Past event

BPCC breakfast with Finance Ministry

Finance minister and deputy premier Jacek Rostowski had to cancel his address to the BPCC breakfast at the last minute, having been called away to an urgent meeting with premier Donald Tusk. In his place came no fewer than three senior officials from the Ministry of Finance, ensuring that BPCC members received full value for money!

Maciej Grabowski, under-secretary of state, responsible for public finance discipline, was accompanied by Wojciech Kowalczyk, under-secretary of state, responsible for financial markets and investment projects, and Ludwik Kotecki, the ministry's chief economist.

The meeting was opened by Gill Atkinson, deputy head of mission at the British Embassy in Warsaw, who talked about prospects for British-Polish trade, the stronger cooperation between BPCC and Embassy, and the UK's commitment to an outward-looking EU, focused on growth. She mentioned the Transatlantic Trade and Investment Partnership; “This agreement will have more impact than all the EU's other trade agreements combined,” she said.

Ludwik Kotecki was first to speak for the Ministry of Finance, and dealt with the crisis in the eurozone, Poland's strategy to join the eurozone, and gave an overview of Poland's current macroeconomic situation.

He enumerated the main reasons for the eurozone crisis: “the poor effectiveness of the stability and growth pact (SGP); insufficiently good fiscal policy across Europe, weak EU enforcement – the available instruments in the SGP were not used, peer pressure from other countries was not strong enough – and finally the lack of a crisis resolution mechanism. These weaknesses have to be addressed; they are in the process of being addressed. The most important things can be summarised in four areas were closer union is necessary: banking union, important because would mean that taxpayers do not end up paying for bank failures; fiscal union to avoid unsustainable differences between tax regimes; economic union – the competitiveness of the eurozone is crucial; and most important and difficult – deeper political union, underpinned by strengthened democratic legitimacy,” said Mr Kotecki.

“At the June meeting of the European Council, there will be some initial decisions on moving towards deeper, more genuine monetary and political union. There is broad agreement on the first part of banking union – a single supervisory mechanism – but other elements are still lacking.” Poland's view on the process is the following, he said: “The situation is eurozone not perfect, but we see see some dangers connected to the process of a two-speed Europe emerging. Poland wants to be in the core of Europe. Poland is a country with a medium-term derogation regarding its eurozone membership. Changes are needed, and it would be useful to solve the problems of structural debt which are the most difficult to address. Debt is much higher than before crisis; [both Poland and the EU?] face economic stagnation, low growth, poor competitiveness. These can be solved with the following four instruments.

Mr Kotecki said that Poland had started debating a euro adoption strategy at the beginning of this year. He said “It is a strategy based on four pillars: 1. Fulfilling the nominal criteria to be assessed by the European commission and the OECD. 2. Fulfilling the structural criteria as well as the nominal ones – well-prepared countries profited from joining the eurozone; unprepared ones have problems and create problems for others. 3. Technical preparation – the legal, logistical, regulatory issues; a detailed change-over plan which should describe the who, when, and what to do to be prepared to introduce new the currency. 4. We want to join euro 2.0. We should be convinced by our partners that eurozone is improved, reformed and stable. We don't want to join a euro that's unstable.

Joining the eurozone,” said Mr Kotecki, “is not something for five years, it will take ten years. One of the internal conditions concerns the fiscal side. Our level of debt and our medium-term objectives (MTOs). We should be at an MTO level with structural deficit at around 1% of GDP. The convergence programme needs to be discussed by our council of ministers; how to bring about the decline of our structural deficit to this level by 2016. Our debt calculated to European standard is 55%, which is too close to the Maastricht criterion – at time of our joining it needs to be much lower; our target is 45%; there is a lot to do to decrease the debt.”

Having covered the eurozone – the current crisis and Poland's steps towards joining it, Mr Kotecki talked about the macroeconomic situation. “The growth forecast for this year had been revised down from 2.2% to 1.5% because of the delay of a rebound in Europe, falling exports, lack of demand, domestic consumption lower than assumed also because of the business cycle and weakening labour market. The policy mix hitherto pursued– the budgetary and monetary stance – had been too tight. There was room for more aggressive rate cuts last year; these would have helped boost consumption. We have had delayed cuts, but fortunately cuts. The rise in reference rates in May 2012 was unjustified.

In answer to a question as to whether we can expect further reductions in rates this year, Mr Kotecki replied that “the Monetary Policy Committee (MPC) is independent from political pressure – from any pressure in fact. Inflation is falling year on year; it stands at 1% right now, whereas the MPC's target level for inflation is 2.5%. A slow down in economy is an important factor for monetary policy to reflect. Market expectations over next 12 months are for 75 to 100 basis point cuts in interest rates. We're not questioning these expectations.

Marcin Klammer, CEO of Arcadis Polska, asked how the ministry sees the business cycle compared to previous years. Mr Kotecki replied: “Poland has converged [with other EU countries] in the sense of business cycle. We're seeing changes and volatility... the impact of Europe on our growth is quite large. In August 2012, when we were preparing budget for this year, it was based on forecasts from the European Commission and IMF that recovery in Europe would start at the beginning of 2013. That rebound in growth is now delayed. The European Central Bank and the European Commission now expect that the rebound will occur in the second half of this year. I hope that there will be no further shift into next year. I hope that growth will be higher than it is now. We have revised our growth forecast for next year down to 2.5%. We cross our fingers for Europe,” he said.

Maciej Grabowski, under-secretary of state, followed Mr Kotecki. He said: “After five years at the Ministry of Finance – there are still three main ideas I have in mind; firstly – tax policy should make paying taxes as easy as possible, secondly – it should make not paying taxes as difficult as possible, and thirdly it should reduce tax risk as widely as possible for business.” Mr Grabowski mentioned the introduction of binding tax interpretations and Advance Pricing Agreement system for multinationals, which have had the effect of reducing uncertainty and tax risk.

He continued: “A major project now proceeding relates to reducing tax fraud. Since mid-2012 frauds, especially in VAT, have been increasing; the carousel system which has been such a headache to the UK Treasury has surfaced in Poland. We have a proposal to change VAT. There are three groups of commodity – gold, iron bars and gasoline – used in these fraud schemes.” Mr Grabowski also mentioned the new tax on gas exploration: “We still have chance to be a major gas producer as far as shale gas is concerned,” he said, suggesting that the rate of the new tax would have to be competitive in order not to lose investors to other countries with shale gas deposits.

Turning to income taxes, Mr Grabowski talked about steps to combat aggressive tax planning. “One of my goals when I came to the ministry was to change double taxation agreements with jurisdictions such as the Channel Island, Cyprus and others to reduce aggressive tax planning measures. And we have joined the UK and four other countries' ministries of finance on the issue of tax evasion. We believe it will have a major political dimension and that it will be beneficial for European countries by and large.” Mr Grabowski also voiced his concern that cooperation at the European level aimed at ensure