2020-03-26
FOR Communication 9/2020: Aid to Employees Now, and Settlement after the Pandemic
Summary:
- The coronavirus pandemic is already having a huge negative impact on the economy. Its mitigation should serve two purposes:
- to support people who are losing income because they can't work as a result of the pandemic;
- to prevent the bankruptcy of companies that cannot operate due to the pandemic so that their employees can return to work after it is over.
- to support people who are losing income because they can't work as a result of the pandemic;
- The large differences in the nature of contracts (employment contracts, civil law contracts and self-employment) make two types of threats appear in the affected industries:
- some people on civil law contracts and self-employed in pandemic-affected industries have already lost their sources of income.
- for companies with no income, the payment of salaries to persons employed under an employment contract and the payment of Social Security and National Health Fund contributions and PIT advances from them creates the risk of bankruptcy and job losses; preventing this will allow companies and people to return to work quickly after the pandemic, to the benefit of employees and the economy.
- some people on civil law contracts and self-employed in pandemic-affected industries have already lost their sources of income.
- The government, when preparing solutions to limit the effects of the pandemic, sees the problems of both groups, but the proposed solutions are too complicated. Firstly, the Polish tax system is one of the most complicated and time-consuming in the EU. For this reason, additional modifications at the moment when interpersonal contacts, including those between citizens and administration are to be limited, should be considered a mistake. Secondly, it is currently difficult to clearly identify all persons and companies affected by the crisis.
- A better solution than verifying complex aid criteria at the moment would be to assess them after the fact, modelled on the ideas put forward by Gregory Mankiv, one of the world's leading macroeconomists. That is why we propose:
- For those who are self-employed or work on a civil law contract, we propose a monthly benefit of PLN 1500, paid for three months. For those whose income in 2020 dropped by 25% compared to 2019, the benefit will be non-refundable. The remaining persons will return the benefit when settling their PIT in April 2021. At the same time, the self-employed will be able to suspend payment of the Social Security contributions, on the same principles as employers.
- For those who work on a full-time basis, we propose discounts in Social Insurance, National Health Fund contributions and PIT advance payments paid by the employer. As a result, labour costs will temporarily decrease by 40%. This will prevent the loss of many jobs. The remaining 60% of labour costs will depend on the negotiations between employees and employers - in some cases, employers will take everything on themselves, in other cases, employees will have to agree to a temporary reduction of remuneration - no single solution will be good for everyone. Each company will be able to postpone the payment of contributions and advance payments for the next three months until the end of the year (the same will apply to contributions paid for the entrepreneur themselves). For companies whose revenues in the period from October 2019 to September 2020 will fall by 25% compared to the same period of the previous year, the contributions and fees will be cancelled.
- For those who are self-employed or work on a civil law contract, we propose a monthly benefit of PLN 1500, paid for three months. For those whose income in 2020 dropped by 25% compared to 2019, the benefit will be non-refundable. The remaining persons will return the benefit when settling their PIT in April 2021. At the same time, the self-employed will be able to suspend payment of the Social Security contributions, on the same principles as employers.
- The scale of expenditure on both programs will depend on the length of the pandemic and the state of the global economy. The use of funds from the European Union and the liquidation of the thirteenth pension (pensions in the current situation are an exceptionally stable source of income, so it is difficult to justify the payment of an additional benefit) will make it possible to finance both measures without violating the existing fiscal rules. The cost of the subsidies for 2 million people on civil law contracts and the self-employed is about PLN 10 billion, while the exemptions for those on full-time jobs is about PLN 15-30 billion, depending on the percentage of companies that will benefit.
- Specific figures, including conditions for redemption and thresholds, remain to be discussed, which will translate into final costs for both programs.
Authors:
Aleksander Łaszek,PhD, Chief Economist
aleksander.laszek@for.org.pl
Rafał Trzeciakowski, economist
rafal.trzeciakowski@for.org.pl
Marcin Zieliński, economist
marcin.zielinski@for.org.pl
