TCS Daily

How Much is 'Too Much'?

By Kamila Pajer - November 18, 2004 12:00 AM

Just as the hubbub over France and Germany's tax harmonization proposals (aimed at strangling investment in new EU countries) has quieted down the Polish government comes up with its own idea for imposing greater fiscal burdens on small business owners in the country.

Deputies are already counting the money they expect to get from a tax hike on the richest residents, but they have miscalculated the revenues because most of the wealthiest people in Poland are foreign residents and therefore will not pay taxes here. And meanwhile, there are still other propositions to be discussed in the parliament: raising the social security tax paid by self-employed businessmen and also denying those that have already paid 30 times the amount of money the average person pays for social security the right to not to pay any more during the fiscal year.

Today every self-employed person is obliged to pay social security, whether or not they have any net income. Some 63 percent of these businessmen have income of €500 a month or less. And they have to pay the social security of €150. Those who earn about €800 next year will probably pay 15 percent more. In the UK, by way of comparison, a small business with net income of €500 pays €11.5 monthly. But, although the UK seems wealthier than Poland, we will not follow the British example. Here we go our way to prosperity: we finance countless public institutions.

The argument of the Ministry of Economy for raising the social security is the usual one: the proposed solution will be more just. More socially just, of course. It is considered very socially just to pay the percentage income tax or the progressive tax - i.e. to pay more the harder one works and the more one earns. The social justice credo is, "if you have too much money, you have to give it away to others". Having stated this the only problem now is to decide how much is "too much"?

The businessmen argue that they already pay too much. They admit also that they seriously consider emigration, because they do not believe that their voice counts. Many of them already talk of relocating to the neighboring Slovak Republic where they would pay only 19 percent flat income tax and where - unlike in Poland - the state tries to make country attractive for business.

Business organizations point at the great fiscal burden as the reason for the high unemployment rate of 20 percent - the highest in the EU - and thriving corruption. They reject the government's offer to propose their own plan for raising social security arguing they will not propose "how to tax themselves more".

Public opinion polls show that the majority of citizens feel pessimistic about their future and that since 1989, the end of communism, young people constantly view themselves as a "lost generation". They see no opportunities for themselves in this country. Yet, instead of giving people incentive to work hard and be entrepreneurial, the politicians' only concern is to discover who has "too much" and should therefore give it away.

The new way of calculating social security is likely to be approved quickly, because the state budget always lacks money. Politicians do not question the present policy of financing countless public institutions; rather, the state constantly looks for new sources of revenue.

However, not only is the idea of raising the social security controversial but the way of calculating it is even more so. It seems that the amount of money to be paid will be decided on a yearly basis. If in one year a firm earns a certain amount, the next year it will pay as if it earned the same regardless of the fact that this next year the firm may earn very little. It is therefore very important to predict this expense in the budget plan and to save money for this purpose instead of investing it.

But there is some good news about the proposed changes. Those who make brooms and products of straw, those who knit, those who weigh people and those who make wells (provided they employ only one person), as well as gunsmiths, coopers and millers, do not have to worry. They will continue to pay the same asmount. So it's clear what occupations the present government promotes at the expense of others.


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