tax credits was made, which increased their availability and size, (according to the first Act on

Innovativeness), expanded the deduction period, proposed new eligible cost categories and proposed

additional incentives for start-ups like cash refunds for start-ups conducting R&D activities. Currently, a

second innovation law is being prepared on the basis of the White Paper of innovation (published in

September 2016). This was developed by representatives of science, business and public administration, in

view of proposing more attractive tax incentives as from 1 January 2018. To date, the more R&D-friendly

tax regulations have been already been appreciated by the business sector and are expected to trigger

proportional increases in BERD.

kom (2017) 0090 - Ingen titel

3.6. PUBLIC ADMINISTRATION

Regulatory business environment

The ease of doing business in Poland has been

gradually improving.

The country ranked 24

the 2017 World Bank ‘Doing Business’ report, an

improvement of one position compared to 2016.

This is mainly due to the introduction of the new

insolvency law, faster procedures for property

registration, and amendments to the construction

law. Poland fell in the 2017 World Bank report

rankings on setting-up firms (from 84

to 107

place) and protection of minority shareholders

rights (World Bank, 2016a). The government has

plans to further simplify certain business

procedures with a range of proposals put forward

within the Strategy for Responsible Development.

The quality of the regulatory framework

continues to be a weak element in the otherwise

generally favourable business environment.

This positive environment has been supporting

strong economic growth over the last years.

International rankings, such as the Global

Entrepreneurship Index identify key strengths

including export performance, human capital

development, delivering innovative products and

the size of the capital market (Global

Entrepreneurship Development Institute, 2016). In

contrast, the quality of various regulations and

institutions brings Poland's ranking down. For

instance, the top five most problematic factors for

doing business as identified in the Global

Competitiveness Report are all regulatory in nature

(World Economic Forum, 2016).

Uncertainty related to the regulatory

environment is increasingly weighing on

business confidence.

In 2016, policy instability

became the third most problematic factor for doing

business, from a previous ranking of 10

(World

Economic Forum, 2016). Business confidence may

be affected by the limited public consultation on

several new laws. In contrast to the situation in the

two previous terms of Parliament, since November

2015 almost half of all laws passed were formally

initiated by parliamentarians from the ruling party

and not the government and hence were not subject

to the typical consultation process (Graph 3.6.1).

In addition, changes to the government’s rules of

procedure, introduced in June 2016, reduced the

requirements concerning preparations for an initial

outline of new legislation and regulatory tests. This

in fact limits the extent of consultation on legal

changes initiated by the government.

Graph 3.6.1:

Legislative practice: number of laws passed in

the first year of subsequent governments by

the promoter of the draft

180

160

140

120

100

two previous parliaments -

average

government

group of MPs from the ruling party / coalition

current parliament

(1) data for the first year since formation of the government

in subsequent parliaments

Source:

Obywatelskie Forum Legislacji - Fundacja Batorego

(2017).

Multiple business inspections add to the

administrative burden for businesses.

The

mandates of numerous non-tax inspection services

are not always clearly delineated, which may lead

to an unnecessary number of controls. For

example, Polish food retailers, caterers and

restaurants are inspected more often than in some

other EU countries for which data are

available (

). A relatively weak point of the

inspection system is the limited availability of

guidance on how to comply with the existing

regulations, which particularly impacts small- and

medium-sized enterprises (SMEs).

Weaknesses in spatial planning increase

administrative burden related to the need for

construction permits.

Land-use plans cover

limited part of Poland’s territory and are often of

low quality. In areas without them, construction

permits are granted on the basis of one-off

administrative decisions on land development

conditions. The extensive use of these acts,

(

) In 2014/2015 the inspections ratio (number of

inspections/number of firms) in Poland amounted to 0.82,

compared to 0.45 in the Netherlands and 0.64 in the UK.

The differences may be partly explained by differences in

market structures (World Bank, 2016b).

kom (2017) 0090 - Ingen titel

3.6. Public administration

combined with limitations on local authorities’

capacity to handle the necessary procedures within

regulatory deadlines, creates uncertainty and

financial burden for investors obliged to document

their land rights (NIK, 2016). Poland recently

initiated a reform of its spatial planning legislation.

The draft construction code, currently under

revision, entails fundamental changes aimed at

consolidating spatial planning processes and

easing the burden for investors. While this reform

offers the chance for significant improvement, its

benefits depend on the code's final details.

Furthermore, the implementation may take several

years due to the complexity of revising some 120

legal acts and introducing transitional rules.

There continues to be a systemic threat to the

rule of law in Poland and the Polish justice

system suffers from lengthy proceedings and

contract enforcement.

The recent events in

Poland have led the European Commission to

adopt two Rule of Law Recommendations in order

to ensure that Poland's Constitutional Tribunal is

able to fully carry out its responsibilities under the

Constitution. This ongoing crisis undermines trust

in the Polish legal system. In addition, the length

of proceedings remains a challenge. In first

instance courts, the average length of civil

litigation proceedings is 10 months, while

commercial cases take over 13 months. The

clearance rate of civil cases is below 93 %, while

the EU average is over 103 % (MS, 2016) (

). The

time needed to deal with insolvency cases is

among the highest in the EU — Poland ranks 32

in a worldwide comparison, with insolvency

proceedings taking up to 36 months on average.

The length of contract enforcement also remains a

challenge, with 685 days needed to enforce a

contract.

Despite recent progress in public procurement,

the limited administrative capacity of local

governments remains a source of concern.

Local

governments undertake a large share of public

infrastructure projects (see Section 3.3), yet they

often lack the relevant administrative capacity to

ensure efficiency (OECD, 2016d). The central

authorities do not support local governments with

structured technical assistance to carry out and

implement large procurement projects. The July

(

) 100% clearance rate is when the number of incoming cases

equals the number of cases closed.

2016 amendment of the public procurement law

could improve the efficiency of public

procurement, transposing two EU procurement-

related directives and implementing a number of

measures aimed at facilitating the procurement

process and cutting red tape. The changes include,

inter alia, authorities’ obligation to consider

splitting of works and non-price criteria to gain

more importance. The law is set to trigger public

procurement procedures that were put on hold

before its entry into force.

Significant

progress

was

achieved

deregulation of professions, but some restrictive

barriers remain.

Poland has undertaken ambitious

reforms of regulated professions in recent

years (European Commission, 2016a) and some

positive results can already be seen in terms of

employment and entrepreneurship for certain

professions (Rojek and Masior, 2017). However,

the recent Commission study covering seven

professions shows that differences between

professions exist. For example, the level of

restrictiveness is higher in Poland compared to the

EU weighted average for lawyers and tax advisers,

while it is significantly lower for tourist guides and

real estate agents (European Commission, 2016e).

In turn, for nearly all the reviewed sectors,

business churn rates in Poland are similar to the

EU average (

). This may indicate relatively high

dynamism and competitive pressure within

regulated professions in these sectors in Poland.

Digitalisation of public administration

Online interaction between public authorities

and citizens remains one of the lowest in the

EU.

With 26.6% of citizens using e-government

services, Poland ranks among the worst performers

in the EU. In contrast, e-services for business were

used by 92% of enterprises in 2015. The

fragmentation, complexity and at times unstable

operation of e-government services are still the

main obstacles to their effective use by citizens.

The updated Programme of the Integrated

Digitalisation of the State aims to enhance policy

coordination and strategic planning and addresses

a number of challenges, including fragmentation,

user-friendliness and public visibility of e-services

(

) Business churn rate is calculated as the ratio of the sum of

newly founded and closed enterprises to the total number

of enterprises in a given year.

kom (2017) 0090 - Ingen titel

3.6. Public administration

(Ministerstwo Cyfryzacji, 2016). It is currently at

the initial state of implementation.

kom (2017) 0090 - Ingen titel

ANNEX A

Overview Table

Commitments

2016 Country-specific recommendations (CSRs)

CSR 1:

Achieve an annual fiscal adjustment of 0.5

% of GDP towards the medium-term budgetary

objective in 2016 and in 2017. Strengthen the fiscal

framework, including by establishing an

independent fiscal council. Improve tax collection

by ensuring better VAT compliance, and limit the

extensive use of reduced VAT rates.

Achieve an annual fiscal adjustment of 0.5 % of

GDP towards the medium-term budgetary objective

in 2016 and in 2017.

Strengthen the fiscal framework, including by

establishing an independent fiscal council.

Improve tax collection by ensuring better VAT

compliance, and limit the extensive use of reduced

VAT rates.

Poland has made

limited progress

in addressing

CSR1 (this overall assessment of CSR 1 does not

include an assessment of compliance with the Stability

and Growth Pact):

The compliance assessment with the Stability and

Growth Pact will be included in spring when final data

for 2016 will be available.

No progress

has been made on establishing a fiscal

council. The authorities do not envisage implementing

one.

Some progress

was made in improving tax collection.

Several measures aimed at fighting tax fraud in the

fuel sector entered into force in 2016. They are

followed by a large amendment of the VAT law that

entered into force in 2017. A new National Revenue

Administration will become operational in March

2017. In contrast, no progress was made on limiting

the extensive use of reduced VAT rates.

Poland has made

no progress

in addressing CSR2.

Summary assessment(

)

CSR 2:

Ensure the sustainability and adequacy of

the pension system and increase participation in the

labour market, by starting to reform the preferential

pension arrangements, removing obstacles to more

permanent types of employment and improving the

labour market-relevance of education and training

Ensure the sustainability and adequacy of the

pension system and increase participation in the

No progress

in ensuring the sustainability and

(

) The following categories are used to assess progress in implementing the 2016 country-specific recommendations:

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. Below a number of non-

exhaustive typical situations that could be covered under this, to be interpreted on a case by case basis taking into account

country-specific conditions:

• no legal, administrative, or budgetary measures have been announced in the National Reform Programme or in other official

communication to the national Parliament / relevant parliamentary committees, the European Commission, or announced in

public (e.g. in a press statement, information on government's website);

• no non-legislative acts have been presented by the governing or legislator body;

• the Member State has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study group to

analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions),

while clearly-specified measure(s) to address the CSR has not been proposed.

Limited progress: The Member State has:

• announced certain measures but these only address the CSR to a limited extent;

and/or

• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative

further work is needed before the CSR will be implemented;

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR.

Some progress: The Member State has adopted measures that partly address the CSR and/or the Member State has adopted

measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as only a few of the adopted

measures have been implemented. For instance: adopted by national parliament; by ministerial decision; but no implementing

decisions are in place.

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have

been implemented.

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately.

kom (2017) 0090 - Ingen titel

A. Overview Table

labour market, by starting to reform the preferential

pension arrangements

Ensure the sustainability and adequacy of the

pension system and increase participation in the

labour market […] by removing obstacles to more

permanent types of employment and improving the

labour market-relevance of education and training.

adequacy of the pension system. Contrary to the CSR,

a lowering of the statutory retirement age has been

voted in and will enter into force as of October 2017.

In the longer term, it will worsen sustainability and

adequacy of the pension system. No progress in

reforming the preferential pension arrangements,

although there are plans to review them with a view to

reform them (including those for farmers and miners).

No progress

in increased participation in the labour

market. Some measures undertaken so far seem to go

in the opposite direction. In particular, lowering the

statutory retirement age and the new child benefit

could have adverse effects on the labour market

participation. Limited progress in removing obstacles

to more permanent types of employment. Despite

measures taken to reduce segmentation, the use of

open-ended contracts is still discouraged by a number

of obstacles. To address this, two codification

committees were set up to prepare new draft

individual and collective Labour Codes by early 2018.

Limited progress in improving the labour market-

relevance of education and training. The reforms of

the higher education system seem to be going in the

right direction, but the changes in general education

could go in the opposite direction.

CSR 3:

Take measures to remove obstacles to

investment in transport, communication and energy

infrastructure, and increase the coverage of spatial

planning at local level

Take measures to remove obstacles to investment in

transport, communication and energy infrastructure

increase the coverage of spatial planning at local

level

Poland has made

limited progress

in addressing

CSR3.

Limited progress

in removing obstacles to

investment in infrastructure. Despite the 2016

amendment to the rail transport law simplifying some

investments procedures and enabling their faster

implementation, its scope is rather limited and the

observed progress with investments on the ground

throughout the year has been very slow. In renewable

power generation infrastructure, the situation

worsened in 2016, as a result of the new law on

investment in on-shore wind installations and long-

delayed revision of the Renewable Energy Law.

Limited progress

in simplifying construction

permitting and rationalising spatial planning at the

local level. Construction permits were practically

abolished for constructing private houses and other

smaller structures, though they are still required for

other construction projects. The newly drafted

Construction Code contains elements related to spatial

planning and aimed at improving the current system,

like: consolidating old legislation on spatial planning

and construction permitting, streamlining procedures

kom (2017) 0090 - Ingen titel

A. Overview Table

into a single investment decision, reinforcing the role

of municipal studies on territorial development and

making more stringent the conditions, under which

new developments could take place in the absence of

the spatial development plan.

Europe 2020 (national targets and progress)

Employment rate target:

71 %

R&D target set in the 2013

NRP: R&D intensity

target is 1.7 % for 2020

Greenhouse gas (GHG) emissions target:

- National greenhouse gas (GHG) emissions target:

+14 % in 2020 compared to 2005 (in non-ETS

sectors)

69.1 % (Q1-Q3 2016)

1 % (2015)

According to the latest projections, the 2020 target is

expected to be achieved: 6.5 % growth is projected in

2020 as compared to 2005 (a margin of 7.5 percentage

points).

The GHG emissions increased between 2005 and

2014 in the sectors not covered by the EU ETS by 2 %

against an interim target of +10 % for 2014.

2020 Renewable energy target:

15%

Share of renewable energy in all modes of

transport: 10%

Energy

efficiency:

consumption

reduction

energy

With a renewable energy share of 11.4 % in 2014,

Poland is currently on track to meet its target for 2020,

but the new law would imply close monitoring of

progress.

Poland increased its primary energy consumption by

0.9 % from 89.17 Mtoe in 2014 to 90 Mtoe in 2015.

Final energy consumption increased by 1 % from 61.6

Mtoe in 2014 to 62.25 Mtoe in 2015. Even if levels of

primary and final energy consumption are currently

below the indicative national 2020 targets (96.4 Mtoe

in primary energy consumption and 71.6 Mtoe in final

energy consumption) keeping these levels until 2020

is challenging.

5.2 % (2016 – provisional data)

44.3 % (2016 – provisional data)

Since 2012, the EU 2020 target has been achieved. By

2015 the reduction by 2.7 million persons has been

achieved.

Poland has set an indicative national energy

efficiency target of 13.6 Mtoe primary energy

savings in 2020 reaching a 2020 level of 96.4 Mtoe

primary consumption and 70.4 Mtoe final energy

consumption.

Early school leaving target:

4.5 %

Tertiary education target:

45 %

Risk of poverty or social exclusion target:

Target

on the reduction of population at risk of poverty or

social exclusion in number of persons: 1 500 000

kom (2017) 0090 - Ingen titel

ANNEX B

MIP Scoreboard

Table B.1:

The MIP scoreboard for Poland

Thresholds

Current account balance,

(% of GDP)

3 year average

-4%/6%

-35%

2010

-5.3

-65.1

2011

-4.8

-62.4

2012

-4.8

-65.4

2013

-3.4

-69.0

2014

-2.4

-69.1

2015

-1.3

-62.8

Net international investment position (% of GDP)

Real effective exchange

External imbalances rate - 42 trading partners,

and competitiveness HICP deflator

Export market share - %

of world exports

Nominal unit labour cost

index (2010=100)

3 years % change

±5% & ±11%

-1.4

-11.5

1.2

-4.3

-1.3

-1.0

5 years % change

-6%

25.1

15.7

2.1

0.5

5.3

9.7

3 years % change

9% & 12%

11.3b

4.2

5.3

3.1

2.9

-0.4p

Deflated house prices (% y-o-y change)

-6.1e

-4.6

-6.6

-4.7

1.1

2.8

Private sector credit flow as % of GDP, consolidated

14%

4.3

6.7

4.8

3.3

4.6

3.2

Internal imbalances

Private sector debt as % of GDP, consolidated

General government sector debt as % of GDP

Unemployment rate

3 year average

133%

60%

10%

16.5%

69.7

53.1

8.3

13.5

73.9

54.1

9.2

4.9

73.5

53.7

9.8

10.6

75.4

55.7

10.0

7.4

78.1

50.2

9.8

0.7

79.0

51.1

8.9

2.4

Total financial sector liabilities (% y-o-y change)

Activity rate - % of total population aged 15-64 (3 years

change in p.p)

-0.2%

2.1b

1.9

1.8

1.7

2.2

1.6

New employment

indicators

Long-term unemployment rate - % of active population

aged 15-74 (3 years change in p.p)

0.5%

-2.1

1.1

1.5

1.4

0.2

-1.1

Youth unemployment rate - % of active population aged

15-24 (3 years change in p.p)

2.1

8.6

5.9

3.6

-1.9

-5.7

Flags: b: break in time series. e: estimated. i: see metadata. p: provisional. na: not available.

(1) Nominal unit labour cost: 2010 break in time series. Since the indicator is a three year % change the break affects all the

following years.

(2) House price index: e = NSI estimates.

(3) Unemployment rate: for 2009 i = Eurostat back-calculation to include 2011 Population Census results.

(4) Youth unemployment rate: for 2009 i = Eurostat back-calculation to include 2011 Population Census results.

Source:

European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective

Exchange Rate), and International Monetary Fund"

kom (2017) 0090 - Ingen titel

ANNEX C

Standard Tables

Table C.1:

Financial market indicators

Total assets of the banking sector (% of GDP)

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)

Financial soundness indicators:

- non-performing loans (% of total loans)

- capital adequacy ratio (%)

- return on equity (%)

Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

Central Bank liquidity as % of liabilities

Private debt (% of GDP)

Gross external debt (% of GDP)

- public

- private

Long-term interest rate spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*

2011

81.4

43.7

65.3

6.0

13.3

12.0

5.9

8.8

105.4

0.0

73.9

23.6

27.6

334.8

172.0

2012

90.9

44.4

62.8

6.4

14.9

10.8

7.3

6.8

101.7

0.0

73.4

29.6

28.7

350.5

154.1

2013

91.5

45.2

65.3

6.0

15.6

10.0

4.0

3.0

99.5

0.0

75.4

28.3

28.5

246.3

77.4

2014

92.4

48.3

65.8

5.4

14.9

9.4

5.4

3.5

98.3

0.0

78.1

29.3

29.0

235.3

60.8

2015

91.7

48.6

61.7

5.0

15.8

7.7

5.8

4.5

97.2

0.0

78.6

29.2

28.6

220.6

61.1

2016

94.6

5.0

16.7

4.2

3.7

2.8

95.9

0.0

28.1

29.3

291.5

75.9

1) Latest data Q2 2016.

2) Quarterly values are not annualised

* Measured in basis points.

Source:

European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all

other indicators).

kom (2017) 0090 - Ingen titel

C. Standard Tables

Table C.2:

Labour market and social indicators - part 1

Table II. Labour market and social indicators

2011

Employment rate

(% of population aged 20-64)

Employment growth

(% change from previous year)

Employment rate of women

(% of female population aged 20-64)

Employment rate of men

(% of male population aged 20-64)

Employment rate of older workers

(% of population aged 55-64)

Part-time employment (% of total employment,

aged 15-64)

Fixed-term employment (% of employees with a fixed term

contract, aged 15-64)

Transitions from temporary to permanent employment

Unemployment rate

(% active population,

age group 15-74)

Long-term unemployment rate

(% of labour force)

Youth unemployment rate

(% active population aged 15-24)

Youth NEET

rate (% of population aged 15-24)

Early leavers from education and training (% of pop. aged 18-24

with at most lower sec. educ. and not in further education or

training)

Tertiary educational attainment (% of population aged 30-34

having successfully completed tertiary education)

Formal childcare (30 hours or over; % of population aged less

than 3 years)

64.5

0.6

57.2

71.9

36.9

7.3

26.8

19.5

9.7

3.6

25.8

11.5

5.6

2012

64.7

0.1

57.5

72.0

38.7

7.2

26.8

20.4

10.1

4.1

26.5

11.8

5.7

2013

64.9

-0.1

57.6

72.1

40.6

7.1

26.8

16.4

10.3

4.4

27.3

12.2

5.6

2014

66.5

1.7

59.4

73.6

42.5

7.1

28.3

18.3

9.0

3.8

23.9

12.0

5.4

2015

67.8

1.5

60.9

74.7

44.3

6.8

28.0

21.8

7.5

3.0

20.8

11.0

5.3

2016

69.1

0.8

62.1

76.1

45.6

6.4

27.7

6.3

2.2

18.3

36.5

39.1

40.5

42.1

43.4

3.0

5.0

4.0

5.0

1) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin working

immediately or within two weeks.

2) Long-term unemployed are peoples who have been unemployed for at least 12 months.

3) Not in education employment or training.

4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally

adjusted.

Source:

European Commission (EU Labour Force Survey).

kom (2017) 0090 - Ingen titel

C. Standard Tables

Table C.3:

Labour market and social indicators - part 2

2010

4.4

1.7

11.1

1.3

0.4

0.1

0.2

19.2

0.7

2010

Expenditure on social protection benefits (% of GDP)

Sickness/healthcare

Disability

Old age and survivors

Family/children

Unemployment

Housing

Social exclusion n.e.c.

Total

of which: means-tested benefits

Social inclusion indicators

People at risk of poverty or social exclusion

(% of total population)

2011

4.2

1.6

10.6

1.3

0.3

0.1

0.2

18.2

0.6

2011

27.2

29.8

17.7

13.0

6.9

11.1

26.6

10551

5.3

5.0

47.9

31.1

2012

4.1

1.6

10.9

1.3

0.3

0.1

18.4

0.7

2012

26.7

29.3

17.1

13.5

6.9

10.4

25.3

10548

4.4

4.9

47.7

30.9

2013

4.2

1.6

11.3

1.4

0.3

0.1

19.0

0.8

2013

25.8

29.8

17.3

11.9

7.2

10.7

24.8

10549

1.8

4.9

47.7

30.7

2014

4.0

1.5

11.2

1.4

0.2

0.1

18.5

0.7

2014

24.7

28.2

17.0

10.4

7.3

10.6

26.4

10847

2.5

4.9

47.8

30.8

2015

23.4

26.6

17.6

8.1

6.9

11.2

23.1

11247

2.1

4.9

27.8

30.8

17.6

14.2

Children at risk of poverty or social exclusion

(% of people aged 0-17)

At-risk-of-poverty rate

(% of total population)

Severe material deprivation rate (% of total population)

Proportion of people living in low work intensity households (% of

people aged 0-59)

In-work at-risk-of-poverty rate (% of persons employed)

Impact of social transfers (excluding pensions) on reducing poverty

Poverty thresholds, expressed in national currency at constant prices

Gross disposable income (households; growth %)

Inequality of income distribution (S80/S20 income quintile share ratio)

GINI coefficient before taxes and transfers

GINI coefficient after taxes and transfers

7.3

11.4

27.9

10286

4.7

5.0

48.0

31.1

1) People at risk of poverty or social exclusion: individuals who are at risk of poverty and/or suffering from severe material

deprivation and/or living in households with zero or very low work intensity.

2) At-risk-of-poverty rate: proportion of people with an equivalised disposable income below 60 % of the national equivalised

median income.

3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay

their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein

equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing

machine, viii) have a colour TV, or ix) have a telephone.

4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the

adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.

5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007

survey refers to 2006 incomes)

Source:

For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

kom (2017) 0090 - Ingen titel

C. Standard Tables

Table C.4:

Product market performance and policy indicators

Performance indicators

Labour productivity (real, per person employed, year-on-year %

change)

Labour productivity in industry

Labour productivity in construction

Labour productivity in market services

Unit labour costs (ULC) (whole economy, year-on-year % change)

ULC in industry

ULC in construction

ULC in market services

Business environment

Time needed to enforce contracts (days)

Time needed to start a business

(days)

Outcome of applications by SMEs for bank loans

Research and innovation

R&D intensity

Total public expenditure on education as % of GDP, for all levels of

education combined

Number of science & technology people employed as % of total

employment

Population having completed tertiary education

Young people with upper secondary education

Trade balance of high technology products as % of GDP

Product and service markets and competition

OECD product market regulation (PMR) , overall

OECD PMR

, retail

OECD PMR , professional services

OECD PMR , network industries

2010

2011

2012

2013

2014

2015

13.56

10.47

3.42

-3.17

2.92

4.28

2010

830.0

39.0

2010

0.72

5.17

-2.30

6.80

11.05

3.10

-1.42

-1.09

2.33

2011

830.0

39.0

0.52

2011

0.75

4.94

-2.21

3.57

-0.66

2.18

2.35

1.82

3.69

2012

685.0

39.0

2012

0.88

4.91

-1.97

-1.50

1.17

4.75

0.16

1.47

-0.13

2013

685.0

37.0

0.59

2013

0.87

5.00

-1.68

2003

2.52

3.29

3.20

1.99

8.93

-1.48

1.11

-7.05

3.28

2014

685.0

37.0

0.75

2014

0.94

-1.44

2008

2.04

2.43

3.33

2.70

5.21

3.21

2.58

-4.85

-1.70

0.44

2015

685.0

37.0

0.46

2015

1.00

-1.59

2013

1.65

2.55

3.24

2.34

1) The methodologies, including the assumptions, for this indicator are shown in detail at:

http://www.doingbusiness.org/methodology.

2) Average of the answer to question Q7B_a. '[Bank loan]: If you applied and tried to negotiate for this type of financing over

the past six months, what was the outcome?'. Answers were scored as follows: zero if received everything, one if received

most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is

still pending or if the outcome is not known.

3) Percentage population aged 15-64 having completed tertiary education.

4) Percentage population aged 20-24 having attained at least upper secondary education.

5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are

shown in detail at: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm

Source:

European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for

the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans).

kom (2017) 0090 - Ingen titel

C. Standard Tables

Table C.5:

Green growth

Green growth performance

Macroeconomic

Energy intensity

Carbon intensity

Resource intensity (reciprocal of resource productivity)

Waste intensity

Energy balance of trade

Weighting of energy in HICP

Difference between energy price change and inflation

Real unit of energy cost

Ratio of environmental taxes to labour taxes

Environmental taxes

Sectoral

Industry energy intensity

Real unit energy cost for manufacturing industry excl.

refining

Share of energy-intensive industries in the economy

Electricity prices for medium-sized industrial users

Gas prices for medium-sized industrial users

Public R&D for energy

Public R&D for environmental protection

Municipal waste recycling rate

Share of GHG emissions covered by ETS*

Transport energy intensity

Transport carbon intensity

Security of energy supply

Energy import dependency

Aggregated supplier concentration index

Diversification of energy mix

kgoe / €

kg / €

% GDP

% of value

added

ratio

% GDP

kgoe / €

% of value

added

% GDP

€ / kWh

% GDP

kgoe / €

kg / €

HHI

2010

0.28

1.30

2.08

0.51

-2.6

13.05

1.5

19.5

0.22

2.6

0.18

22.2

14.09

0.10

0.03

21.4

51.7

1.43

3.87

31.3

29.5

0.38

2011

0.27

1.24

2.44

-3.3

13.94

3.4

21.0

0.21

2.5

0.18

23.9

14.76

0.10

0.03

17.5

52.5

1.25

3.39

33.4

28.9

0.38

2012

0.25

1.20

2.10

0.49

-3.4

15.41

2.9

20.9

0.19

2.5

0.17

22.8

14.78

0.09

0.04

0.01

0.02

19.6

51.7

1.12

3.05

30.6

29.8

0.36

2013

0.25

1.17

1.95

-2.7

15.67

-1.3

19.9

0.18

2.4

0.17

22.4

14.48

0.09

0.04

0.01

0.02

24.2

52.4

1.03

2.79

25.6

27.0

0.37

2014

0.23

1.09

1.88

0.52

-2.6

14.93

-0.1

18.9

0.19

2.5

0.17

20.3

14.62

0.08

0.04

0.01

0.03

32.3

51.9

1.04

2.81

28.6

27.4

0.36

2015

0.23

1.81

15.65

0.6

0.16

0.09

0.04

0.01

0.02

42.5

52.1

1.13

29.3

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices)

Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)

Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)

Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)

Waste intensity: waste (in kg) divided by GDP (in EUR)

Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP

Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP

Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %

change)

Real unit energy cost: real energy costs as a percentage of total value added for the economy

Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the European

Union’

Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)

Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for

manufacturing sectors

Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP

Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures

excl. VAT.

Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste

Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP

Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas

emissions

(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.

Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value

added (in 2005 EUR)

Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector

Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of

international bunker fuels

Aggregated supplier concentration index: covers oil, gas and coal. Smaller values indicate larger diversification and hence

lower risk.

Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies

and solid fuels

* European Commission and European Environment Agency

Source:

European Commission (Eurostat) unless indicated otherwise

kom (2017) 0090 - Ingen titel

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