Read my lips …

In part II of our analysis of this month’s parliamentary elections, we take a closer look at what the main political players intend to do about taxation issues.
By : Anna Kocińska

   This year’s parliamentary election campaign has at best been listless and at worst overwhelmingly boring, political commentators said last week.

   Such a lackluster summary of events is mainly because, apart from those who belong to favored winner Democratic Left Alliance (SLD), most politicians seemed to have thrown in the towel months ago. According to Jeremi Mordasewicz, an entrepreneur running for office under the Civic Platform (PO) banner, voters are no longer interested in the campaign programs of particular parties. “They (voters) have already made up their minds in a more emotional rather than rational way, so most voters don’t really care what we say about the economy,” he said.

   Party leaders, realizing the apathy among voters, have avoided joining television debates, saving them the trouble, and the headache, of having to take a stand on such weighty issues as taxation, the budget deficit or privatization.

   As a result, the media has had little to offer voters looking to compare the agendas of candidates.

   However, according to Andrzej Sadowski, founder and vice president of the Adam Smith Center, a Warsaw-based think tank, voters still ignorant of the parties’ platforms haven’t missed much. “It really doesn’t matter which party wins the elections because when it comes to issues their programs are pretty similar,” Sadowski said. “The best example of this is the almost universally critical attitude toward the Monetary Policy Council (RPP). If (the parties) differ at all it’s on issues of secondary priority such as all kinds of promises that obviously won’t be kept due to the lack of money.” According to Sadowski, no party running in this year’s elections has the right formula to give the economy the boost it needs. “We’re now in a situation in which we either abandon the socialist way of administering the economy and go for deregulation or we will continue to artificially, by all kinds of subsidies and tax breaks, create new jobs,” he said. “What pisses me off the most, though, is that all parties promise to provide something for free. All parties declare that access to the Internet is a must, but give me just one that would abolish the monopoly of Telekomunikacja Polska (to introduce competition and lower costs).”

   Despite the inevitable outcome of this year’s elections, the following is a rundown of several candidate parties’ positions on one of the most important issues – tax.

   Democratic Left Alliance (SLD) and Labor Union (UP)

   SLD has indicated it may abolish the current construction tax break if it wins. But it opposes making significant changes to the system itself. “We won’t raise taxes and this statement should be much more valuable to entrepreneurs than any other populist promise made by other parties,” said Marek Wagner, a member of the parliamentary public finance committee and a potential candidate for the post of finance minister. “We’ll only continue to lower the corporate tax rate to 22% and we will introduce a tax break for companies creating new jobs.”

   Peasants Party (PSL)

   The Peasants Party (PSL), a possible partner for SLD in a coalition government, goes slightly further than the social democrats. “We opt to align personal and corporate tax rates for taxpayers who also run a business,” said Mirosław Pietrewicz, a member of the public finance parliamentary committee. Under the current system, there are different tax rates for individuals running businesses and a different tax rate on corporate income. “But we’ll keep the three-tiered system on personal income, at the same time increasing tax-free earnings so the poor can pay the lowest possible taxes.”

   Solidarity Election Action of the Right (AWSP)

   AWSP is also reluctant to overhaul the tax system. “You shouldn’t spoil what has been working well, so we want to keep the construction and renovation tax breaks, which seemingly gave a boost to the construction sector,” said Jerzy Kropiwnicki, the AWS’ head of Government Strategic Studies Center (RCSS) “We’ll keep the present tax rates, but we will look closely at the tax breaks and decide whether they are efficient. We’re against the idea of introducing a flat tax, which according to an analysis ordered by the Sejm will benefit only 1.7% of taxayers while the rest will have to pay more.”

   Law and Justice (PiS)

   Law and Justice (PiS), a party established by Jarosław Kaczyński and his brother Lech, a former justice minister in the present government, plan to replace the three-tiered personal income tax system with a two-tier structure. “When? It’ll depend on the situation in public finance,” said Ludwik Dorn, head of PiS’s electoral campaign. “What we immediately want to do is to lower corporate tax burdens because companies pay more than the current 28% rate. Due to manipulations on which operating costs they can exempt from taxing, they really pay 36%.”

   Civic Platform (PO)

   Civic Platform (PO), the party established last year that hope to finish No. 2 in this year’s race, has proposed the most far-reaching changes to the current tax system, reminiscent of the proposed “White Book of Taxes” of 1998. The White Book, which never made it to Parliament, was to streamline the nation’s tax system by removing tax breaks and loopholes and to align personal and corporate tax rates to a flat rate of 22% by 2002. PO’s plans to introduce a flat rate of 15% for all taxpayers. “It’s the most fair taxation because everybody gives the budget the same share of his earnings,” said Mordasewicz, PO’s chief economist. “We think that despite the difficult financial situation, by abolishing all tax breaks and introducing a 15% rate we can count on the same revenue for the budget.” According to Mordasewicz, the proposed overhaul of the tax system is the most important element of the PO’s economic platform. “Today, out of every single złoty we earn, we pay zł. 0.43 in taxes, and part of that money is simply wasted by the state,” Mordasewicz said. “Our goal should be to lower this level to 35%. We are against an overdeveloped public administration with a big budget because these kinds of states cannot afford to invest. Let’s leave more money in citizens’ pockets so they can decide what to do with it.”

   The present government of Solidarity Election Action (AWS) failed to push through a comprehensive package of tax-rate cuts on personal and corporate income, due to internal and external resistance against more stringent changes. Ambitious plans announced in 1998 by Leszek Balcerowicz, the former finance minister and deputy prime minister, to introduce a flat tax of 22% on individual and corporate income were limited to smaller cuts to the existing rates, which were partially vetoed by President Aleksander Kwaœniewski. Only the corporate tax cut survived. Personal income is taxed under the three-tier system of 19%, 30% and 40%.