CHAPTER III. STRUCTURAL REFORMS – A COUNTRY FOR ITS CITIZENS
The reforms undertaken by the Law and Justice governments after 2015 have included structural changes in many fields of economic and social life in Poland, which in the first decades after the fall of communism were in need of determined, and sometimes radical, repair. In spite of the generally satisfactory macroeconomic position in the middle of the present decade – particularly compared with other EU countries, hard hit by the global financial crisis – Poland was subject to a number of adverse phenomena, resulting directly or indirectly from the passive political strategy adopted by the governments of 2007–2015. In journalistic comment and in public debate, this was often described as an ideology of “extinguishing” or “winding up” the state. Some observers also commented on the extreme “impossibilism” of certain sectors of state institutions in reacting to negative and dangerous tendencies in social life.
Manifestations of these tendencies were visible in many areas of Poles’ everyday lives and affected the fates of ordinary citizens. Specialist government agencies set up to combat organised crime lacked the ability to deal with such problems as falling receipts from VAT (equivalent to Hungary’s ÁFA) and the frequent and large-scale VAT fraud practised by dishonest business owners in Poland before 2015. As Paweł Graś, secretary general of Civic Platform and right-hand man to prime minister Donald Tusk, said in 2013 in one of the conversations secretly recorded in a Warsaw restaurant: [the Polish grey market] “has absolutely no interest any more in producing drugs, just VAT.”
The authorities were not able, or did not consider it important, to restrict or control the sale of state-owned agricultural land, which led to complete chaos as regards means of obtaining renewable energy sources in Poland. In turn, the unclear rules on pensions and social security for farmers intensified the feeling of uncertainty for the future in the Polish countryside. The incapacity was symbolised by the lack of action on the part of the previous government to assist growers of vegetables (including tomatoes and peppers) in central Poland whose crops were destroyed by the storms and hurricanes that hit the country in the early part of this decade. Desperate farmers who had lost thousands of zloty reproached the then head of government, asking “How to live now, prime minister?!” – and never received concrete answers.
Structural reforms were also required in the public health service, which suffered from underinvestment and faced problems at all levels, from basic health care to specialist fields of treatment. Problems included the growth of bureaucracy, unequal financial investment, the weakness of the infrastructure of hospitals and clinics, and long waiting times for consultations and treatment, particularly in complex cases. The measures introduced towards the end of the Civic Platform–PSL government, such as the “oncological package” which ensured faster treatment in serious cancer cases, came many years late compared with other European countries, and were the exception rather than the rule in health care policy.
In their structural reforms, the Law and Justice governments took action in two main directions. Firstly, they aimed to increase the effectiveness of all state institutions. To cease playing the role of a hardly visible observer of socioeconomic processes, having no influence on events, and instead to take active monitoring measures and action to shape the whole institutional and legal culture of the space in which the public and economic system functions. Secondly, it was decided to enact specific legislation enabling changes to the unclear rules governing institutions in the financial market and legal environment and institutions established for the particular service of citizens.
Without doubt, the adoption of such an active approach represented a break from the neoliberal model that had reigned in Poland and other countries of the region since 1989 (sometimes with short breaks), whereby the state abdicated many of its basic functions and gave free rein to market forces. This type of ideology, often backed by claims that there was no other alternative, reduced politicians and the whole state structure to the role of subcontractors and guardians of the interests of various lobbies, in particular those of global and corporate capital, with its increasing complexity of structure and ownership.
VAT and finance. Tightening up the tax system
A basic task that the new government set itself after the election of autumn 2015 was to stabilise fiscal policy, a necessary condition for taking further steps to improve the collection of VAT. At the end of that year, parliament passed an amendment to the part of the law on public finances concerning the “stabilising rule” on expenditure, which had been introduced by the previous government in 2013. The reference to the annual average consumer price index was replaced by an inflation target determined by the Monetary Policy Council (RPP) and implemented by the National Bank of Poland (NBP). At the time the new law was passed, this target was set at 2.5%. Another important change was an increase in the spending limit in case of significant revenue obtained during the fiscal year from one-off and temporary actions, with a value not exceeding 0.03% of GDP.
Shortly after the change in the law, then finance minister Paweł Szałamacha drew attention to the systemic problem of falling VAT receipts, which had been growing in seriousness for a number of years. Since 2010, receipts from VAT had been increasing more slowly than real economic results would indicate. Between 2010 and 2015 the nominal value of receipts had increased by around 13%, while GDP had grown by around 25%. This discrepancy – existing in spite of an increase in the VAT rate by a percentage point in 2012 – was evidence of the state’s decreasing capacity to collect the tax. In effect, in 2015 there was a VAT shortfall of more than 50 billion zloty (equivalent to around 3.7 trillion Hungarian forints), compared with only 7.1 billion in 2007. This is the difference between actual receipts and the amount that could be obtained if all tax due was paid on time. In the minister’s view, before 2015 the state had gradually been losing the capacity to finance its expenditures, which it had to support with funds from privatisation and by the partial transfer of assets from the Open Pension Funds by which Poles made provision for their retirement. Dishonest businesses simply created chains of firms which, through series of transactions, could avoid paying tax that was due or reclaim tax fraudulently.
Under the government’s new tightened regulations on VAT, an invoice payment made by a firm may be divided into two parts: a net payment made to the supplier’s account, and a payment of the amount of tax to a separate VAT account. This has increased the stability of receipts, and has provided Polish firms with an effective tool to avoid becoming part of a tax fraud scheme. The new regulations have strengthened tax and business security and helped ensure fair and equal competition.
In a report on the 2016 reforms published two years later by the Polish central audit agency (NIK), much is said about the positive contribution of government and parliament to the fight against VAT fraud, including the action to merge the tax administration, tax inspection and customs services into a single National Fiscal Administration. Another important change, according to NIK, was the introduction by the Law and Justice government of a single check file (JPK), an electronic record of VAT sales and purchases that every VAT-registered firm must submit monthly to the tax authorities, which has greatly improved the ability of the Finance Ministry to identify potential cases of fraud quickly.
Moreover, in early 2017, the parliamentary majority approved an amendment to the Penal Code that introduced harsher punishments for VAT fraud offences. Under the new provisions, drafted by the Justice Ministry, prison sentences of as long as 25 years can be imposed for VAT fraud using fictitious invoices with a value exceeding 10 million zloty.
Explaining the need for such changes, justice minister and prosecutor general Zbigniew Ziobro said in 2017: “ (...) Before I took on the function of Prosecutor General, cases of this type were not pursued as a rule. Even when a conviction was obtained, courts would almost always impose only a suspended sentence. In that situation, is it any surprise that Poland was being robbed by the VAT mafias on a gigantic scale? I have consequently changed the way in which prosecutors work, and together with the Chief Prosecutor have taken a number of measures to make the battle against this type of crime more effective.” During parliamentary consideration of the proposed increase in sentences for VAT fraud, deputy justice minister Michał Wójcik also gave the total values of fictitious invoices uncovered by the tax inspection authorities in previous years: they amounted to 19.7 billion zloty in 2013, 33.7 billion in 2014, and 81.9 billion in 2015!
The actions taken to solve the long-standing problem of VAT fraud were crowned by the appointment by Poland’s parliament in summer 2018 of a commission of inquiry into negligence in that matter committed by public authorities and state institutions in 2007–2015. Although the work of the commission is still continuing – due both to the complexity of the topic and to the amnesia affecting many of the key witnesses appearing – institutions that have been indicated as potentially responsible for such negligence include the central audit agency (NIK), prosecutors’ offices and crime investigation bodies, in particular the Internal Security Agency, the Central Anti-Corruption Bureau and the chief police commander, as well as public officials subordinate to them. In the 2015–19 parliament the special commission, consisting of 10 members, questioned several well-known politicians from the time of the Civic Platform–PSL coalition, including the finance minister in the governments of Donald Tusk and Ewa Kopacz.
In 2017 amendments were also made to the law on excise duty (equivalent to Hungary’s jövedéki adó) and to the law on the organisation of certain agricultural markets. These aimed to further tighten the tax system in relation to trading in tobacco, and to make it easier for legally operating firms to do business. Tobacco growing, production and sale were made subject to close monitoring, which restricted the supply of tobacco to illegal factories. Firms involved in tobacco distribution are now obliged to supply data to the director general of the National Centre for the Support of Agriculture (KOWR) concerning the weight of tobacco purchased, with a breakdown by functional category. The new law also lays down punishments for failure to adhere to the regulations. Before the changes, according to information from the agriculture ministry, the “grey market” probably accounted for 14% of the total Polish tobacco market. The new rules have brought additional government revenue of 79.5 million zloty (about 6 billion Hungarian forints) annually.
In the agricultural sector. Rules on land purchase, sales support, insurance and social security
In spring 2016, several months after coming to power, the Law and Justice government introduced new rules on the ownership of agricultural land. The aim was to strengthen the protection of agricultural land against speculative purchases by domestic and foreign parties. The provisions suspended the sale of state-owned agricultural land for a five-year period. The restriction did not apply to properties designated for other purposes (for instance, for the building of business and logistic centres, housing or transport developments) or lying within special economic zones, or to houses, flats, farm buildings, garages, home gardens or agricultural properties of not more than 2 hectares.
The new law also regulated trading in agricultural land. Such land may now be purchased only by an individual farmer personally running a farm of up to 300 hectares who has lived for at least five years in the municipal district in which his farm (or at least one parcel of land within it) is situated. The farmer is not permitted to sell or lease the purchased land for a period of 10 years, except in unforeseen situations, when the land may be sold within that period with the permission of the courts. The new provisions do not deviate from regulations in force in other European Union countries. The law has eliminated speculative land purchases, and according to analyses carried out in 2018, has halted the growth in agricultural land prices that had been observed before 2015.
Another important change concerned social security for farmers. Farmers and members of their households were given the right to be covered by the farmers’ social security system (KRUS) even when they come under the general social security system on account of other employment. Previously, they were permitted to remain in the KRUS system only if their monthly non-agricultural income did not exceed one-half of the statutory minimum salary. The new law increases that limit to the full statutory minimum salary.
In turn, a change to the law on crop and livestock insurance has improved the effectiveness of the insurance system in agriculture. This was the government’s response to a still serious problem in the Polish countryside, namely the low level of insurance of crops, causing farmers to suffer significant losses and requiring the government to provide emergency aid in such circumstances. The tariff rates giving entitlement to subsidy were increased and made partly dependent on the soil class, with agricultural producers entitled to receive a government subsidy from 3.5% and 5% to 9% of the sum insured.
Law and Justice also made changes to the law on funds for the promotion of agricultural and food products, improving their effectiveness in supporting the marketing of Polish agricultural products and increasing consumption of those products. Obligatory contributions to the funds were introduced for firms engaged in the breeding, raising or slaughter of pigs, beef cattle, sheep and poultry. Clear requirements for products have been introduced, and promotional and informational activities have been defined. In the case of unprocessed products, the funds are now used to support those produced within Poland. Meat subject to market promotion should come from animals born, raised and slaughtered in Poland. The same requirement applies to fish – these should be farmed in Poland, or caught in Polish inland waters or at sea by Polish fishing vessels. The committees managing the funds now produce promotion strategies for particular categories of product, so that each fund’s promotion policy is coherent and appropriate to the needs of the sector.
The new law gives farmers better opportunities to develop production and to sell the food produced on their farms. A Polish farmer may now sell processed products made from his own crops or livestock to tourists or catering establishments. Revenue from such sales, up to an annual total of 20,000 zloty (approximately 1.5 million Hungarian forints), is tax-exempt. Further changes to the law allow farmers’ retail sales to include food products from other producers.
Another important part of agricultural policy concerns measures to stop the unfair use of bargaining power in the buying of agricultural and food products. These have largely eliminated bad practice in trade between purchasers and producers of such products. This refers mainly to the imposition by large stores of unequal contract terms, unjustified unilateral termination of contracts, enforcement of low purchase prices, prolongation of payment times for goods supplied, and demands for additional non-equivalent services or payments. Under the new regulations, a firm that believes that bargaining power is being used against it unfairly may report that fact to the Office of Competition and Consumer Protection (UOKiK). That institution will then itself initiate proceedings, maintaining the anonymity of the reporter. The provisions of the law may be applied if the total value of trade – in the year of the start of the proceedings or either of the previous two years – between purchasers and suppliers of products exceeds 50,000 zloty, and the turnover of a supplier or purchaser which abused its bargaining power exceeded 100 million zloty in the previous year. The law does not apply to a situation where a supplier sells agricultural products to a cooperative or producers’ group of which that supplier is a member. The chairman of UOKiK may issue a decision imposing a fine on a supplier or purchaser of agricultural or food products, not exceeding 3% of the previous year’s turnover, if that party breached the prohibition on unfair use of bargaining power, even if the breach was not deliberate.
A significant element of institutional support was the establishment of the National Centre for the Support of Agriculture (KOWR). This is responsible for introducing and applying instruments for the support of agriculture, active agricultural policy and the development of rural areas. The former structure of institutional support for agriculture and rural areas, based on three independent agencies, did not ensure the effective realisation of a concept for rural development.
To support the continually increasing exports of food products, which totalled more than €27 billion in 2018, regulations were introduced that facilitated the operations of exporters. To obtain registration, such an exporter previously required a decision of the provincial inspector of plant and seed protection. Since 2019, registration has been made automatically on submission of a properly completed application. The provincial inspector of plant protection is authorised to carry out inspections at sites where agricultural products are packed and sorted and where plants and plant products are processed. The actions of the National Inspectorate of Plant and Seed Protection (PIORIN) will assist exporters in obtaining documents confirming that they meet the phytosanitary requirements of the countries to which Polish food is sold.
Measures have also been taken with regard to the import of food products, which may carry a risk that harmful organisms will be brought into Poland. In specific circumstances, a provincial inspector may carry out an inspection at the destination for such goods, and may consent to the destruction or securing of product packages that have not been correctly marked by the sender.
The health service – towards national budget funding
The most important long-term goal of the Law and Justice governments in the matter of health protection has been the gradual transition towards funding of the public health service from the national budget. The amount of public funds allocated to the sector is being increased from 4.5% of GDP in 2015 to 6% of GDP not later than 2024.
Law and Justice’s reforms of public health care institutions, particularly hospitals, were largely a response to the policy of the previous governing coalition of 2007–2015. That policy was directed towards the commercialisation of hospitals by the local authorities that managed them, with the aim of reducing their debt. However, local authorities were reluctant to convert their hospitals into private companies, because such moves were not well received by local residents. Hospitals’ debt thus spiralled out of control, reaching the vast sum of 11 billion zloty in 2015.
The post-2015 governments did not prohibit the commercialisation of hospitals, but decided to set a completely different course from their predecessors. The main philosophy behind the changes was a gradual transition towards funding of the public health service from the national budget. It was decided to improve the functioning of independent public health care institutions, to optimise their costs, and in consequence increase the availability of medical services to the public. It was prohibited for private entities to be sold shares in companies part-owned by the state or local authorities if it would result in the latter losing the status of majority shareholder, and thus losing control of the health service provider. Since 2016, it has been required that at least 51% of the shares remain in public hands. Transformed health service providers must not pay dividends – all profits are to be used for the hospital’s operations (including capital expenditure and pay increases). Hospitals have been freed from the obligation to take out costly insurance against medical claims. Such policies were formerly mandatory, and obligated hospitals to pay damages out of their own budget, which exceeded their financial capabilities.
In 2017, under the amended law, a new system was set up, called the Hospital Network. This has now become the chief form of insurance for inpatient treatment and for specialist outpatient treatment provided at hospital clinics. The network includes institutions which have had a contract with the National Health Fund (the chief central body providing funding for the Polish public health care system) for at least two years, and which have an admissions department or a hospital emergency department. “The network is intended to prevent a situation where public hospitals, important to all of us, have to engage in toxic fratricidal rivalry with those who simply want to earn profits from the health service. This act stabilises the situation of hospitals, and thus secures the interests of patients”, the situation was summed up during the parliamentary debate by Law and Justice MP Tomasz Latos. According to Health Ministry data, in the fourth quarter of 2017 the number of health care services provided by hospital network members was up by almost 5% over the same period of the previous year.
The changes also included reform of Basic Health Care, the first sector of the Polish public health care system to switch to being funded from the national budget. Since 2017 the basis for its funding has been an amount defined by the National Health Fund which a doctor receives for treating a single patient. It is also no longer necessary to hold health insurance when visiting a general practitioner. The new law aims to improve the organisation and functioning of basic health care and to provide patients with prophylactic health care appropriate to their age and sex, as well as tests and specialist consultations according to an individual plan of diagnosis, treatment and care. In particular, an objective is the coordination of the care provided and the teamwork of doctors, nurses and obstetricians employed in those institutions. “The aim is to look at the health system from the perspective of the patient, who currently feels lost in that system” , said Konstanty Radziwiłł, health minister in Beata Szydło’s government, commenting on the changes.
The interests of patients were also the factor behind a change to the law on patients’ rights. As a result of the changes, patients aged over 16 have the right to obtain from a medical professional accessible information on their state of health, diagnosis, proposed and possible methods of diagnosis and treatment, foreseeable consequences of the application or non-application of those methods, results of treatment, and prognosis. The new version of the law lays down explicitly for the first time the right to treatment for pain, which was previously an entitlement of terminal patients only. Health service providers are now obliged to take action to determine the degree of pain, to treat pain, and to monitor the effectiveness of the treatment.
Necessary changes have also been made in relation to the protection of psychological health. Polish law has been brought into line with rulings of the European Court of Human Rights and the Constitutional Court. The changes relate, among other things, to the use of compulsion and the funding of psychiatric health care services. To provide better legal protection to people taken without their consent to a psychiatric hospital (or public care home) or staying in such institutions, it has been made obligatory for a public advocate or legal advisor to be appointed. A court will also be able to grant legal assistance in this area to people who are not capable of making an appropriate application. A patient required to undergo detoxification treatment may now apply to a court for a change to the decision on the type of treatment facility to be used. It has been made obligatory to provide constant monitoring of rooms where persons are held in enforced isolation. Access to therapy and rehabilitation for those suffering from alcohol dependence has been increased, and their families can obtain psychological, social and legal assistance.
Solutions have also been proposed to prevent the illegal export of medicines from Poland – usually to countries where they are more expensive. Monitoring has been introduced not only for road transport, but also for rail transport, which might be used for such illegal trade. The monitoring covers medical products of importance for human life and health, special nutritional products or medical devices designated by the health minister, whose availability to Polish patients is threatened by their illegal sale to parties from other EU member states and third countries.
In late spring 2018, parliament approved special measures for seriously disabled persons, providing them with significant rights in access to health care, pharmaceutical services and medical products. The new provisions remove defined usage periods for medical products specified in the law on the funding of medicines, special nutritional products and medical devices, including wheelchairs, prostheses and catheters. They also provide entitlements to receive health care and pharmaceutical services without waiting in a queue. Seriously disabled persons may also receive specialist treatment without a referral. The law further removes the limit on the funding of medical rehabilitation care given to persons with a certificate of serious disability.
 Kronika Sejmowa no. 4 (823), 15 December 2015, p. 10.
 Ibidem, p. 12.
 Ibidem, no. 49 (868), 15 November 2017, p. 3.
 Kronika Sejmowa no. 65 (884), 15 July 2018, p. 58.
 Ibidem, no. 47 (866), 31 October 2017, p. 6.
 Ibidem, no. 12 (831), 15 April 2016, pp. 3–5.
 Ibidem, no. 24 (843), 31 October 2016, p. 9.
 Ibidem, pp. 14–15.
 Ibidem, no. 26 (845), 30 November 2016.
 Ibidem, p.16.
 Ibidem, no. 27/28 (846/847), 31 December 2016, pp. 10–11.
 Ibidem, no. 31 (850), 15 February 2017, p. 9.
 Ibidem, no. 64 (883), 30 June 2018, p. 12.
 Ibidem, no. 17 (836), 15 June 2016.
 Ibidem, no. 34 (853), 31 March 2017, p. 3.
 Ibidem, no. 63 (882), 13 June 2018, p. 35.
 Ibidem, no. 47 (866), 31 October 2017, p. 13.
 Ibidem, no. 32 (851), 1 March 2017, p. 15.
 Ibidem, no. 47 (866), 31 October 2017, p. 12.
 Ibidem, no. 58 (877), 31 March 2018.
 Ibidem, no. 61/62 (880/881), 31 May 2018, p. 13.