Poland's experience in economic reforms. What can Ukraine learn from it? Patryk Toporowski The Polish Institute of International Affairs Bratislava,

Poland's 26 years of change Total re-orientation: - 5-pages long(!) „ustawa Wilczka” act (1988) - level of deregulation not existing later in Poland - „Plan Balcerowicza” in 1990 (transformation from central planning to market economy) known as well as „shock therapy”: included 10 acts. - OECD (1996), NATO (1999), EU (2004) entry - Economic re-opening to the Western Europe (trade, investment) - Later, gradual (sometimes excessive) regulation - High social understanding and acceptance of the shock reforms in the early 90.

Plan Balcerowicza In fact it was an implementation of the Washington consensus, structural adjustment plan (but much effort on monetary stability). Difficult conditions: – Initial inflation +639,6% a year. – Initial Debt 64,8% of GDP – Initial dollarisation of domestic commerce It included cutting subsidies for fossil fuels.

Are 26 years enough? „I’ve never tought, that I notice a change during my life” Leszek Balcerowicz, about the beginning of transformation The end of transformation is close. Since 2009, Poland is classified as high income country by the World Bank. (Czechia, 2006; Slovakia 2007; Hungary , 2014) According to IMF: only Czechia and Slovakia are advanced economies. But... huge social costs were paid in the beginning and many bottlenecks remain.

Main lessons – general economic freedom Determinants of economic success (PL bad or good experience): -Market economy (facilitated by the structural reforms) -Openness to the global commerce and trade -Special economic areas (inducing FDIs) -Efficient regulation and high quality administration -Simple (or competitive) tax system -Focus on SME, potential to innovate (Google Campus)

Main lessons – economic freedom

But it’s difficult to find an instant, direct relation between economic freedom and prosperity Correlation: 0.06, (but without 2008 is 0.33 – effect of crisis) Horizontal axis: Index of Economic Freedom, Vertical: GDP per capita

Purchsing power parity enables to see a link between the prosperity and economic freedom Horizontal axis: Index of Economic Freedom, Vertical: GDP per capita (PPP) Correlation: 0.985

Purchsing power parity enables to see a link between the prosperity and economic freedom Horizontal axis: Index of Economic Freedom, Vertical: GDP per capita (PPP) Correlation: 0.985

Main lessons – Flexible labour markets Apart from it: a huge package of deregulation of professions

Main lessons – Flexible labour markets Regular job contractMandatory contract (since 2016) Specific-task contract Salary919,07 EUR*Salary919,07 EUR*Salary919,07 EUR* Employee's costs 263,95 EUR*Employee's costs 250,14 EUR* (depending on eligible costs) Employee's costs 132,35 EUR* Employer's costs 189,42 EUR*Employer's costs 165,98 EUR*Employer's costs - Net salary to gross „gross” salary 59,1%Net salary to gross „gross” salary 61,65%Net salary to gross „gross” salary 85,6% The importance of the low tax wedge * According to mean NBP exchange rate 1EUR=4,473 PLN, Nowadays serious talks about reducing the tax wedge or simplifying tax on labour

Main lessons – structure of labour important

Main lessons – Flexible labour markets It is not about only employer-oriented flexibility. Actions to enhance the availability of people excluded from the market – reactivation benefits: - telework grants for mothers after maternity leave - childcare education system - cofinance of training

Main lessons – Education Central exams at the end of primary and lower/upper secondary school. School's rankings. Revival of vocational schools. Ideas to introduce practical innovation in early stage education – programming classes in the beginning of primary schools. Entrepreneurship classes. Much orientation towards the labour market. Universities obtained quite a flexibility in setting the education agenda (new unique majors).

Main lessons – Budget A crucial issue: minimisation of the tax base erosion, tax avoidance and tax evasion. Simplicity of the tax code. Keep the public spending and debt low ('constitutional anchor') or keep the balanced spending to income. Raising awareness in the society about the effects of the debt (debt counter, „average bills”).

Thank you!