In the 1980s, Poland experienced large changes in the financial position of the general government as the economy underwent upheavals that led to its 1990 economic transformation program.1 During 1979–81, the country had already experienced an economic crisis that had been accompanied by a sharp deterioration in its fiscal accounts. Following a series of partial fiscal reforms that modified the system of taxes and streamlined subsidies with a view to imposing greater discipline on enterprises, the financial position of the general government improved significantly during 1982–83 and remained broadly in balance during 1984–88. However, the improvement was temporary and, in 1989, general government finances deteriorated dramatically, reaching a deficit of 8 percent of GDP that was attributable more to a decline in tax revenues than to an increase in general government expenditures. The radical changes associated with the introduction of the transformation program in 1990 implied equally drastic changes for the country’s fiscal policy framework.

Fiscal Performance During the 1980s

In the 1980s, Poland experienced large changes in the financial position of the general government as the economy underwent upheavals that led to its 1990 economic transformation program.1 During 1979–81, the country had already experienced an economic crisis that had been accompanied by a sharp deterioration in its fiscal accounts. Following a series of partial fiscal reforms that modified the system of taxes and streamlined subsidies with a view to imposing greater discipline on enterprises, the financial position of the general government improved significantly during 1982–83 and remained broadly in balance during 1984–88. However, the improvement was temporary and, in 1989, general government finances deteriorated dramatically, reaching a deficit of 8 percent of GDP that was attributable more to a decline in tax revenues than to an increase in general government expenditures. The radical changes associated with the introduction of the transformation program in 1990 implied equally drastic changes for the country’s fiscal policy framework.

As in other transition economies, Poland faced a two-pronged fiscal problem at the outset of reform. To create room for private initiative, state intervention into the economy had to be reduced. This meant reducing the size of government, raising revenues in a less distortionary fashion, and improving the expenditure mix, which in turn implied significant changes in tax and expenditure systems, as well as in tax administration and expenditure management. At the same time, the fiscal deficit had to be kept within the limits that were compatible with the Government’s macroeconomic stabilization objectives.

Tax Reform

Reforming the Tax System

At the beginning of Poland’s transformation, revenue instruments largely reflected the needs of a planned economy and were ill suited to an environment in which economic activities were no longer centrally planned. As a result, tax reforms during 1989–93 entailed a complete overhaul of the Polish tax system. (A complete list of the reform measures appears as an Appendix at the end of this Section.) The four major reforms were:

  • the introduction, in 1989, of an enterprise income tax (EIT) with a uniform tax rate of 40 percent:

  • the introduction, in 1990, of a 2 percent tax on the gross payroll of enterprises to finance the newly established unemployment insurance scheme administered by the Labor Fund:

  • the introduction, in 1992, of personal income taxation (PIT), with the highest marginal rate being equal to the EIT; and

  • the introduction, in 1993, of a value-added tax (VAT) at a standard rate of 22 percent and a reduced rate of 7 percent.

The introduction of the EIT, payroll taxes for the Labor Fund, the PIT, and the VAT provided for more equitable taxation of income and consumption. Given that prior to the transition most citizens were unaware of the existence of taxes, the introduction of the PIT and VAT, more than anything else, sharpened public awareness of taxation issues and propelled tax policy to a center stage in public policy discussions.

Notwithstanding these reforms, numerous subsequent adjustments had to be made to the newly introduced taxes. These sought to address loopholes and rigidities but, given the precarious fiscal situation of the state, were also motivated by the need to contain the state budget deficit. For the EIT, for example, (i) revenue sharing between the state budget and the local authorities was temporarily changed from an arrangement under which 95 percent of all revenues accrued to that state budget and 5 percent to the local authorities, to one under which 98 percent accrued to the state budget and 2 percent to the local authorities; (ii) asset revaluations for calculating depreciation allowances tended to be ad hoc and were carried out with a lag and sometimes in a restrictive manner, a practice that became particularly problematic during the 1990 price shock but caused problems even after inflation subsided: and (iii) depreciation schedules and loan loss provisions for banks remained conservative notwithstanding several changes. For the PIT, tax brackets remained frozen during 1993, a decision that was declared unconstitutional by the Constitutional Tribunal (Poland’s Supreme Court, which rules on the constitutionality of policy decisions), and tax rates were increased in 1994, with the new top marginal tax rate now 45 percent.

While the EIT, PIT, and VAT were the centerpieces of tax reform, there were other revenue items that underwent fundamental reforms as well. The system of customs duties was revised, motivated by Poland’s transitory association agreement with the European Union that came into effect in March 1992 and its application for changing the status of its membership in the General Agreement on Tariffs and Trade (GATT).2 At the end of 1992, Poland introduced a temporary import surcharge, formally a 6 percent charge on import turnover; it was envisaged that it would be in effect until the end of 1994. While primarily introduced for balance of payments reasons, the surcharge also helped to ease fiscal constraints during the transition. The same fiscal constraints also necessitated drastic increases in social security taxes. The combined statutory rate for all social insurance taxes levied on the gross payroll of enterprises and paid for by employers went from 38 percent in 1989 to 48 percent in 1993, of which 3 percentage points were for the Labor Fund and 45 percentage points for the Social Insurance Fund (FUS).

With noncompetitive practices in evidence in several sectors of the economy, and a slower than expected pace of commercialization and privatization that has been associated with lags in establishing property rights and effective corporate control, the Polish authorities retained two main fiscal instruments to exercise control over the operations of state-owned enterprises (SOEs). These were the dividend requirement and a tax on excessive wage growth (popiwek). As both instruments were, at least after 1991, applied solely to SOEs, they were also thought to increase the attractiveness of privatization.

The dividend requirement is a fixed charge on the “founder’s equity” of SOEs, that is, the capital that was transferred to each SOE in the past in the form of assets needed for engaging in economic activity, indexed for inflation. The dividend requirement is payable irrespective of profits, and was introduced in 1989 to prevent decapitalization and to safeguard the state’s interests in a situation of unclear property rights. While SOEs with payment arrears on the dividend requirement were initially threatened with bankruptcy, the rule was not enforced. With many SOEs coming under increasing competitive pressures that resulted from a wide range of factors, such as price liberalization, trade liberalization, reductions in enterprise subsidies, and private sector growth,3 the state came under strong pressures to reduce the dividend requirement rate. As a result, the top rate, which amounted to 44 percent at its introduction, was reduced to 10 percent as of July 1992.

The popiwek, a tax-based incomes policy for SOEs, is a levy on wages that exceed a specified norm. The popiwek is a regulatory instrument that should yield zero revenue and, in one form or another, existed long before the transformation program. Rates for exceeding the wage norm set by the Council of Ministers were generally prohibitive but adjusted relatively frequently. For a while, the top marginal rate levied on wages in excess of the wage norm amounted to 500 percent. Again, increasing competitive pressures in the enterprise sector and growing arrears by large, unprofitable SOEs resulted in demands to make the instrument more flexible. In early 1994, the top marginal rate for exceeding the wage norm amounted to 300 percent, but there existed various exceptions and adjustments to the general norm for enterprises shedding labor. The tax was not in effect during April–July 1994 but was reintroduced in a revised form in August 1994.

Reforming Tax Administration

Typically, successful reform of a tax system requires a significant strengthening of tax administration. This is particularly the case for transition economies, since there is little need for an activist tax administration under central planning; in Poland, for example, the state bank directly withheld tax liabilities from enterprise accounts. This situation changed dramatically once the transition was under way. Though Poland’s tax administration has sometimes been subject to criticism from different sides, overall, it has adapted well to the new environment, even though a number of problems that could have been avoided have caused difficulties.

From the beginning of the transition, the tax administration faced a double challenge: first, it had to administer a tax system that was undergoing rapid change as new taxes were introduced and existing taxes were modified: second, with private economic activity expanding rapidly, it had to handle new groups of taxpayers. To address this double challenge, more resources had to be devoted to the two core tasks: administering the newly introduced taxes, that is, the EIT, PIT, and VAT: and strengthening and broadening the tax net so as to capture the increase in private economic activity.

In administering the new taxes, the authorities aimed at imposing greater uniformity in the procedures used by local tax offices. This meant imposing standardized systems and procedures. While, initially, computerization was thought to constitute a centerpiece of this reform effort, it in fact became one of its major bottlenecks. One result of the delayed computerization was that, in spring 1993, about 10 million personal income tax returns had to be processed manually and without the benefit of a uniform data bank.4 There were other obstacles, though, arising in particular from an unnecessarily complex tax system. For example, the very large number of PIT returns owed much to several special features of the law, concerning joint filing, deductibility of housing costs, and the flat 20 percent withholding applied in1992: such a large number of returns probably would have strained even a much better prepared administration.

In addition, tax administration had to address the problem of eroding taxpayer discipline. Recorded tax arrears began to mount during 1990–93, reaching about 4 percent of GDP at the end of 1993. About 40 percent of these arrears concerned social security taxes and another 30 percent the popiwek. About 20 percent of all public sector entities had social security tax arrears, and, although large pans of the SOE sector had payment arrears on the popiwek, a small number of large SOEs accounted for a significant portion of these arrears. Still, tax arrears were only part of the problem: while arrears were largely due to SOEs, significant parts of the private sector were escaping the tax net altogether.

To address the problems of arrears and evasion that inevitably occur when direct state controls are reduced and private sector activity is rapidly expanding, the authorities increased the sanctions against evaders and those in arrears, and strengthened its own enforcement capacities. The sanctions were reinforced by steep increases in the legal consequences of tax fraud, evasion, and arrears, including imprisonment and fines (with interest charges and fixed penalties). Indeed, there have been concerns that the current penalty structure is overly harsh, and, since it is generally not applied to the full extent, may actually tend to undermine administrative credibility (Murray (1993)).

Enforcement capacities were increased by changes in the organizational structure and by further increases in staff. Probably the most important organizational change was the creation, in early 1992, of a fiscal control inspectorate (fiscal police). Moreover, the customs administration is to be integrated into the Ministry of Finance in the near future. Total employment in local and regional tax offices amounted to about 23,600 in mid-1990: by end-1993 this had increased to 32,390. In addition. 6.620 people were employed by the newly created fiscal police. Still, Poland is quite unusual in having separate agencies for tax collection and tax audits, a situation that has caused some uncertainties and problems of coordination between the two: the findings of the auditors are not binding, and tax collectors may decide whether to pursue taxpayers with added liability (Kodrzycki (1993)).

Expenditure Reform

Reforming Expenditure Policies

Expenditure reform has been an area of relatively slow progress, particularly compared with the fairly speedy reforms on the revenue side. Much of the reform effort focused on reducing subsidies and reforming entitlement spending, especially social security. While some expenditures, particularly subsidies, were drastically reduced, other expenditures had to be increased to strengthen the social safety net during the transition. The authorities generally sought public consensus on various entitlement reforms, which takes time to form. As a result, there have been few improvements in targeting expenditures, and on a day-to-day basis, expenditure policies were largely aimed at containing cash expenditures without increasing payment arrears.

Major progress has been made with reducing subsidies to enterprises and consumers. With the liberalization of prices in 1990, it was no longer feasible to provide extensive subsidies on goods and services, and the Polish authorities moved quickly to address this problem. Several subsidies were phased out at the outset of reform in 1990—for example, the budgetary subsidies to state farms. Sometimes, however, direct subsidies were replaced by other mechanisms, as, for example, price stabilization measures and other market interventions by the Agency for Agricultural Markets (ARR) that was set up in June 1990.

The two basic structural problems of entitlement spending are that the level of benefits that has been promised is beyond society’s means and that there is significant inefficiency and waste (Tymowska and Wisniewski (1993)). Notwithstanding subsidy reform, the general experience with entitlement spending during the first few years of transition is that entitlements, once established, are not easily reduced or revoked, and reforms in this area are particularly difficult to bring about. However, while the overall speed of reform has been slow, a large number of changes have been made.5

Before the transition, inflation was not officially recognized, and the individual assessment basis for pensions eroded with duration in retirement. As a result, pensions were lowest for long-time pensioners. In early 1990, the system of cost-of-living adjustments (COLAs) for pensions was improved when pension benefits were indexed to the expected average wage in the current quarter. The improved COLA mechanism prevented further increases in horizontal inequities but did little to reduce existing inequities. Pension legislation enacted in October 1991 aimed at improving horizontal equity by requiring that all previously awarded pensions be recalculated according to a new uniform pension formula. Also, the indexation mechanism was changed to the actual average wage in the economy that prevailed in the previous quarter. Specifically, a COLA had to be made when the average wage that prevailed in the previous quarter had increased by 5 percent relative to the average wage that was used for the last COLA; in February 1992, the COLA trigger mechanism was changed from 5 percent to 10 percent. The October 1991 legislation also abolished a number of retirement bonuses that gave preferential treatment to different occupational groups. Finally, the base for assessing pension benefits was changed. Previously, pension benefits were related to the salary in the last year of employment before retirement, which resulted in an incentive to inflate preretirement salaries. Under the new regulations, the assessment base is gradually to be increased to the last 12 years of employment. In January 1992, the right to receive income from both pensions and work ("doubledipping") was restricted: for incomes exceeding 120 percent of the average monthly wage used in the last COLA (base income), pension payments are fully suspended; for incomes between 60 percent and 120 percent of the base income, pension payments are partly suspended.

Although the system of unemployment benefits was not introduced until late 1989, it also has undergone numerous changes, most of them aimed at revoking some of the overly generous initial stipulations. At first, unemployment benefits were tied to the last individual wage and, for the most part, had no duration limit. In September 1991, unemployment benefits were restricted to those who, during the 12 months prior to registering as unemployed, were employed for at least 180 days. In addition, unemployment benefits were not to exceed the average wage in the economy and not to fall below 95 percent of the minimum wage. In December 1991, a general 12-month duration limit was introduced. In February 1992, unemployment benefits became, with some exceptions, a flat-rate benefit set at 36 percent of the average wage in the previous quarter. As a result of these reforms, a smaller proportion of the unemployed receive unemployment benefits: while 67 percent of the unemployed received unemployment benefits at end-1991, this had dropped to about 41 percent at end-1993. The authorities estimate that up to 50 percent of those registered for unemployment may actually be employed in the shadow economy or intend to withdraw from the labor market without forgoing the benefits (e.g., health care) available to those registered as unemployed. Social assistance, available to unemployed workers who no longer receive unemployment benefits, has been increasing rapidly. Social assistance is largely the responsibility of the local authorities, even though a significant part of it is commissioned and paid for by the central authorities.

Many of the expenditure adjustments are aimed at containing cash outlays in the face of growing budgetary pressures. One example concerns family allowances: while formerly this allowance amounted to 8 percent of the average wage per beneficiary, it has remained frozen in nominal terms (at Zl 167,000 per beneficiary) since early 1992. To some extent, the freeze compensated for lack of policy action on improving targeting. Another example concerns wages of state employees. A January 1989 law stipulated that wages of state employees amount to 106 percent of the average wage in the economy. Given the financial situation of the state, the law was suspended during 1992–94. However, the 1992 suspension was ruled unconstitutional by the Constitutional Tribunal on the ground it was retroactive, and, hence, some compensation payments had to be made. In practice, wages of state employees were defined in the annual appropriation bills, even though the 1989 law has yet to be replaced.

In addition to the Constitutional Tribunal ruling on state employee wages just mentioned, other reforms had to be modified for legal reasons. In the spring of 1992, for example, the Constitutional Tribunal ruled that those parts of the October 1991 pension legislation that resulted in some pensions being lowered were a violation of acquired entitlement rights. Accordingly, some pensioners had to be

compensated. Instead of a cash compensation, it was decided to address compensation for pensioners and state employees by privatization vouchers.6

Other changes reflected an absence of consensus on the direction of reform. For example, the pension law’s occupation-specific special treatment provisions that were abolished in October 1991 were reintroduced in January 1993, then suspended again in February 1993. There were three types of occupation-specific provisions: (i) early retirement provisions for specific occupations (coal miners, police, army, and so forth); (ii) pension top-ups for occupations with hard working conditions (coal miners), with a tradition of state protection (railway workers), with high social prestige (teachers), or with significant political influence (journalists and employees of the State Control Agency); and (iii) top-ups in the form of “noncontribution” periods that were added to the general pension formula for specific occupations. This “redistributional charity” enforced popular beliefs that concessions, not contributions, formed the basis of the Polish pension system (Tymowska and Wisniewski (1993)).

In January 1993, again motivated by budgetary pressures, the actual pension base defined by the pension formula was lowered to 91 percent of the calculated base pension. This was increased to 93 percent on the occasion of the second COLA adjustment in 1994. Also, in January 1994, the general minimum pension was increased from 35 percent of the average wage to 39 percent.

Notwithstanding the generally slow pace of expenditure reform, significant progress was made on containing military expenditures. The overall troop strength of the Polish army had shrunk from 400.000 in 1988 to about 290,000 by 1993. In real terms, funding for the military declined by 22 percent in 1990, was stagnant in 1991, then decreased by a further 9 percent in 1992. Annual military budgets since the late 1980s have been austere, permitting little procurement of new weapons and equipment (Oxford Analytica, May 3, 1993).

Reforming Expenditure Management

Changes in expenditure management during the transition were largely motivated by the need to restrain the fiscal deficit to manageable levels. Therefore, the transition period saw a stronger reliance on cash rationing as a main tool of expenditure management. There were two early legal changes, though, that provided expenditure management with enhanced responsibilities for the budget deficit and its financing.

The first change was the 1989 Banking Law that allowed the National Bank of Poland (NB?) to determine the level of credit to the budget. The same law also significantly reduced the scope of the NBP’s quasi-fiscal operations and incorporated the main quasi-fiscal activities into the state budget. The second change, decreed in December 1989, was to require that credit to the budget had to be covered by securities. With the maximum deficit defined by the annual appropriation laws, and limited scope for discretionary changes on the revenue side during the fiscal year, it fell upon expenditure management to keep expenditure levels within the stipulated limits.

One way to control expenditure levels was to improve fiscal management, that is, the allocation of funds. An important step toward this goal was a new budget law, promulgated in January 1991, which replaced a 1984 law and which redefined the principles for collecting and allocating budget funds. The new budget law allows for the possibility of executive intervention against a current budget appropriation in order to maintain economic stability. Moreover, in the event that the planned budget balance is threatened, the law gives authority to the Council of Ministers to block budgeted expenditures for a specified period of time, provided this is approved by the Parliamentary (Sejm) Committee for Economic Policy. Budget, and Finance.

Notwithstanding the new budget law, many of the changes in expenditure management occurred in numerous small steps covering such diverse areas as macro-fiscal management, budget preparation and resource allocation, accounting and financial management information, government procurement procedures, treasury operations, and cash and debt management. For example, with the state budget starting to be formulated within a macroeconomic framework, it became important to carry out fiscal analyses on the basis of the general government rather than the state budget. In this context, the considerable streamlining of the extrabudgetary economy, from over 30 extrabudgetary funds in 1990 to about 15 in 1993, significantly facilitated macroeconomic policy formulation.

Still, many of the changes in expenditure management over the last several years occurred in response to pressing demands that are specific to transition economies. While expenditure appropriations were planned within the overall macroeconomic framework, cash rationing had to be employed frequently. This was particularly apparent in 1993, when a decision to prevent interest rate increases reduced the availability of nonbank financing and necessitated drastic controls of cash expenditures, Nevertheless, to some extent, the reliance on cash controls also reflects the fact that a single central accounting agency, with a mandate to produce all the information required for effective expenditure management, has yet to be created.

Intergovernmental Fiscal Relations

Decentralization and reform of intergovernmental relations became a priority during the transition. Self-government of local authorities was established in March 1990 with the promulgation of the Act on Local Self Government.7 This necessitated drastic changes in the system of fiscal responsibilities.

Starting in 1991, the finances of the local authorities were separated from the state budget. Since then, Poland has essentially operated as a two-tier government with central authorities (national and regional authorities) and local authorities (gminas). There are about 2,465 gminas; their major economic role concerns the allocation of resources. These expenditure responsibilities of the gminas cover a broad range of tasks, including education (preprimary and, increasingly, also primary and secondary education), transport (construction and maintenance of local and urban roads and bridges, local public transport), sanitation (ownership and provision of cold water, sewerage services, road cleaning, garbage collection, waste disposal), municipal housing and subsidies for housing rent, culture, and other services (public libraries, recreation facilities and municipal parks, market places, street lighting), and municipal enterprise operations.8 Although the gminas were given considerable spending autonomy, their first priority remains to carry out centrally mandated (and financed) tasks, mainly in the areas of social assistance and health care.

The 49 regional authorities (voivodships) have two main functions: they are executing agencies for the national authorities and public service intermediaries between the national authorities and the gminas for certain central expenditures (mostly health and social assistance). They have no revenue base of their own. Under the 1990 Act on Local Self-Government, it is envisioned that the gminas will eventually be fully responsible for all health care and schooling. An expanded role of the gminas will necessitate additional changes in the system of intergovernmental fiscal relations and is likely to reduce the role of the voivodships further.

Based on the 1990 Local Self-Government Act, the 1991 Law on Local Government Revenues and Subsidy Procedures provided for five main sources of local authority revenues. These are shown in Appendix Table A7. The two most important revenue sources for the gminas are the real estate tax and shared revenues derived from the personal income tax, which together accounted for over 50 percent of revenues during 1992–93. In general, the gminas have found it difficult to diversify and develop their revenue base. This has imposed tight budget constraints and, apart from serious cost cutting (e.g., cutting salaries), also led to reductions in the level of municipal services provided (e.g., closing down municipal kindergartens), the introduction of user charges for previously free services (e.g., kindergarten fees), and the establishment of profit-oriented municipal enterprises.9

Revenue and Expenditure Performance During the Transition

Table 2–1 shows the fiscal accounts of the general government: the presentation differs slightly from the presentation in the Statistical Appendix tables in that the three main social security funds are consolidated with the state budget.

Table 2–1.

Major Revenues and Expenditures of the General Government

(In percent of GDP)

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Source: Polish authorities.

Data for 1993 include revenues from the VAT, which replaced turnover taxes in July 1993.

On a domestic commitment basis, that is, interest payments on external debt are recorded on a cash basis.

Consolidated to include the accounts of the three major social insurance funds: the Social Insurance Fund (FUS), the Pension Fund for Farmers (KRUS), and the Labor Fund.

Includes pension payments by FUS, KRUS, and the pension scheme for the military and police that was separated from FUS starting in 1993.

Includes, among other things, unallocated financing.

For the revenue side, the table indicates that, notwithstanding the many systemic changes in the tax system that were implemented, overall revenues (as a percentage of GDP) were not significantly lower in 1993 than they were before the transition: revenues of 48 percent of GDP in 1988 compare with revenues of 45½ percent in 1993, based on preliminary data. This relative stability of the tax-to-GDP ratio implies that developments in real tax revenues have broadly paralleled economic growth, which is somewhat surprising in the light of the strong systemic changes that have occurred.

If not reflected in the level of revenues relative to GDP, the systemic changes are reflected in a pronounced shift in the composition of taxes: away from taxing enterprise profits and toward taxing personal incomes and consumption. Although EIT revenues averaged over 12 percent of GDP during 1988–90, they averaged only 5½ percent of GDP during 1991–93, a level fairly close to the average of members of the Organization of Economic Cooperation and Development (OECD) of about 3 percent. Since the EIT was introduced in 1989, much of this reduction reflects a pronounced decline in enterprise profitability but also the various changes to tax provisions discussed above. EIT revenues declined following a peak of 14 percent of GDP in 1990, which largely reflected the transitory impact of historical cost accounting in a highly inflationary environment, and consumption and income taxes became more important. The introduction in 1992 of a modern personal income tax contributed to the increase in revenues from this source from about 3 percent of GDP during 1988–91 to over 8 percent of GDP during 1992–93. Turnover tax revenues (including excise tax revenues) bottomed out at 6.3 percent of GDP in 1990, but because of expansions in the tax base, adjustments in tax rates, and improvements in tax administration, they increased to 10.6 percent of GDP in 1993. Valued-added taxes, which replaced turnover taxes in July 1993, yielded higher revenues than turnover taxes almost from the very beginning.

Accordingly, underlying the important tax regime changes, there was a broad stability in overall revenues from the three main sources of taxation (income, consumption, and enterprise profits), as increases in revenues from income and consumption taxes fully compensated for the loss of revenues from enterprises: during 1988–89, revenues from these sources averaged 24½ percent of GDP, while preliminary data for 1993 suggests revenues of 25 percent of GDP (excluding revenues from a newly introduced, but temporary, import surcharge). These results provide a strong ex post justification for carrying out tax reforms swiftly: bold tax reform measures, if they are well prepared, do not need to have adverse revenue effects and do not impose risks for macroeconomic stabilization efforts, even in the short run. In fact, it could be argued that it was partially the bold changes in the tax system that helped to provide Poland with a more stable medium-term fiscal outlook and allowed the country’s transition process to advance swiftly from stabilizing to transforming the economy.

For the expenditure side. Table 2–1 shows that, with the exception of the “big bang” year of 1990, general government expenditures were fairly stable. While overall government expenditures averaged 48½ percent of GDP during 1988–89, they averaged 49½ percent during 1992–93. But again, there were significant changes in the composition of expenditures. The table separates expenditures into four main categories: factor incomes, direct government demand, producer subsidies, and expenditures with income transfer characteristics.10

Factor income payments grew from 4 percent of GDP in 1988 to almost 12 percent of GDP in 1993. About half of this increase came about through higher interest payments: the other half reflected increases in wages and salaries. The fact that interest expenditures grew, increasing to about 4 percent of GDP in 1993, largely reflected financial market reforms that required the Government to offer competitive interest rates for its borrowing operations and the growing stock of domestic debt. The increase in government wage expenditures, from 4 percent of GDP in 1988 to about 8 percent during 1992–93, largely reflected increases in social security contributions for state employees and a monetization of in-kind benefits. During the transition, average gross wages in the state sector (excluding the military) have remained below the economywide average.

Direct government demand was reduced during the transition, from 8.6 percent of GDP in 1988 to 6 percent in 1993. Underlying this reduction was a pronounced shift from capital expenditures toward current expenditures. While, relative to GDP, purchases of goods and services were at the same level in 1993 as in 1988, the Government’s capital expenditures were reduced from 4.2 percent of GDP to 1.5 percent. This reduction in capital expenditures may have had a dampening effect on production in various industries, particularly capital goods industries.

Producer subsidies underwent a dramatic reduction during the transformation. Starting from a level of 6 percent of GDP in 1988, these subsidies accounted for less than 1 percent of GDP in 1992. Producer subsidies were reduced because of the need both to impose a hard budget constraint on SOEs and to ensure a more efficient allocation of resources. Also, the reductions were a logical consequence of introducing a modern system of enterprise profit taxation in 1989, which decreased both the scope and the need for cross-subsidies and profit remittances to the budget. In comparison with many of the other areas of reform, reducing producer subsidies was relatively easy for three reasons. First, at least from a long-run perspective, the system of cross-subsidies (punitive taxation and discretionary subsidies) was at best a zero-sum game. Second, revoking these subsidies was not perceived as revoking entitlements. And third, at least over the short run, some enterprises compensated for the reductions in producer subsidies by increasing tax arrears and/or interenterprise arrears.

While producer subsidies were reduced sharply, in a few sectors they have been rather resilient, and in some cases, such as fuel and fertilizer subsidies for agricultural producers, even staged a comeback. The cuts in producer subsidies probably reinforced other factors that adversely affected enterprise profitability, including increases in wages and salaries, the cost of raw materials and energy, and interest payments. Also, cuts in producer subsidies may have reinforced other factors that adversely affected aggregate demand, such as reductions in the Government’s capital expenditures and its expenditures on purchases of goods and services, and external factors, such as the collapse of the CMEA arrangements. Overall, then, the reduction in producer subsidies was a likely contributor to the polarization of the enterprise sector, where “success” and “failure” became apparent rather quickly, but it was clearly not the sole determinant and probably not even a major one.11

To elaborate, enterprises faced a multitude of constraints during the transition, such as restricted access to credit, problems of exporting to traditional markets, and sometimes, controlled producer prices at artificially low levels (as, for example, in the case of utilities). The withdrawal of producer subsidies was just one among many constraints faced by SOEs and therefore may not have been a major determinant for the magnitude of the production decline that has occurred. Still, the withdrawal of producer subsidies brought into the open the extent to which each SOE was able to stand on its own feet; in this sense it also contributed to output reductions, layoffs, curtailments of investment, and the emergence of tax arrears and interenterprise arrears.

Income transfers increased during the transition, from 19.4 percent of GDP in 1988 to 22.4 percent in 1992. Again, there was a pronounced shift from consumer subsidies to social expenditures (including pensions), and to some extent, consumer subsidies and social expenditures became substitutes. Although, in an environment of severe supply constraints, direct or indirect support of the purchasing power of consumers is of little use, toward the late 1980s these supply constraints were probably less severe in Poland than in many other transition economies. This may help to explain why Poland started the transition with a level of consumer subsidies that amounted to 10 percent of GDP in 1988, which was relatively high even compared with other transition economies. With the liberalization of prices in 1990, extensive subsidization of consumer goods became impossible, and these subsidies were reduced by 4½ percentage points of GDP in the same year, with additional but smaller reductions during 1991–92.

At end-1993, only a few direct consumer subsidies remained in effect. Still, in addition to direct subsidies, there were a number of consumer subsidies provided in the form of prices that were administered below market-clearing levels, such as municipal transport prices. The cost of these subsidies is not directly reflected in the budget, but they are not without cost: it is no coincidence that transport companies, as they operate with administered output prices, also had significant tax arrears.

At the same time that consumer subsidies were reduced, more people obtained access to social security payments, particularly pensions. Pension expenditures increased from 7.1 percent of GDP in 1988 to 15 percent of GDP in 1993, largely fueled by a boom in early retirement. The number of pensioners increased by 27 percent (1.9 million) between December 1989 and late 1993, with a particularly pronounced increase in the number of old-age pensioners (including early retirement, but excluding farmers’ pensions), which increased by 36 percent (820,000).

To some extent, social security benefits were an important “automatic stabilizer” during the transition. That much of the increase in social security benefits occurred during 1991–92, and not in 1990, the first year of transformation, suggests that the quantitative importance of this stabilizer increased when structural reforms intensified and the social costs of transition became more apparent. The increase in social security benefits and the simultaneous reduction in consumer subsidies would also suggest that many of the transition-induced social costs were shouldered by social security arrangements rather than by more temporary social assistance schemes. Interestingly, payments resulting from unemployment benefits remained rather modest, and notwithstanding further increases in the number of unemployed, were even reduced, relative to GDP, in 1993, as duration limits went into effect.

While Table 2–1 shows some clear trends and trade-offs, strong quantitative conclusions should not be attempted. In particular, there are various “other” current expenditures that, under the prevailing budget classification, are not easily assigned to an expenditure category, even though, to a large extent, they reflect purchases of goods and services and miscellaneous payments with income transfer characteristics.

Remaining Agenda for Reforming Public Finances

At the beginning of the transition, much attention was focused on putting the right policies into place. At the core of the reform discussion were questions of intergovernmental fiscal relations, revenue reform, and expenditure reform. While reforms of intergovernmental fiscal relations continue to be implemented step-by-step, this policy strategy has had the most visible success on the revenue side. Now that significant parts of the overall reform agenda have been implemented, attention has begun to shift toward administrative and management issues and fine-tuning the policies that were put into place.

All major tax policy reforms that had been proposed at the outset of transition (the EIT, PIT, customs duties, VAT) were implemented during 1989–93, with the exception of social security taxes. While there are some remaining issues concerning the broadening of the bases of these taxes, a main current and future task is to strengthen tax administration. A specific focus is to expand the tax net to sectors that currently go largely untaxed and to reduce the extent of tax evasion. Reforms in this area involve a wide range of issues, from improvements in administrative procedures and modernizing equipment to improving the skills of tax administration personnel. On the expenditure side, however, major policy reforms still lie ahead, and without fundamental policy changes, improvements in expenditure management will ultimately remain ineffectual.

Pension reform is one of the most urgent expenditure reform tasks, particularly since, over the next few decades, demographic developments alone (shown in Chart 2–1) will render the current system unsustainable; they largely reflect events that have already occurred and cannot be changed by policies.

Chart 2–1.
Chart 2–1.

Population Dependency Ratios and Pension System Dependency Ratios, 1993–2060

Sources: Polish Ministry of Labor and Social Policy; and IMF staff estimates.Number of working-age people to number of retirement-age people.Number of labor force participants to number of retirees.

The impact of these demographic issues on the pension system can be gauged by looking at the adjustment in the average cost rate (the average contribution over the average income) that is required to hold the average benefit rate (the average benefit over the average income) unchanged: according to the estimates presented in Table 2–2, between 1993 and 2050, the cumulative increase in the cost rate of the pension system would have to amount to 71 percent. In 1993, the cost rate of pensions amounted to 14.7 percent. This implies that, on average, contributors gave up 14.7 percent of output to finance current pension expenditures. With the average dependency ratio of about 2.0 that prevailed in early 1993, the benefit rate was 29.4, which implies that, on average, every pensioner received a pension equal to 29.4 percent of output. The forecasts presented in Table 2–3 suggest that, if the benefit rate is held constant at around 30 percent, the cost rate would need to increase from 14.7 percent in 1993 to 25.6 percent in 2050. Under current demographic trends, if the benefit rate is kept at current levels and if the cost rate is not adjusted, the average retirement age would need to be increased by about 10 years, to 65 years, by the year 2050.

Table 2–2.

Demographic Developments and Their Effects on Pensions, 1993–2050

article image
Sources: World Bank; Polish Central Statistical Office: and IMF staff estimates.

The population dependency ratio indicates the number of working-age people to the number of retirement-age people. The pension system dependency ratio indicates the number of labor force participants to the number of retired people.

Marginal increase in average pension cost relative to average income required to hold average pension benefit unchanged relative to average income at its 993 level.

From 1993 to 2050.

Table 2–3.

Pension System Cost Rates Under Alternative Benefit Rates

(In percent of GOP)

article image
Sources: World Bank; Polish Central Statistical Office; and IMF staff estimates.Note: The dependency ratio indicates the number of labor force participants to the number of retired people

As currently under discussion, the pension system is to be transformed into an explicit two-tier or three–tier system. This could mean a first tier where the state guarantees a flat-rate minimum subsistence, and a second tier that would either continue to be operated on a pay-as-you-go basis or changed to a funded system, with some participation of private pension funds likely, at least over the medium term. Regardless of the pension system that will be selected, however, various current reforms will have to be addressed. These include, among other things, improving the rules and mechanisms for COLAs, tightening eligibility criteria for disability pensions, and addressing the question of occupation-specific special treatment provisions. Still, pension reform is only one part of the much wider task of social security system reform, which also needs to address such issues as health care and sickness benefits as well as various benefits that do not concern life cycle risks but are nevertheless currently financed by social security contributions (e.g., family allowances).

Appendix: Major Changes in the Tax System During 1989–9412

Enterprise Income Taxes (EIT)

January 1989

A uniform tax on income of legal entities (enterprises), independent of whether the entity is in the private or public sector, is introduced. The general statutory tax rate is a flat and nondiscriminatory 40 percent levied on the tax base (gross profits). The EIT replaces profit taxes that amounted to 65 percent for the state sector and 85 percent for the private sector. Capital gains are taxable only if they affect the net asset value of the enterprise; capital losses are tax deductible. There is no separate capital gains tax. The tax is payable in monthly advances in amounts equal to the difference between the tax due on the income earned since the beginning of the year and the sum of advances paid in preceding months. Monthly advances are payable no later than the 20th day of the following months with a double payment for November and December to be made in December: no payments are due in January.


Various special-purpose tax exemptions are introduced for enterprises operating in specific sectors (e.g., construction materials, medical equipment) and for various types of enterprises (certain newly established firms and companies investing in areas with high unemployment).

January 1991

An amendment to the EIT law allows for losses to be carried forward and set off against income for three consecutive years in three equal parts. The amendments also provide a clear definition of enterprises and types of commercial activity subject to the EIT and do away with a number of exemptions that had been introduced. Newly introduced exemptions refer to income derived from private schools and income from the sale of all securities; enterprises investing in regions with high unemployment are allowed a faster depreciation of assets. The general depreciation schedule is improved.

January 1992

Introduction of a new EIT law. The new law aims to ensure the equal treatment of foreign and domestic enterprises, stipulates a flat withholding tax on intercompany dividends, and contains various provisions aimed at abusive transfer-pricing practices. The law also broadens the definition of enterprise income: the major remaining exemption (apart from incomes from agricultural production and from forestry, which are taxed separately) refers to incomes from activities that are based on contracts that are legally not binding. Revenues from dividends become generally taxable at a rate of 20 percent.

June 1992

The revenue share of the state budget is increased from 95 to 98 percent; the share of the local authorities is reduced accordingly.

January 1993

The tax exemption for capital gains on the sale of securities is amended, limiting the exemption to publicly listed securities, but extending the exemption for two more years, until the end of 1995. The revenue share of the state budget is reduced from 98 to 95 percent, and the share of the local authorities is increased accordingly. Restrictions on depreciation allowances for investments made before 1990 enter into force.

July 1993

Tax relief is introduced for investors who create new jobs in regions with high structural unemployment. In practice, this stipulation was already in effect before the law was changed.

January 1994

An investment tax allowance is introduced for enterprises with a 1993 gross profit rate (relative to sales) of at least 8 percent and no EIT payment arrears at the end of 1993.

Personal Income Taxes (PIT)

January 1992

A comprehensive tax on personal income replaces various other taxes: the income tax of 1972, the wage tax of 1949, the wage equalization tax of 1983, the wage fund tax of 1982 paid by employers, and part of the agricultural income tax of 1984. The tax applies to everyone who is not a “legal entity” and includes the self-employed who perform their business as individuals or within a partnership. Joint filing is available for married couples. The tax is operated on a pay-as-you-earn (PAYE) basis with withholding at the source. Joint filing for married couples is established using a variant of the French quotient system; tax returns are due by the end of April of the following year. While the tax defines income broadly. 36 specific items are exempted from taxable income. There are three marginal tax rates: 20, 30, and 40 percent. Income from certain types of interest payments, dividends, copyrights, patents, and certain awards is subject to a 20 percent withholding tax. Economic activity in the housing sector is treated generously under the PIT law: in particular, housing purchases, construction, or renovation activities are fully deductible (up to certain limits). Revenues from the PIT accrue 85 percent to the state budget and 15 percent to the local authorities.

January 1993

Several revisions to the PIT law are made. For 1993, tax brackets and tax-free amounts remain nominally frozen at their 1992 levels; no adjustment for inflation is made, a decision that was later declared unconstitutional by the Constitutional Tribunal. Withholding is to be carried out at the actual marginal tax rate for each taxpayer, not at a flat 20 percent rate stipulated by the previous legislation. Further amendments limit tax exemptions for realized capital gains to publicly listed securities but extend the exemption for two more years, until the end of 1995. Tax relief that, up to a certain income limit, gives single parents the same benefits as joint filers comes into effect. School expenses become deductible, up to a fifth of the average annual compensation in the economy. Special-purpose exemptions apply to those who invest in high-unemployment areas.

January 1994

  • Marginal tax rates are increased to 21 percent from 20 percent, to 33 percent from 30 percent, and to 45 percent from 40 percent; tax brackets and tax-exempt amounts are adjusted for inflation.

  • Under the PIT law, lump-sum income taxes are introduced for individuals who operate enterprises with revenues of less than Zl 1.2 billion in the previous tax year. The tax is levied on total revenues and amounts to 7.5 percent on services, 5.0 percent on manufacturing activities, construction, and leasing services, and 2.5 percent on trade and catering services.

Turnover Taxes and Value-Added Taxes (VAT)

January 1991

The Turnover Tax Law of 1972 (applicable to the private sector) and the Law on Taxation of Socialized Entities of 1982 (applicable to state-owned enterprises and cooperatives) are amended to allow turnover taxes for imports to be collected at the border.

May 1992

The base of the turnover tax is broadened by introducing a 5 percent tax on processed foods and select goods, including children’s clothing, construction services and materials, and cars with large engines.

December 1992

  • An additional turnover tax in the form of a 6 percent surcharge is levied on imported goods. The measure is temporary and to be eliminated in 1995. The base for calculating the surcharge is the customs value (cif) plus import duties.

  • Turnover tax rates on domestic goods are increased by between 2 and 5 percentage points. The turnover tax on gambling is replaced by a transactions tax on gambling activities. Number games and Lotteries become a state monopoly; other games (e.g., slot machines, card games, bingo, bookmaking) may only be conducted by companies headquartered in Poland and with shareholders who are Polish residents. Foreigners are prohibited from investing in Polish gambling enterprises.

July 1993

The turnover tax is replaced by a VAT at a standard rate of 22 percent and a reduced rate of 7 percent. The 7 percent rate applies to medical equipment, products for children, energy products, construction materials, restaurants, catering services, and hotels. Zero rating applies to four major product groups: exports, agricultural inputs, medicines, and books and newspapers. Exempt rating applies to five major product groups: (1) unprocessed or low-processed agricultural products; (ii) public administrative and municipal services; (iii) various service sector products (e.g., financial, insurance, and educational services; postal and sea transport); (iv) rents; and (v) utilities (excluding electricity and gas). With the introduction of the VAT, excise tax rates are revised. Excise taxes continue to be levied in addition to the VAT; the major excises are hard liquor, tobacco products, liquid fuels, beer and wine, passenger cars, yachts, and certain high-standard electronic/audio/video equipment. All enterprises that, in the previous tax year, had an annual turnover of Zl 4 billion or more are required to register for the VAT: optional registration exists for enterprises with an annual turnover between Zl 0.6 billion and Z1 4.0 billion.

August 1993

Banderoles are introduced on imported spirits and tobacco products. Penalty regulations cannot be enacted since the Parliament has been dissolved.

January 1994

  • In reversing a change made in July 1993 (see “Customs Duties and Other Levies on Foreign Trade” below), the base for the surcharge on imported goods is broadened to include both the customs value and the customs duty paid. Therefore, formally the surcharge becomes a turnover tax again.

  • The mandatory registration threshold for the VAT is lowered. While previously registration was mandatory only for enterprises that, in the preceding tax year, had sales of at least ZI 4 billion, the new threshold is Zl 1.2 billion; for enterprises with an annual turnover between Z1 0.6 and Zl 1.2 billion, registration remains optional. The base of the VAT is extended to include various service sector products (legal services, consulting services, and so forth).

  • The coverage of banderole requirements is extended to domestic spirits and tobacco products. A penalty structure is introduced.

Customs Duties and Other Levies on Foreign Trade

June 1990

The Agency for Agricultural Markets (ARR) is created to stabilize farm product markets and protect farm incomes by managing state food reserves and market price intervention. As for imports, during 1990–93 the ARR intervened in the markets for grains (wheat and rye), dairy products (milk, butter, others), meat (beef, pork), and in the markets for sugar, honey, processed potatoes, and wool. The ARR has also provided credit guarantees.

August 1991

Import tariffs are increased by 50–300 percent. The average statutory tariff for all products amounts to 15 percent of the customs value.

December 1991

A Temporary Association Agreement (TAA) with the European Union is signed; until it is ratified by all EU members, the Temporary Agreement on Trade Aspects remains in force.

March 1992

The trade part of the TAA enters into force, leading to a removal of most quantitative restrictions in Polish-EU trade and a reduction of tariffs. The agreement calls for a gradual phasing out of the remaining restrictions and for tariff reductions over the next several years; various import tariffs are reduced immediately.

December 1992

A Poland-EFTA agreement (which excludes agricultural products and fish) and the Visegrad Agreement are signed. At the same time, import tariffs are increased by about 7 percent and extended to all agricultural and food products.

January 1993

Import tariffs are reduced, for some goods by as much as 10 percent, as required by the TAA.

July 1993

  • The surcharge on imported goods, introduced in December 1992 as an additional turnover tax, formally becomes an additional import duty since the base for the surcharge is reduced from the customs value plus customs duties to the customs value only.

  • With the introduction of the VAT, the Law on Customs Duties is revised. Duty-free and reduced-tariff quotas are introduced for some raw materials and semifinished products.

February 1994

The full TAA enters into force.

Social Security Taxes

December 1989

A new Employment Law introduces unemployment insurance and creates the Labor Fund while abolishing the Fund for Occupational Activation. The Labor Fund is financed by a 2 percent tax (payroll contribution) on the gross payroll of enterprises, paid for by employers.

January 1990

The statutory rate of the social security tax (payroll contribution), paid by employers and used to finance the Social Insurance Fund (FUS), is increased to 43 percent from 38 percent of the gross payroll of enterprises. Lower rates apply for different groups of workers. The general rate had already amounted to 43 percent between January 1983 and December 1986 but had been lowered to 38 percent between January 1987 and December 1989.

March 1992

The statutory rate of the social security tax that employers pay to the Social Insurance Fund is, generally, increased to 45 percent from 43 percent of the gross wage bill. Uniformed services (military, police, prison guards) remain exempt from payroll contributions. Various reduced tax rates continue to apply for specific groups (workers employed in enterprises for the handicapped, people employed in agriculture, people on disability who continue to work, people on temporary work contracts, the self-employed, artists and writers, and so forth).

January 1993

The tax that employers pay to the Labor Fund is increased to 3 percent from 2 percent of the gross payroll.

Taxation of Excessive Wage Increases (Popiwek)

January 1989

A tax on “inflationary” or “excessive” wage growth was in force until the end of 1988. In January 1989, this tax was abolished in favor of a regulation that tied permissible wage increases to the cost of an enterprise of obtaining income and to the enterprise income tax. Under this law, wages that exceeded a ceiling set by the Council of Ministers were subject to an enterprise income tax increased by 200 percent.

January 1990

The law is changed to tax excessive wages at progressive rates of between 200 and 500 percent, while, beyond a certain ceiling, bonuses paid out of after tax profits are subject to a tax of 500 percent.

January 1991

A new law on taxing inflationary wage growth is introduced; the principles of this law are similar to those under legislation that existed before 1989 with the exception that the new reference point for the tax is the average wage in the economy rather than the total wage bill. Also, joint ventures established before end-1990 and enterprises with a private share exceeding 50 percent are exempt from the tax, so that the popiwek is applied only to state-owned enterprises, cooperatives, companies where the State Treasury is the majority owner, political and professional organizations, and foundations conducting business activity. In practice, private sector activity was already exempt from the popiwek before the law was changed. The new top marginal tax rate is 500 percent of wages in excess of the wage norm, and it has to be paid for wages that exceed the norm by more than 5 percent. The wage norm is generally indexed to CPI inflation with a discretionary factor determined by the Council of Ministers. Various special exemptions, adjustments, and modifications of the norm remain in effect.

January 1992

Starting in January 1992, an increasing number of wage elements are no longer subject to the tax. Also, enterprises reducing employment in a given year are entitled to increase their total annual wage norm by half of the total wage norm lost by reducing employment. The right to increase the norm applies only to individual layoffs, not to group layoffs. In practice, this regulation was already in effect during 1991 based on a Ministry of Finance regulation.

September 1992

The top marginal tax rate is lowered from 500 percent to 400 percent. Tax exemptions are granted to water companies, sewerage and drainage companies, cultural and film institutions, and, partly, to salt mines. Tax relief is introduced for revenues from exports of goods and services.

October 1992

The wage norm is no longer indexed to inflation (plus the discretionary correction factor). Instead, the Council of Ministers specifies the applicable wage norm for the months of a given quarter by the 15th day of the first month in the quarter.

January 1993

The top marginal tax rate is lowered from 400 percent to 300 percent; this rate is applicable to wages that exceed the norm by more than 6 percent (previously. 5 percent). Also, enterprises liable for paying the popiwek can be exempted if the ratio of profits to wages is not lower than in the previous year. Finally, enterprises are allowed to negotiate payment schedules and special treatments and exemptions with their local tax offices.

March 1994

The tax is no longer in effect as of March 31, 1994.

August 1994

A revised popiwek is effective as of August 1, 1994.

Dividend Requirement on State-Owned Enterprises

January 1989

The Act on the Finances of SOEs of January 31, 1989 requires SOEs to pay a dividend to the state budget. The dividend requirement is calculated as a percentage of the SOE’s “founder’s equity” (i.e., fixed assets and working capital transferred to the enterprise in the past and in use as of a certain cutoff date, generally end-1983), indexed for inflation. Rates are differentiated depending on the type of enterprise. The top dividend rate levied on the founder’s capital initially amounts to 44 percent.

January 1990

The top dividend rate levied on the founder’s equity is lowered to 32 percent.

January 1991

The top dividend rate levied on the founder’s equity is lowered to 22 percent.

July 1992

The top dividend rate levied on the founder’s equity is lowered to 10 percent.


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The definition of the general government and data availability underwent significant changes during 1989–93. Currently, the general government is defined as comprising the national authorities (the central government and the regional authorities), the local authorities, 15 extrabudgetary funds (for social security, environmental protection, agricultural restructuring, and so forth), extrabudgetary units and departmental enterprises at the national level, and extrabudgetary units and departmental enterprises at the local level. In addition to the tables in this section, see Appendix Tables A4–A7. The definition of the general government and data availability underwent significant changes during 1989–93. Currently, the general government is defined as comprising the national authorities (the central government and the regional authorities), the local authorities, 15 extrabudgetary funds (for social security, environmental protection, agricultural restructuring, and so forth), extrabudgetary units and departmental enterprises at the national level, and extrabudgetary units and departmental enterprises at the local level. In addition to the tables in this section, see Appendix Tables A4–A7.


Poland has been a GATT member since 1967. However, it had joined the GATT as a centrally planned economy, and with the economic transformation under way, the protocol of its access to GATT has required renegotiation.


See, for example, Pinto and others (1993).


It is currently planned to set aside some of the vouchers from 200 SOEs that participate in the mass privatization program to make these compensation payments. The mass privatization program is to include up to 600 enterprises.


Territorial self-government had been formally abolished in 1950.


See Taras (1993) for further discussion.


For a discussion of this breakdown, see Chu and Schwartz (1994).


See Pinto and others (1993) for some microeconomic evidence on the importance of the various factors that contributed to the successful adjustment of SOEs in Poland.


Dates refer to the date the reform went into effect.

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The Path to a Market Economy
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    Population Dependency Ratios and Pension System Dependency Ratios, 1993–2060