Bringing ZUS back to Earth
ZUS - the mere word usually leads to a sharp intake of breath and its burdensome paper trail and hefty costs are a millstone round the necks of both employers and employees. Politicians give lip service to tweaking Polish entrepreneurs' favorite villain to make it less of a drag on the economy, but experts say the only solution is more responsible government, fewer early retirees - and more children.
Poland's Social Insurance Office (ZUS) is no stranger to the spotlight. Aside from being loathed by many an entrepreneur, the institution recently made headlines when coalition leader Law and Justice decided that it might be safer if responsibility for the institution was shifted from the Ministry of Labor and Social Policy - currently under the leadership of Anna Kalata, a member of the populist Self-defense - to Prime Minister Kazimierz Marcinkiewicz. Though the transfer ruffled plenty of feathers within Self-defense, the Prime Minister says the bureaucratic behemoth is due for some serious surgery.
"For a long time, we have held the opinion that ZUS should undergo far-reaching modifications. That's why Robert Gwiazdowski is now at the helm of the institution's supervisory board. Hence also the amendments to the law on the departments in government administration, which, among other things, makes ZUS answerable to the Prime Minister," Prime Minister Marcinkiewicz announced last week.
Entrepreneur's enemy
Time-consuming administrative procedures rate high on the list of barriers to doing business in Poland. Little wonder as, according to a recent report by the Polish Confederation of Private Employers (PKPP) Lewiatan, the management of a small or medium-sized enterprise must spend an average of 80 minutes every day juggling all the administrative formalities. The institution that attracts most criticism from businesspeople is ZUS, with 46 percent of them labeling their relations with the social-insurance giant as bad or very bad.
"ZUS is such a hate figure among entrepreneurs for the simple reason that every single businessman has to cooperate with it on a regular basis by calculating and sending over social-security contributions. It's fairly easy to make mistakes in paperwork. Legal changes are not announced in advance and corrections are time consuming. Businessmen also complain about queues and difficulties in obtaining information," Jeremi Mordasewicz, PKPP Lewiatan's economic expert and a member of the ZUS supervisory board, told WBJ.
Multi-tasking giant
"The problem is ZUS has been turned into a real trash bin - it has been given a number of surprising functions. For example, it collects National Health Fund contributions and distributes coal allotments. How can such an institution function efficiently?" Mordasewicz asks.
The institution has also got its own team of doctors - these so-called judging doctors (lekarz orzecznik) evaluate whether a patient qualifies for a disability pension. The reason for this is the fear of corruption - ZUS, as the payer of these pensions, should in theory be more careful in granting allowances than a doctor unrelated to the institution, who might be more sympathetic to the sad lot of a Polish worker and prescribe disability pensions with less discretion. Still, there are almost two million people in Poland - over five percent of the population - obtaining disability pensions, giving the country one of the highest rates in Europe.
Labor - the luxury good
What angers entrepreneurs most is that for an employee to earn a net salary of zł.1,000, an employer has to earmark some zł.1,800 to cover the combined net pay, ZUS contributions and other taxes. The bulk of the infamous labor costs enumerated on a payslip goes straight to ZUS: retirement insurance amounts to 19.52 percent of the base pay, and is half financed by the employer and half by the employee; disability pension insurance is 13 percent, and is also financed by both parties; accident insurance is up to 3.86 percent; contributions to the Work Fund and the Guaranteed Employees Benefits Fund are some three percent; and sickness insurance is paid by the worker at 2.45 percent.
"In the times of Gierek [1970-80], the social-security contribution amounted to 38 percent of the total pay. Then in the 1990s, it was increased to 43 percent, plus a two-percent contribution for the Work Fund. Since 1992 all contributions are calculated from the gross amount, which translated into another rise. As a result, since 1989, labor taxation has grown by 75 percent and labor in Poland is now taxed like a luxury good," explains Robert Gwiazdowski, president of the Adam Smith Center and the new head of ZUS' supervisory board.
Borrowing to survive
Labor costs in Poland are certainly high. The country ranks 10th out of 30 OECD members in that category. Experts agree that the costs don't help the already soaring unemployment rate and impede entrepreneurship - but fixing an institution that has been thoughtlessly enlarged by successive governments for years is an immense task.
"It's true that since 1989 ZUS contributions have risen enormously, but even so ZUS' deficit every month amounts to zł.2.5 billion and the institution pays out benefits only thanks to bank loans. This is unheard of in any other European country," says Wojciech Nagel, the Business Center Club's insurance expert and a member of ZUS' supervisory board.
"Contributions were increased as a result of systemic transformations - the state-owned enterprises were liquidated, there were massive layoffs and people were sent into early retirement schemes. ZUS is not the one to be blamed - it's a matter of state policy," he adds.
Youthful retirees
With 1.5 million people in early retirement, Poland has the youngest old-age pensioners in the world, and they cost the budget zł.20 billion annually. In 2005, the average man beginning his retirement was 58.7 years old. For women starting their retirement, the average age was 56. According to the projections of the Central Statistical Office, in 2030 people older than 65 will account for 24 percent of society. Currently, the figure is 13 percent.
Someone has to pay into the system in order for retirees to receive their pensions, but the number of those professionally active in Poland continues to shrink. However, instead of finding new ways of putting more people to work, subsequent governments have given in to the demands of various groups of workers, granting them new retirement privileges.
"Miners can opt for early retirement schemes, and as a result they actually get three times more from the social-security system than they put into it while they were still professionally active. Their annual contributions amount to zł.3 billion and they obtain zł.8 billion. I don't question anyone's right to the old-age pension when they reach the right age, but if governments don't change their policy, we risk a breakdown of public finance," warns Mordasewicz.
Let the children pay
Farmers belong to a different group. A million and a half of them don't pay ZUS contributions as they have their own separate Agriculture Social Insurance Fund (KRUS), which currently pays out allowances to 1.6 million people. The quarterly KRUS contribution amounts to some zł.179 per farmer, no matter how much land they own or what kind of profits he or she earns. By comparison, a person running their own micro-enterprise pays zł.600 every month to ZUS. As a result, 95 percent of farmers' old age and disability pensions are financed from the budget.
"I believe that the issue of social insurance is the most urgent problem for the government to solve. With adverse demographic tendencies and more and more groups demanding privileges, the state will finally go bankrupt," Mordasewicz warns.
Robert Gwiazdowski is blunt about the issue: "Since the times of Bismarck, states had difficulties in dealing with these issues. Some cope better, some worse. People have to stop taking for granted the fact that the state is going to support them in their old age and realize that by going on strike and demanding early retirement schemes they actually do it against their children. Finally, people simply have to have more children."
