1. The state and perspectives of green budget reform in Poland Michał Dybiec Andrzej Kassenberg Wojciech Stodulski Institute for Sustainable Development Warsaw, Poland International Conference Environmentally harmful subsidies and ways to eliminate them 2-3 September 2004, Budapest

2. Basic macroeconomic indices in Poland 2001-2004 Specification (current rate 1USD=3,67PLN) Unit2001200220032004 forecast Real processes GDP%101,0101,4103,8105,0 Exports%103,1104,8114,7108,7 Imports%94,7102,6109,3108,5 Consumption%101,7102,7102,5103,3 Gross capital formation%87,493,2102,0112,0 GDP in current pricesPLN bln760,6781,1814,7861,5 Prices Price indices of goods and services%105,5101,9100,8102,0 Wages and salaries Av.monthly gross salariesPLN2045209822012290 Av.montlhy gross retirement payPLN972103910921126 Labour market Unemployment rate %17,518,120,019,5 Interest rates Open market operations%15,98,755,253,7 Balance of payments Current accountUS mln-7166-6700-4018-8400 FDIUS mln6928378937025150

3. State Budget 2002-2004 Incomes (billions PLN) 2002 performed 2003 performed 2004 planned REVENUE TOTAL 143,6152,1152,7 1.Tax revenue 128,8135,3135,0 1.1 Indirect taxes 89,695,4103,1 1.1.1 VAT 57,460,467,6 1.1.2 Excise tax, of which on: 31,534,434,6 a) spirits 3,94,1n.a. b) motor fuels 13,814,8n.a. c) tobacco products 7,98,4n.a. d) beer 2,12,2n.a. e) electricity 1,62,5n.a. f) other 2,22,4n.a. 1.1.3. Tax on games of chance/mutual betting 0,7 0,9 1.2.Income tax, of which on: 1.2.1 Corporate income tax 15,014,110,3 1.2.2 Personal income tax 24,125,721,6 2.Non-tax revenue 14,316,715,1 3.Foreign revenue 0,50,1 4.Compensation from the EU budget xx2,5

4. State budget 2003 – tax revenues

5. State Budget 2002-2004 Expenditures (billions PLN) 2002 performed 2003 performed 2004 planned EXPENDITURES TOTAL182,9191,9198,3 1.Allocation of subsidies, of which:104,4100,495,6 1.1 Subjective allocations11,812,512,7 1.2 Allocation to objective funds:47,451,541,5 1.2.1 Social Insurance Fund27,130,820,1 1.2.2 Pension Fund15,415,015,1 1.2.3 Labour Fund3,63,93,1 1.3 Apprioprate allocations to self- government 13,99,95,8 1.4 General subsidies for local self- government 29,732,031,1 2.Benefits for natural persons15,116,417,6 3.Current expenditure of budgetary entites of which: 29,834,640,3 3.1 Wages and salaries17,718,822,9 4.Public debt servicing24,024,126,8 4.1 Domestic20,320,421,0 4.2 Foreign3,7 5,8 5.Investment expenditure7,86,79,9 6. DEFICIT39,437,045,5

6. Environmental investment in Poland

7. EFR in Poland pros and cons PROS High GDP growth High unemployment Needs for extra funds for implementation of EU-law High costs of labour High extent of subsidisation Low level of costs internalization Low level of innovation in the economy CONS High budget deficit High public debt servicing High budget allocations to Social Insurance Fund and Pension Fund Relative small share of revenues from excise tax in the state budget Relative small impact on labour market Economic weakness of enterprises and households

8. Selected tendencies in relation to EFR and harmful subsidies  Transport  Excise tax removal – new registration fees.  Vignette removal  Coal mining  Energy

9. Harmful subsidies – coal mining  In the 90s – direct subsidies and debt forgiveness of 34 billions PLN (in real prices of 2001– av. yearly total state aid ca. 11 bio.)  Restructuring programme for 2004-10 : subsidies of almost 10 billions PLN.  Unknown extent of hidden subsidies: organizational structure of the sector.  Financial results of coal companies vs. rationale for state aid.

10. Harmful subsidies – energy  Main area of concern – long-term contracts (KDT).  Underwritten between Polish Power Grid and energy companies.  Partly for restructuring and modernization programmes.  Today 40% of domestic energy production under KDT.  25 billions PLN for contracts removal.  NAP – 35% more emission allowed than resulting from approved Climate Policy

11. Excise tax rates on energy carriers in Poland 2004 (1EUR=4,44PLN) SpecificationUnitTax rate (PLN) Gasoline 94, 98 and their basic petrol1000 l1690 Unleaded petrol1000 l1464 Motor oil, of which those with sulphur content 1000 l1141 - more than 0,005% up to 0,035%1000 l1063 - up to 0,005%1000 l1014 Aircraft fuels for jet turbin engines1000 l1037 Aircraft fuels for pistone engines1000 l1762 Heating oils1000 l197 LPG for cars1000 kg630 ElectricityMWh20

12. Excise tax – hidden subsidies  Natural gas – could be excluded from excise tax up to 2013.  Coal – 50% of excise tax rate to be reached up to 2007, 100% up to 2010.  Diesel fuel – full tax rate to be reached before 2011.  No excise tax for heavy heating oil and coke.

13. VAT – hidden subsidies  Basic VAT rate – 22%  Good and services on which preferential rate 3% is imposed (up to 30.04.2008)  Nitrogen fertilizers  Phosphorus fertilizers  Potassium fertilizers  Pesticides and other agrochemicals  Wood extraction services  Services on which preferential rate 7% is imposed  Taxi services  Passenger road transport services  Air travels

14. ISD’s activity on ETR/EFR 1996 two international conferences for environmental NGO from CEE 2000-2002 project on ETR with secenarios development From 2000 particpation in EEB campaign 2003 – international conference with World Bank 2002-2004 – two projects with Clean Air Action Group (REC, Hungarian Access) --------------------------------------------------------------- Small groups of scientist work on ETR/EFR in Warsaw University and Cracow School of Economics

15. Scenarios for EFR in Poland - conclusions  Double dividend (positive results for environment and employment) is very difficult to project and achieve.  The impact of tax reform on inflation and increase of production costs is not significant – real prices of majority of goods will not change.  Welfare of households should not decrease.  Supportive role of EFR for the system of environmental fees in Poland.

16. Who is for, who is against FOR Ministry of Environment Environmental NGOs Some environmental economists Greens 2004 Environmental investment market POTENTIALLY FOR Biofuel and Renewable Energy producers Public transport sector AGAINST Ministry of Economy and Labour Ministry of Finan Energy and mining sector UNCONVINCED Env. Commission in Parliament Some bussines organisations Some environmental experts Trade Unions Regional and local self- government

17. Next steps Establishing the Polish-German committee for implementation of EFR Debate in parliamentary environmental commission on EFR Polish-German workshop on subsidies harmful to the environment (generally and in energy sector)

18. Thank you for your attention Institute for Sustainable Development www.ine-isd.org.pl www.ine-isd.org.pl Web: www.ine-isd.org.plwww.ine-isd.org.pl a.kassenberg@ine-isd.org.pl a.kassenberg@ine-isd.org.pl E-mail: a.kassenberg@ine-isd.org.pla.kassenberg@ine-isd.org.pl w.stodulski@ine-isd.org.pl m.dybiec@ine-isd.org.pl