Rescaling Social Welfare Policies in Poland

Bartłomiej Piotrowski

Introduction • Until 1989 Poland, as well as other communist

countries, was a centralised state where the state administration activities at various levels and state-owned enterprises had been strictly controlled by the extensive apparatus of the only legal party

• Social policy principles were full employment and egalitarism.

• All social policy benefits were employment related.

In the presentation I will focus on the period of transformation which started in Poland in 1989.

• In this period, political and economic reforms were the principal driving forces of the transformation of the social model in Poland.

• Reforms, included political changes aiming at creation of a democratic system, such as: individual rights, civil and political liberties, changes in the state administration including the decentralisation of public administration and changes of the economic system aimed at restoring a market economy.

• 20 years of evolution resulted in creation of the Polish social model – a mix where the elements of the conservative and corporate tradition are blended with the liberal model elements.

• It is dominated by partly privatised social insurance, which provides employment related benefits, supplemented by the universal, means-tested benefits.

• Social services sector is underdeveloped, charging families with many tasks of the social services.

• Last 20 years in Poland can be characterised by an increasing number of economically non active population, high unemployment and fast differentiations of income.

• These outcomes obviously resulted from rapid restructurization of the economy of an exceptional character, where the processes generated by globalisation of the economy overlapped on the system transformation processes.

• However, it would be difficult not to notice the weakness of the social model, shaped by the evolution process, which fails to deal with the challenges generated by the economy (especially by crisis of the last years).

The process of the changes in the social model during last years can be divided into five phases:

• 1989-1993 . the period of the deep economic crisis, radical decrease of incomes and fast development of unemployment. In this period social policy concentrated on building social safety net to protect the social groups most threatened by the transformation process.

• 1994-1997 . the period of the dynamic economic development. For social policy it was the period of planning and designing the reforms to adopt the institutions of social security to the market economy.

• 1998-2002 . the period of the slow-down in the economy. It was the period of market driven reforms of social security institutions and decentralisation.

• 2003- 2007 . the period of economic recovery. It is a period dominated by the impact of EU accession on the Polish social policy

• 2008 – present, the period of global economic crisis, period of creating new anti crisis solutions

Changing contexts: demography, economy, society, politics

We observe a significant reduction of the share of 0-14 years age group in the total population, an increase of the share of people of the immobile production age (45-64) and of the post-productive age (65 and more).

Structural changes of the population result first of all from:

• a significant decrease of fertility, and

• an increasing life expectancy.

Fertility decrease is explained by changes in the family development pattern, changes of women’s attitudes to their family roles, of the economic activity, participation in the social life, etc.

An important factor, which influences decreasing fertility, consists in the cost of having children, both direct (expenses related to education and childcare) and indirect (including especially the threats related to deterioration of women’s status in the labour market), resulting from the development of market economy and commercialisation and privatisation of services.

A rapid decrease of the fertility rate was encouraged by the social policy transformation, where the role of family-addressed benefits became seriously reduced

Visible growth of life expectancy is attributed first of all to changes in the lifestyle (diet, reduction of intake of alcohol and cigarettes) related to the transformation process and improvement of medical care.

In particular, a clear reduction of middle-age premature male mortality took place, which had been characteristic of many communist countries before 1989, including Poland

• Due to changing demographic structure of the population its economic features also changed. The population dependency ratio has systematically decreased since 1989, the old-age index, however, slowly increases indicating at the process of aging of the Polish populatio.

• A significant change of the family development pattern took place in this period. The share of families with children dropped, while the share of couples without children and single parent families increased

Aging population and reduced size of households led to an increase of the number of households with exclusively elderly, who need assistance more frequently than others.

The State, its organisation and normative foundations

Changes of the social model in Poland after 1989 resulted from the principal system reform, which took place in effect of the collapse of communism and the taking over of the power by the Solidarity movement in 1989.

The system transformation applied to all spheres of life: political, social and economic system.

Decentralisation of state

administration In contrary to other eastern block countries,

public administration decentralisation was one of the leading ideas of the new power elites, related to the democratic opposition and the Solidarity movement during the first years of transformation.

An urgent necessity for reforms resulted also from the weakness of the existing administrative structures.

The law guaranteed the financial autonomy to the self-governments, but it was not accompanied by the public finance decentralisation, which was implemented only in 2004.

Due to the delays in public finance decentralisation reform, restrictive financial policies in respect of the self-governments and their limited financial independence, many tasks transferred to their competence could not be adequately implemented, and this is what discouraged social acceptance for the reforms and often led to their unwanted effects.

A changing political system

Systemic transformation resulted also in partial demonopolisation of the welfare state. Initially, trade unions were the strongest social partner for the government; they had a direct influence on the politics. In time, along with privatisation of the economy and public administration decentralisation, their role became considerably weaker and was balanced by employers’ organisations.

Social dialogue was being implemented within the framework of tri-partite institutions on the national, and later regional, level. Tri-partite institutions were established in the social policy bodies (social security, health insurance, protection for the unemployed, etc.), consisting of the trade unions, employers and the government; the performed limited supervisory functions.

Spontaneous movement of civil initiatives, which took place in the first years of the transformation period, became supported by changes in the legislation, which still back in 1989 introduced the principal civil freedoms: the right to associate and to demonstrate.

General principles, concerning the co-operation of non-governmental organisations with the public sector and the principles of financing of such organisations, were finally regulated, after many years of works and discussions in respect of the shape of the solutions, only in 2003.

A changing economic system

The shape of the social model was impacted mainly by the economic reforms. Poland underwent macroeconomic reforms, which were the fastest among post-communist states; they consisted of the introduction of tight monetary policy and market-economy rules, necessary in view of the total macroeconomic imbalance at the outset of the transformation

During the first years of transformation, new institutions of the labour market service and the social assistance institutions emerged as the result of the transformation of the centrally planned economy institutions.

Their basic objective was to counteract the rapid increase of unemployment and rising poverty.

After 1994, in order to reduce social expenditures and to better address the assistance to the poor, a part of employment related benefits was converted into earmarked benefits, based on testing the income

The role and importance of state-owned enterprises changed radically; they were subject to stringent financial limitations and subject to compete in the market.

These enterprises rapidly released the excessive employment (hidden unemployment) and got rid of their social functions.

• A major part of services provided by these enterprises were simply liquidated, while other ones were commercialised and privatised

The policy, conducted by the liberal democratic and social democratic parties led to the reduction of social functions of the state, which was reflected by their partial commercialisation and privatisation.

It resulted from the fiscal pressures, but also from the dominating conviction of politicians regarding the public sector inefficiency and the necessity to reduce its dimensions.

It applied in particular to educational and childcare services (nurseries and kindergartens, recreational centres), cultural institutions (cultural centres and libraries), adult education and some health care services.

Reforms of the old-age pension system and health care system introduced private providers and (inner) market mechanism into the social security system

Principles concerning the Polish welfare state and its organisation

Constitutional foundations of the welfare state

Polish Constitution, adopted in 1997, contains a set of principal social rights, which constitute a basis for the legislative acts, which regulate in detail specific issues.

The question of the inclusion of social rights into the Constitution and their scope were the subject of a serious dispute and a debate during the works concerning constitutional act.

Organisational and functional structure of the social protection

system in Poland • The Polish social protection system consists of:

• Social insurance schemes (old-age, disability, survivors, employment injuries, sickness and maternity, care und funeral allowances),

• Health care,

• Family benefits,

• Social assistance (cash and in-kind benefits and services) and housing allowances,

• Vocational and social rehabilitation for disabled,

• Employment services and unemployment benefits.

Social insurance has a dominating position in the social security system, both in terms of the size of revenues and expenditures, and of the number of beneficiaries.

• Until 1998, social insurance was entirely public, based on the pay-as-you-go system and implementing a large scale of social redistribution.

• In 1999, the retirement insurance reform came into force (for employees and self-employed outside agriculture), introducing the DC (defined contribution) system and its partial privatisation.

The objective for the reform was to accelerate economic growth by increasing internal savings, to ensure long-term financial stability of the old-age pension system and to reduce the public debt.

They are, with the exception of the second pillar of the retirement insurance, managed by public institutions, directly subject to the central government.

Second pillar of the retirement insurance is managed by private institutions, subject to a stringent control and regulation by the central government.

Health care system

Features of the Polish health care system include: differentiation of sources of financing, variety of ownership of service providers and differentiation of the access to the health care services.

In 1999, a health care system reform was introduced, aimed at the separation of the payer from the health care service provider and at demonopolisation of the health care services.

The reform resulted in the establishment of the universal health insurance consisting of (including 16 regional) autonomous Sickness Funds.

The operation of the public health care units was transferred to the local self-governments.

After a change of the government into a leftist one, in 2002 the health insurance system was centralised into a single fund subjected to the central government. It generated a strengthening of the crisis-type phenomena.

Although the health insurance is financed by contributions payable by the insured, and additionally the government and local self-governments finance the public health programmes from their own budgets, over ½ of the health care expenses is financed by the households

Protection of unemployed (unemployment benefits) and ALMP as a system was established in 1990 as the basic protection tool against quickly growing unemployment and for its limitation.

The tasks are financed by a fund (Labour Fund), financed in turn by the payroll tax paid by enterprises and by the central budget grants. This fund is managed by the central government and the tasks implementation is delegated to self-governments (poviats).

Family benefits

Family benefits (family, childcare allowances, etc.) . means-tested benefits of universal character play a small role in the system of social security. The family benefits underwent principal reforms during the transformation period. The reforms of social benefits, addressed to families, were driven by many different, frequently contradictory and inconsistent processes.

Social assistance

Social assistance is the basic programme addressed to people and families living in poverty (including the unemployed). It includes the means-tested cash benefits and services (social work, home and stationary services for the elderly and disabled, family counseling, etc.).

Management of the social assistance (depending on the programme) is performed on all levels of the state administration, but the principal role in benefit and service delivery is performed by gminas.

Social assistance cash benefits are financed by the state budget (earmarked grants) and with the gmina resources. Services are financed by gminas, poviats and beneficiaries. copayments.

Services are provided by public institutions. Furthermore, many NGOs function in the area of social assistance, where they implement the tasks financed either with public or with private funds.

State Fund for Rehabilitation of Disabled Persons (PFRON)

• PFRON is the state's targeted fund established on 1 July 1991.

• The funds of the State Fund for Rehabilitation of Disabled Persons are allocated by the Chairman of the Fund's Board to:

• 1) voivodship and poviat-level local governments, to finance specific tasks – based on the relevant formula,

• 2) entities performing tasks assigned by the Fund or other tasks under the Act.

• The Fund’s resources will be used to establish new and retain the existing jobs for the disabled, to fund social rehabilitation of such persons and co-finance tasks under governmental programmes.

Non-governmental organisations • Non-governmental organisations – a third sector, next

to public and market ones, are an important segment of each effective and democratic state and society. They perform tasks in line with the policy of the state or tasks that, despite the existing demand, are not performed by public or private, profit-generating institutions. They provide the society with services, often filling the gap that the public and market sector are unable to bridge.

• It is extremely difficult to give an estimate of the number of actually working organisations. The number or non-governmental organisations acting for the benefit and in the community of disabled persons and persons afflicted with illnesses in Poland is estimated at approx. 7 thousand.

Disabled persons Institutions acting for the benefit of disabled persons

• Under the law, actions for the benefit of the disabled are performed

by the national government and local governments. The tasks for the benefit of the disabled are also performed by non-governmental organisations of disabled persons or NGOs that act for their benefit.

Government Plenipotentiary for Disabled People • The supervision, in terms of content, over the execution of tasks

specified by the relevant Act is performed by the Government Plenipotentiary for Disabled People – Secretary of State in the Ministry of Labour and Social Policy. From 2007, the post has been occupied by Mr. Jaroslaw Duda. The Plenipotentiary is appointed and dismissed by Prime Minister at the request of the Minister of Labour and Social Policy. The advisory body to the Government Plenipotentiary for Disabled People is the National Consultation Council for Disabled Persons.

Expenditure on social protection

Public social expenditures are clearly dominated by the social insurance benefits (old-age, survivors. and disability pensions).

Poland spends relatively high amounts, as compared to other countries, for old-age pensions and family pensions. On the other hand, the share of expenditures for such benefits as the family benefits, unemployment benefits (regardless of high unemployment rate) and social assistance

Financing of social protection Social protection system revenues in Poland are dominated by

contributions, as a result of the domination of social insurance in the social expenditures . Contributions finance the expenditures of the central social funds, such as: social insurance fund, national health fund, labour fund, etc.

The share of taxes in social revenues had dropped in 1995-2004, while the share of contributions increased as a result of the introduction of the health insurance system.

The state budget and the central social funds revenues makes up a dominating item in financing of the social protection expenditures. Due to the reforms related to decentralisation of the state administration, the role of local self-government budgets in financing of such expenditures slightly increased

Commercialisation and privatisation of public services

In the late 1980s and early 1990s, when Poland was entering the transformation process, the public service sector was dominated by the state to at least the same degree as the rest of economy. The state and its enterprises had the monopolistic position in the providing of social services

Privatisation adopted various forms: by liquidation of state-owned service providing entities, where the services which had been hitherto provided by the state became the market services, by privatisation of such entities, by allowing the activities of both public and private sector in the market, by contracting outside the tasks performed by the public administration or by bringing the prices of services, provided by them, to the market level (commercialisation).

Privatisation process, mainly by liquidation and commercialisation, at the beginning of the 90- ties included in particular public nurseries and kindergartens operated by gminas and state-owned enterprises, what resulted in considerable reduction of the access to such services.

The access to the institutions of the long-term care for the elderly, which until 2003 had been financed by the central budget through earmarked grants, was not reduced, and in parallel to the public entities private ones emerged in this area (operated by the church organisations, NGOs and for-profit organisations).

From the beginning of the transformation period a rapid process of informal privatisation occurred in the health care sector, consisting in the use of public property to perform private medical practices. In effect of the 1999 reform, uncontrolled privatisation processes were partly substituted by more formalised and targeted processes. In accordance with the reform, both private and public providers of health care services formally received an equal status in the access to public funds and may conclude, with equal rights, contracts with the Sickness Fund for the provision of health care services. Concurrently, many gminas, which had taken over the health care entities, started their restructuring and privatisation. In particular, a part of outpatient health care services was subject to privatisation. Also, private hospitals were established. Nevertheless, public sector continues to dominate the health care services

Role of NGOs

There are more than 40,000 registered associations and foundations in Poland, most of them operate in the area of provision of social assistance, support to the disabled and labor and education markets.

There are approximately 2 million voluntaries working for the NGO organisations

In 2003, an act was passed on the public utility and voluntary activity34. It provides comprehensive legislative regulation of the collaboration between state administration and NGO, providing a basis for the subsidiarity principle. It defines the terms and rights of the voluntary social worker and regulates the rules of taxation and financing of NGO activities. It has also established an institutional framework for dialogue and collaboration between NGO.s and the state administration.

New regulations introduced, among others, the accreditation principles for those NGOs, which intend to perform public tasks financed with public funds. Self-governments of various level are obliged to develop programmes of co-operation with non-governmental organisations, and the procedure of competitions for implementation of public tasks was statutorily regulated.

Furthermore, accredited NGOs may receive from the taxpayers 1 per cent of their payable tax.

Poland was the only European country to avoid recession in the global financial crisis that followed the 2008 collapse of Lehman Brothers. Since the start of the crisis, Poland’s economy has grown by 15%, according to the International Monetary Fund, easily topping its next closest EU rival, Slovakia, at 8%.

This success partly reflects the internal strength of the economy, and partly the impact of several external factors which helped Poland to deal with the global crisis. The list of internal strengths is quite extensive. First, the country is still benefiting from its attractiveness to foreign investors and the fundamental competitive advantage it enjoys within the EU as a production site. Although levels of foreign direct investment fell significantly during the crisis, lower labour costs and higher labour market flexibility helped to maintain growth in industrial output and exports.

Key advantage within the country is the relatively low level of debt among households and firms, leading to a high degree of financial stability and a strong portfolio of banking assets.

Finally, compared to its Central and East European neighbours, Poland has a relatively big and developing internal market that proved quite resilient to the economic slowdown.

Building a common front against economic crisis The social partners’ desire to work together in building a

common front against the economic crisis • Tripartite Commission for labour law and collective

agreements and for economic and labour market policy, respectively, agreeing that the following matters merit further discussion:

• subsidising jobs using public funds; • accelerating the use of European Union funds; • increasing the funds available for loan guarantees to

business enterprises; • introducing a 12-month settlement period at enterprises

with trade union or employee representatives; • financing some remunerations using public funds; • recognising social benefit packages as a source of labour

law.

The „old” reform is described as being "incomplete" because it still allows too many people to benefit from the costly early-retirement schemes.

• In principle, these temporary pensions are designed for people over 50 who are deemed unable to perform their tasks until official retirement age because of special working conditions. In practice, however, the list of occupational categories eligible is so vast that the number of beneficiaries exceeds one million people , or nearly 6% of labour force.

• The pension reform has replaced early-retirement schemes with "bridge" pensions, which have been implemented in 2007 as a kind of temporary entitlement for a much more restricted number of employees, though the introduction was postponed in the face of strong resistance by some workers, such as coal miners, teachers and railway workers.

„Bridge" pensions,

Public Employment and Pension Reform

Rising levels of public debt and the concerns over budget deficits are pervasive across Europe. Somewhat related to Poland’s situation is the resolve to reform its public pension system. New legislation aims to change the structure of how cash transfers are managed in the pension system. The plan calls for cash transfers to private pension funds to decrease to 2.3 percent (opposed to pre-reform levels of 7.3 percent)

Retirement age raise • On 11 May 2012, the parliament accepted the

government’s proposal to raise the retirement age to 67, with the coalition of PO, PSL and Palikot’s Movement voting for the reform and the SLD and PiS against it.

• The amendment to the Act on Pensions was signed by President Bronislaw Komorowski on 1 June 2012, and from 1 January 2013 the retirement age will increase by three months every year.

• The retirement age of 67 for men will be reached in 2020 and for women in 2040.

Uniformed services pension reform adopted • On 1 June 2012, the Act reforming the pension

system for the 11 uniformed services was also signed by the president. The new regulations cover professional soldiers, police officers, as well as people working in the Internal Security Agency (ABW), Foreign Intelligence Agency (AW), Military Counterintelligence Service (SKW), Military Intelligence Service (SWW), Central Anti-Corruption Bureau (CBA), Polish Border Guard (SG), the Government Protection Bureau (BOR), National Fire Service (PSP) and Prison Service (SW).

The reform assumes that: • the functionaries of uniformed services will be able to

retire at the minimum age of 55 and after 25 years of service (previously they could retire after 15 years’ service and there was no minimum age threshold);

• in line with trade union proposals, new regulations will only apply to new recruits from 2013; those already in service will be able to choose between the old system (retirement after 15 years) and the new system (retirement after 25 years of service);

• the basic pension at the age of 55 will be 60% of the average salary from any 10 successive years of an individual’s service selected by the eligible employees themselves (the pension was previously 40% of final salary after a minimum 15 years of service).

Final Remarks

• 20 years of system building

• Flexibility of system

• Role of international organisations