Tutkaj News

http://bpcc.org.pl/blog/?p=1178

Being an entrepreneur is not a lifestyle decision. Some people have the necessary drive, vision and courage to set up their own businesses, grow them, employ others, create wealth, pay taxes and contribute to economic growth. It’s both nature and nurture – the right set of genes and the right business environment are needed.

After living in Poland for 13 years, I’m sure of the fact that Poles as a people have what it takes in terms of guts and know-how to do well in a competitive world. Many do just this, but in a foreign country, contributing to its growth, rather than Poland’s. Individual examples are legion, but the figure given by former Europe minister Caroline Flynt last year (as Poland celebrated its fifth anniversary of EU membership) was a shocker. She claimed that in those five years, 47,000 Poles had set up businesses in the UK. (On top of that figure, another 130,000 or so Poles had registered in the UK as self-employed craftsmen, mainly in the construction sector).

That’s 47,000 new businesses that will in the long-term be helping to bounce the UK’s economy back into long-term sustainable growth. But the figure also represents the loss to Poland of 47,000 entrepreneurs who have chosen to set up business in a country that’s decidedly more business-friendly.

Poland has structural issues when it comes to the role of SMEs in its economy. On the face of it, things look good. There are almost as many enterprises registered in Poland as there are in the UK, a country with a population that’s 50% greater. Yet what’s meant by the word ‘enterprise’?

In the UK, one can be a full-time employee, a self-employed freelancer, or the owner of a company. In Poland, the choice is complicated. Full-time employee status is burdensome on both employee and employer in terms of social security (ZUS) payments. Employers, anxious to avoid social security contributions of up to 23% of the wage cost, do what they can to encourage would-be employees to cooperate with them as freelance contractors, which means forcing them to set up their own one-person businesses (’jednoosobowa działalność gospodarcza’).

The upshot of this widely-used tax avoidance manoeuvre is that the average Polish micro-enterprise (by EU definition, 1-9 employees) employs 1.3 persons, while in the UK it employs 3.7 persons. It also means that Poland has a larger proportion of its workforce employed in microbusinesses than any other EU country.

The artificial nature of this form of employment contract is made evident by the fact that while Poland leads the EU when it comes to employment in microbusiness, it is right at the end in terms of the proportion of its workforce employed in small businesses (10-49 employees).

There is little incentive – and indeed massive disincentive – to grow your business. Owner-managers, who even in the most enlightened business environments work heroic hours, in Poland are beset by bureaucratic burdens that distract them from keeping focused on growth.

There is a bright side to this story – larger companies are less troubled by competition from below than is the case in the UK. Because the Polish SME is generally less innovative and less competitive than its UK opposite number.

When the outgoing Labour government threatened to increase employers’ National Insurance contributions from 12.8% to 13.8% there was a justified outcry from business that raising the tax on jobs is counterproductive when it comes to increasing employment. ‘Raise corporation tax, raise income tax, raise VAT if you have to – but increasing employers’ NI means disincentivising them from taking on staff’, ran the argument.

So much more so in a country where employers’ ZUS (social insurance) contributions run not at 12.8% but at well over 20%. HIgh ZUS payments distort the entire Polish economy; they turn employees in to pretend entrepreneurs, they act as a disincentive for entrepreneurs to grow their businesses, they are a turn-off to foreign direct investment.

This is a structural issue that needs to be addressed by more than one ministry (each of which has its own interests at heart). Poland needs to lower its jobs tax for the good of its entire economy.

Michael Dembinski
British Polish Chamber of Commerce
bpcc.org.pl