BASIC SOCIO-ECONOMIC INDICATORS
INCOME GROUP: HIGH INCOME
LOCAL CURRENCY: ZLOTY (PLN)
POPULATION AND GEOGRAPHY
- Area: 312 690 km2 (2018)
- Population: 37.95 million inhabitants (2020), a decrease of 0.1% per year (2015-2020)
- Density: 121 inhabitants / km2
- Urban population: 60.0% of national population (2020)
- Urban population growth: -0.0% (2020 vs 2019)
- Capital city: Warsaw (4.7% of national population, 2020)
ECONOMIC DATA
- GDP: 1 299.4 billion (current PPP international dollars), i.e. 34 240 dollars per inhabitant (2020)
- Real GDP growth: -2.5% (2020 vs 2019)
- Unemployment rate: 3.7% (2021)
- Foreign direct investment, net inflows (FDI): 17 388 (BoP, current USD millions, 2020)
- Gross Fixed Capital Formation (GFCF): 16.6% of GDP (2020)
- HDI: 0.88 (very high), rank 35 (2019)
MAIN FEATURES OF THE MULTI-LEVEL GOVERNANCE FRAMEWORK
The Republic of Poland is a unitary parliamentary democracy, with a President as head of state elected directly by the people to serve for five years, a Prime Minister appointed by the President as head of government and a bicameral Parliament). The lower house (the Sejm) has 460 members and the upper house (the Senate) has 100 members, all elected by direct election for a four-year term. Neither the upper nor lower house directly represent local and regional governments. However, the rules pertaining to the procedures of both assemblies oblige them to consult local and regional governments during the legislative process, in particular through the Association of Polish Counties and the Association of Polish Cities.
Poland has a three-tier system of subnational government, consisting of municipalities, counties and regions. The principle of decentralisation is enshrined in Article 15 of the 1997 Constitution. Municipalities are considered the basic unit of local self-government and have legislative powers for areas of local interest (Art. 94). They were enacted in 1990 by the Act on Municipalities and the decentralisation process in Poland has continued ever since. The intermediate level represented by counties (abolished in 1975) were reintroduced in 1999 by the Local Government Organisation Act, while a new regional level was created by the same act. The legal framework grants local self-government units with legal personality and property rights, and stipulates that they may associate themselves in order to fulfil tasks of common interest. In 2009, a law was passed to strengthen the responsibilities and devolve greater powers to Poland’s regions. The Polish Deal (Polski Ład), implemented in January 2022 and amended in March 2022, aims to increase subnational governments’ revenue predictability and to strengthen subnational investment projects.
In order to overcome the dichotomy of spatial planning between the different levels of governments and to foster regional development and competitiveness, the government set a “National Spatial Development Concept 2030” (NSDC 2030). The document defined urban functional areas as “spatially continuous settlement system consisting of units separate in administrative terms” and underlined their key role in the socio-economic development of the country. It distinguished four types of functional urban areas depending to their size. Despite these developments, the concept of spatial development was abolished in 2020. In the 2020 “Strategy for the Regional Development of the Country”, the term of metropolitan area is rarely mentioned and the functional areas of large cities is marginally considered.
TERRITORIAL ORGANISATION |
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MUNICIPAL LEVEL | INTERMEDIATE LEVEL | REGIONAL LEVEL | TOTAL NUMBER OF SNGs (2020) | |
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2 477 municipalities (Gmina) |
380 counties (Powiat) |
16 regions (Województwo) |
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Average municipal size: 15 496 inhabitants |
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2 477 | 380 | 16 | 2 873 |
OVERALL DESCRIPTION: Poland has a three-tier system of subnational government enshrined in its Constitution. In 2020, there were 16 regions (voivodeships), 380 counties (powiats) and 2 477 municipalities (gminas). Regional and local elections take place every five years (last in October 2018).
REGIONAL LEVEL: Regions are led by a regional council composed of members elected by direct universal suffrage, together with a regional executive board, headed by a marshal (marszałek). The 16 regions established in 1999 replaced the 49 former voivodeships that had existed from 1 July 1975 (but without functioning regional government bodies). The new units range from 982 600 inhabitants (Opolskie) to around 5.4 million inhabitants (Mazowieckie), the average being around 2.4 million inhabitants in 2020. The median size is about 2.1 million inhabitants. Differences between Polish regions in terms of GDP per capita have increased over the last 16 years. Lubelskie, the poorest region in the country, has a GDP per capita level equivalent to 44% of the GDP per capita in Mazowieckie, the richest region. Poland has the fifth highest regional economic disparities among 30 OECD countries with comparable data.
INTERMEDIATE LEVEL: Counties are led by a county council with members elected by direct universal suffrage, and an executive board, led by the head of the county, elected by the members of the county council (starosta). The 380 counties include 314 land counties (powiaty ziemskie), whose jurisdiction expands over the territory of several municipalities, and 66 cities counties (powiaty grodzkie) in 2020. The later are 66 large cities (including 18 regional capitals) and have the same responsibilities as the counties. In city counties, legislative and executive functions are performed by the city's own council, the directly elected mayor (burmistrz or prezydent) and the city office/town hall (urząd miasta). The relevance of the county tier is regularly debated, as in several other European countries having an intermediate level. The average population size of counties was around 101 000 inhabitants in 2020, with high disparities. The population size ranged from 19 900 in Sejneński to 1 790 700 inhabitants in Warsaw. The median size was close to 76 000 inhabitants.
MUNICIPAL LEVEL: Municipalities are led by a municipal council and chaired by a mayor, who is elected by direct universal suffrage. Municipalities are divided into three categories: 302 urban municipalities (which include 66 cities with county status, out of which five have more than 500 000 inhabitants in 2020), 1 533 rural municipalities and 642 mixed municipalities (urban-rural). In 2020, the average municipal size was about 15 500 inhabitants (vs 10 250 in the OECD and 5 960 in the EU). 26.0% of municipalities have fewer than 5 000 inhabitants (vs 41% in the OECD) while 13.9% have more than 20 000 inhabitants (vs 33% in the OECD). There are 14 cities with more than 200 000 inhabitants in 2020, of which the capital city Warsaw that counts more than 1.790 million inhabitants. Warsaw is divided into 18 districts, and has a special status, regulated in a specific act since 2002. Municipalities may create sub-municipal units with a subordinate administrative role, and may define their statutes and tasks (osiedle or dzielnica in urban municipalities and sołectwo in rural areas).
HORIZONTAL COOPERATION: Poland has a number of mechanisms for inter-municipal coordination, such as inter-municipal agreements and inter-municipal unions. Since 2016, local authorities can also create so-called shared service centres. The national government has also established a framework for inter-municipal collaboration through the new Metropolitan Association Act in Śląskie voivodeship (2017). However, inter-municipal cooperation has developed only slowly in Poland.
“Territorial agreements” were introduced in order to strengthen partnerships among SNGs and improve coordination among voivodships in areas that affect several territories at once.
STATE TERRITORIAL ADMINISTRATION: Poland also has a deconcentrated state territorial administration, based on 16 regional bodies managed by a governor (voivod), who is appointed by the Prime Minister, in charge of supervising local governments.
Subnational government responsibilities
The 1990 Act on Municipalities gave large responsibilities to municipalities in terms of spatial planning, infrastructure development, utilities, municipal housing, social services, education, environmental protection, basic healthcare, recreation and culture. Overall, the 1997 Constitution assigns to municipalities tasks that are not explicitly assigned to other government levels. Counties are responsible for local issues not ascribed to municipalities and have a more limited role and influence. Their main responsibilities include secondary education, health, social welfare, economic activity and job creation. Regions are responsible for issues of regional importance (determined by law), playing a relatively limited role in directly providing public services. Their responsibilities have been progressively strengthened with the decentralisation of new tasks. Since 2007, regions are fully responsible for a big share of European cohesion funds (25%) and they received new tasks in 2009 in the areas of transport and environment. As of June 2022, municipalities will lose some responsibilities in the social welfare area, as the state programme “Family 500 Plus” will be managed by the Social Insurance Institution.
Main responsibility sectors and sub-sectors |
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SECTORS AND SUB-SECTORS | Regions | Counties | Municipal level |
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1. General public services (administration) | Internal administration; Management of EU funds | Internal administration; Real estate management; Civil registration status | |
2. Public order and safety | Defence; Public order | Civil protection; Flood and fire protection | Public order and security; Emergency response |
3. Economic affairs / transports | Regional economic development; Employment and labour market policy; Regional roads; Public transport including regional rail transport (since 2009); Consumer rights protection | Economic development; Job creation (employment offices); County roads (maintenance and construction) | Local roads (maintenance and construction); Local public transport; Telecommunications |
4. Environment protection | Environmental protection; Waste management (since 2009) | Environmental protection | Protection; Zoning and local environmental protection; Waste management (since 2013); Sewerage; Landfills |
5. Housing and community amenities | Spatial development; Water management; Land improvement; Hydropower facilities; Modernisation of rural areas | Spatial planning; Water supply; Public areas (including cemeteries); Electricity; Gas and heat supply; Housing | |
6. Health | Health promotion; Regional hospitals (specialised services, secondary referral level hospitals); Medical emergency and ambulance services | Health promotion; County hospitals (first referral level hospitals) | Health promotion; Primary healthcare services |
7. Culture & Recreation | Regional cultural institutions | Sports and tourism; Support to cultural institutions | Marketplaces; Municipal libraries; Support to cultural institutions; Monument protection; Promotion of sports |
8. Education | Some secondary schools and vocational schools; Post-secondary schools; Teacher training colleges | Secondary education | Pre-primary and primary education |
9. Social Welfare | Regional Social Policy Centres; Social welfare and family policy; Social exclusion; Disabled; Childcare; Elderly care | Social welfare (beyond municipal territorial boundaries); Support to the disabled through county family centres | Social services including family benefits (since 2004) through municipal social assistance centres |
Subnational government finance
Scope of fiscal data: municipalities, counties and regions; associations of municipalities; schools, local institutions of culture; local health care institutions; special purpose funds (environment and water management, protection of agricultural land, etc.), road traffic centres, local public corporations and non-profit institutions. | SNA 2008 | Availability of fiscal data: High |
Quality/reliability of fiscal data: High |
GENERAL INTRODUCTION: The main laws related to the fiscal framework of SNGs are the 1998 Act on Local Government Revenue (amended in 2004) and the 2009 Act on Public Finances. Reforms provided SNG with more fiscal autonomy, thanks to a decrease in the share of central transfers (and of earmarked grants), and an increase in shared tax revenues (higher proceeds from PIT and CIT). While the financial autonomy of Polish subnational authorities has been undermined in recent years as a result of the crisis and austerity measures, ongoing discussions tend towards a strengthening of their autonomy. Gaps in revenue collection between local governments across the country are filled through an equalisation system. The 2022 Polish Deal aims to make the tax system more equitable for citizens by lowering tax, increasing healthcare spending and supporting infrastructure investment. It is structured around three pillars: (i) stabilising revenue, (ii) increasing revenue and (iii) fostering development and investment projects at the subnational level.
Subnational government expenditure by economic classification |
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Dollars PPP / inhabitant | % GDP | % general government | % subnational government | |
---|---|---|---|---|
Total expenditure | 5 129 | 14.9% | 30.6% | 100.0% |
Inc. current expenditure | 4 370 | 12.7% | 29.6% | 85.2% |
Compensation of employees | 2 009 | 5.8% | 53.2% | 39.2% |
Intermediate consumption | 1 108 | 3.2% | 55.1% | 21.6% |
Social expenditure | 983 | 2.9% | 15.3% | 19.2% |
Subsidies and current transfers | 228 | 0.7% | 11.2% | 4.5% |
Financial charges | 25 | 0.1% | 5.5% | 0.5% |
Others | 17 | 0.1% | 38.1% | 0.3% |
Incl. capital expenditure | 758 | 2.2% | 38.2% | 14.8% |
Capital transfers | 75 | 0.2% | 18.6% | 1.5% |
Direct investment (or GFCF) | 683 | 2.0% | 43.2% | 13.3% |
% of general government expenditure
- Total expenditure
- Compensation of employees
- Current social expenditure
- Direct investment
- 0%
- 15%
- 30%
- 45%
- 60% 75%
SNG expenditure by economic classification as a % of GDP
- Compensation of employees
- Intermediate consumption
- Current social expenditure
- Subsidies and other current transfers
- Financial charges + other current expenditures
- Capital expenditure
- 15% 12%
- 9%
- 6%
- 3%
- 0%
EXPENDITURE: The share of SNG expenditure in total public expenditure substantially increased with decentralisation reforms, from 23% in 1995 to 30.6% in 2020. Polish SNGs are key economic and social actors, as well as key public employers (in particular in the education sector). Polish ratios are below the OECD average both as a share of public expenditure and GDP (respectively 36.6% and 17.1%) but above the OECD average for unitary countries (respectively 27.5% and 12.7%). Municipalities are by far the most important component of SNG in Poland (83% of SNG expenditure in 2020 i.e. 48% for the gminas and 35% for the cities with county status), followed by counties (11%) and then regions (7%).
DIRECT INVESTMENT: Subnational public investment accounted for 2.0% of GDP in 2020, which is close to the OECD average (1.9%) but has been in sharp decline since the 2008 financial crisis. The role of Polish SNGs as public investors has been plummeting as a result of austerity measures and borrowing restrictions. Under the third pillar of the 2022 Polish Deal, the central government will transfer two new funding sources to SNGs, on an annual basis, for investment projects that are essential for the economic recovery of the country (e.g. roads, railways, cultural projects, educational infrastructure): (i) A new share in the general subsidy, the “development” share, whose allocation will depend on the level of subnational government’s capital expenditure, inhabitants and project’s objective, (ii) A Government Local Investment Fund (GLIF) under the “Strategic Investment Project Programme”, in the form of non-repayable co-financing, subsidies and loan commitment issued by the Bank Gospodarstwa Krajowego.
Investment projects are increasingly financed through public-private partnerships (PPPs) at the subnational level. Before 2005, Poland had no statutory regulations on PPPs, with the exception of concession procedures from the public procurement law. In 2005, the Act of 28 July 2005 on PPP came into force in Poland, but due to excessive restrictions and regulatory burdens, no PPP contract was concluded under this act. In 2009, the government launched two new Acts on (i) PPP and (ii) concessions for construction works or services (Concession Act), which led to a significant increase in the use of PPPs by subnational governments. SNGs usually choose concession model under PPP contracts, particularly for smaller projects.
Subnational government expenditure by functional classification |
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Dollars PPP / inhabitant | % GDP | % general government | % subnational government | |
---|---|---|---|---|
Total expenditure by economic function | 4 895 | 14.3% | - | 100.0% |
1. General public services | 429 | 1.3% | 24.7% | 8.8% |
2. Defence | 1 | 0.0% | 0.1% | 0.0% |
3. Security and public order | 86 | 0.3% | 11.4% | 1.8% |
4. Economic affairs/transports | 725 | 2.1% | 40.5% | 14.8% |
5. Environmental protection | 142 | 0.4% | 72.5% | 2.9% |
6. Housing and community amenities | 174 | 0.5% | 88.5% | 3.6% |
7. Health | 742 | 2.2% | 28.8% | 15.2% |
8. Recreation, culture and religion | 330 | 1.0% | 71.5% | 6.7% |
9. Education | 1 227 | 3.6% | 50.1% | 25.1% |
10. Social protection | 1 040 | 3.0% | 13.7% | 21.3% |
SNG expenditure by functional classification as a % of GDP
- General public service
- Defence
- Public order and safety
- Economic affairs / Transport
- Environmental protection
- Housing and community amenities
- Health
- Recreation, culture and religion
- Education
- Social protection
- 15% 12%
- 9%
- 6%
- 3%
- 0%
SNG expenditure by functional classification as a % of SNG expenditure
- General public service: 8,77%
- Defence: 0,02%
- Public order and safety: 1,77%
- Economic affairs / Transport: 14,8%
- Environmental protection: 2,9%
- Housing and community amenities: 3,55%
- Health: 15,16%
- Recreation, culture and religion: 6,73%
- Education: 25,06%
- Social protection: 21,25%
The primary spending area of Polish SNGs is education (25.1%), as SNGs are responsible for both capital and current expenditure including staff remuneration. SNGs accounted for half of total public expenditure in the education in 2019. Social protection expenditure has substantially increased in recent years, becoming the second most important subnational budget item in 2019 (21.3% vs 13% in 2013). This was underpinned by the implementation of a social benefit in 2016, called the “Family 500 Plus" programme, to support families bringing up children under 18 years of age. However, as of June 2022, municipalities will lose this programme and its associated expenditure and revenue. SNGs carried out 13.7% of total public social expenditure in 2019. Healthcare is the third most important SNG spending item (15.2%), accounting for 28.8% of total public health expenditure in 2019, closely followed by economic affairs and transport (14.8%). Healthcare in particular is a prime responsibility for regions.
Subnational government revenue by category |
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Dollars PPP / inhabitant | % GDP | % general government | % subnational government | |
---|---|---|---|---|
Total revenue | 5 195 | 15.1% | 36.4% | 100.0% |
Tax revenue | 1 521 | 4.4% | 20.1% | 29.3% |
Grants and subsidies | 3 299 | 9.6% | - | 63.5% |
Tariffs and fees | 315 | 0.9% | - | 6.1% |
Income from assets | 39 | 0.1% | - | 0.7% |
Other revenues | 21 | 0.1% | - | 0.4% |
% of revenue by category
- 75% 60%
- 45%
- 30%
- 15%
- 0%
- Tax revenue
- Grants and subsidies
- Tariffs and fees
- Property income
- Other revenues
SNG revenue by category as a % of GDP
- Tax revenue
- Grants and subsidies
- Tariffs and fees
- Property income
- Other revenues
- 20% 16%
- 12%
- 8%
- 4%
- 0%
OVERALL DESCRIPTION: The Polish Constitution comprises two main provisions related to local finances (articles 167 and 168), establishing the “matching” principle (SNGs should be assured public funds adequate for the performance of the duties assigned to them) and specifying that subnational revenues should consist of own revenues as well as general subsidies and specific grants from the state budget. Article 168 provides that SNGs shall have the right to set the level of local taxes and charges. In addition to the Constitution, there are two main acts regulating local finance: the Local Government Revenues Act and the Act on Public Finance of 27 August 2009. The 2004 reform of the Act on Local Government revenue had a profound impact on the financial relationship between the central government and SNGs, granting them more fiscal autonomy.
SNG revenue remains, however, highly dependent on central government grants and subsidies. Own revenues and a general subsidy (block grant) aim to finance the own tasks of SNGs, while specific grants are designed to fund delegated tasks. The 2022 Polish Deal aims to provide a more equitable tax system to citizens and further stabilise subnational revenue, according to the government. In 2020, grants and subsidies represented 63.5% of subnational revenue, while tax revenue accounted for only 29.3% of subnational revenue, well below the averages of OECD countries (42.4%) and unitary OECD countries (35.4%). Municipalities represent 82% of subnational revenue (of which 49% for the gminas and 33% for the cities with county status), followed by counties (11%) and regions (7%).
TAX REVENUE: The SNG tax system is based on both shared taxes (for all three levels) and own-source taxes (only for the municipal level). Municipal own-source taxes include a property tax on land and buildings, an agricultural land tax and a forest tax. These three taxes on immovable property accounted for 25.7% of SNG tax revenue in 2020 and 7.5% of their total revenue, i.e. 1.1% of GDP (in line with the OECD average). The property tax levied on buildings and plots of land is levied on a square metre basis, with different rates set for commercial versus residential buildings. Tax rates are capped by thresholds that are determined by the central government through a base rate indexed to inflation. The central government is currently considering tax on unoccupied properties, which represented 11% of dwellings in rural areas and 6% in urban areas in 2020, to accompany the increase in property acquisition in Poland, Other municipal taxes include a tax on civil law transactions, a tax on transport vehicles, a stamp duty, an inheritance and donation tax, etc. Municipalities are free to set tax rates within upper tax limits defined by law and to allow certain exemptions.
Shared tax revenue comes from the share of the PIT and the CIT, which were redistributed to SNGs according to a fixed percentage of the total proceeds collected in their respective area until 2022. In 2020, PIT represented 54.7% of SNG tax revenue and 16.0% of total SNG revenue. Therefore, there was a fiscal incentive for municipalities to increase their population and for regional governments to foster business growth.
The Polish Deal, implemented in January 2022 and amended in March 2022, reduces the PIT rate on low-income taxpayers (up to PLN120 000) from 17% to 12% and exempts them from healthcare contribution, which will result in a reduction in the annual transfer of PIT from the central government to SNGs. As estimated by the Ministry of Finance, this would constitute a revenue drop of PLN 145 billion for SNGs in the next 10 years. To compensate, the Polish government has transferred PLN 8 billion of general subsidy to SNGs in 2021 (see below). The allocation of the PIT among municipalities, cities and counties is now related to their level of income, introducing an equalisation mechanism based on their current year income. The central government emphasized that the reform will increase revenue predictability for SNGs and bring stability with less reliance on economic taxes.
GRANTS AND SUBSIDIES: In 2020, grants and subsidies represented 63.5% of subnational revenue. The system of grants includes the general purpose grant and conditional (or earmarked) grants. Current grants accounted for the vast majority of grants in 2020 (88.0%), while capital grants represented 12.0% of total grants.
The general purpose grant is made up of several shares, including: (i) the education share, which is the largest and aims to cover educational expenses (notably teachers’ salaries), (ii) the equalisation share, which is allocated to SNGs with below-average tax capacities, (iii) the balancing share, to finance social expenditure (for municipalities and counties) and (iv) the regional share for each region based on different criteria. A new share was added with the Polish Deal in 2022, the “development” share, to boost major investment projects for the recovery of the country. Despite these delineations, SNGs can spend the general purpose grant at their own discretion – it is not earmarked for a particular purpose.
Some municipalities may also receive “compensating” grants, which are used to compensate municipalities for lost property tax revenue due to special economic zones (i.e. uninhabited parts of the territory where business activity may be conducted under preferential conditions as defined in the Act of October 1994). Conditional transfers include specific transfers to finance tasks that are delegated to them from the central government, in particular social assistance and to finance capital expenditure. The latter includes grants provided under programmes financed with the participation of European funds, other non-refundable foreign funds and payments from European funds. It has also been increased with funds from the Government Local Investment Fund (GLIF) that has been established with the Polish Deal reform (see above). Regarding social assistance, municipalities will not receive child benefit transfers under the state delegated “Family 500 Plus” Programme as of June 2022, as this will be managed by the Social Insurance Institution.
OTHER REVENUE: Tariffs and fees represented 6.1% of subnational revenue in 2020, well below the averages of OECD countries (13.3%) and OECD unitary countries (9.1%). They include fees related to markets, visitor fees, exploitation fees, etc. Similarly, property income accounted for a tiny 0.7% of subnational revenue in 2020, below the OECD average (2.0%) and OECD unitary countries’ average (1.1%) in 2020. Property income consists of property leasing and sales and income from municipal companies and public utilities.
Subnational government fiscal rules and debt |
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Dollars PPP / inh. | % GDP | % general government debt | % SNG debt | % SNG financial debt | |
---|---|---|---|---|---|
Total outstanding debt | 2 112 | 6.1% | 7.9% | 100.0% | - |
Financial debt | 1 470 | 4.3% | 7.1% | 69.6% | 100.0% |
Currency and deposits | 0 | - | - | 0.0% | 0.0% |
Bonds / debt securities | 88 | - | - | 4.2% | 6.0% |
Loans | 1 382 | - | - | 65.5% | 94.0% |
Insurance pensions | 0 | - | - | 0.0% | - |
Other accounts payable | 642 | - | - | 30.4% | - |
SNG debt by category as a % of total SNG debt
- Currency and deposits: 0%
- Bonds/Debt securities: 4,17%
- Loans: 65,45%
- Insurance pensions: 0%
- Other accounts payable: 30,38%
SNG debt by level of government as a % of GDP and as a % of general government debt
- 10% 8%
- 6%
- 4%
- 2%
- 0%
- % of GDP
- % of GG Debt
FISCAL RULES: SNGs are governed by tight fiscal rules regarding the use of their resources and borrowing, under the supervision of Regional Audit Chambers. The 2011 Public Finance Act established budget balance rules for SNGs (income and current expenditure must be balanced). The individual debt repayment ratio was also increased and any loans, credits or bonds issued as a result of the pandemic were excluded from the ratio.
DEBT: In 2014, new borrowing rules came into force to further reduce SNG debt. Local governments’ debt service should not exceed a three-year average sum of operating surpluses and proceeds from privatising public assets. Moreover, SNG debt must not exceed 60% of GDP. As a result, subnational debt was moderate compared to the OECD average in 2020 (27.9% of GDP and 20.2% of public debt) and even OECD unitary countries (14.5% of GDP and 10.5% of public debt). Subnational financial debt accounted for 69.6% of subnational debt in 2020, of which 94.0% was from loans and 6.0% from bonds.
The impact of the COVID-19 crisis on subnational government organisation and finance
TERRITORIAL MANAGEMENT OF THE CRISIS: Poland declared a „state of epidemic emergency“ as a result of the COVID-19 pandemic in March 2020. Accordingly, exceptional powers transferred to the central government (e.g. isolation of individuals, suspension of local government’s officials and replacement with special commissioners if they do not perform their duties) are made possible through the enactment of special resolutions and provisions. This „state of epidemic“ exempted the central government to the obligation to compensate citizens for any economic losses caused by the restrictions and to co-ordinate actions with SNGs, which effectively managed the crisis in their territories. Additionally, the „state of epidemic“ is not limited in time, contrary to the „state of emergency“.
The pandemic was led by the central government, together with the relevant ministries (e.g. the Ministry of Health). Its initial response was based on the 2008 Infectious Diseases Act, which set the functioning of public bodies in case of epidemic. The government adapted this pre-existing national framework in September 2020 to establish a more specific strategy. The response was co-ordinated by the Prime Minister among the different ministries, with the support of crisis management bodies. These dedicated bodies were dismantled or limited in their capacity when the sanitary situation improved. A Scientific Advisory Council was also established to orientate the response plan of the government, which mainly included representatives from national agencies. Non-governmental stakeholders have not been included in the design of the plan.
EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The government introduced several measures in order to support SNGs during the pandemic. The central government alleviated some of the fiscal and debt rules that apply to SNGs, such as the possibility to exceed indicators of balanced budget in 2020 and 2021 and the increase of individual debt repayment ratio. Earlier transfer of the general subsidy from the central government to SNGs was also made to provide them with more leeway to handle the crisis (Act on the Income of Local Government Units).
SNGs provided support to vulnerable households during the pandemic, along with the central government, mainly for hospitals and social assistance. Additionally, municipal councils had the possibility to adopt resolutions on general grant of allowances and debt cancellation for the leasing of public properties.
IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: COVID-19 largely impacted the local economy in Poland, with high disparities among Eastern and Western territories. The most affected areas were the industrial and urban ones (mainly in West and South), in addition to the Mazowieckie region, which includes the capital city. Manufacturing and mining, which account for a large share of the economy in Southern regions, were not subject to lockdown, which lessened the negative economic consequences of the crisis in these regions (e.g. Upper Silesia).
At the subnational level, revenue increased by 4.2% in 2020 compared to 2019, mostly underpinned by higher grants and subsidies (10.5%) that compensated the drop in tax revenue (-2.7%) and in tariffs and fees (-14.3%). The increase of grants was mainly driven by capital grants (+23.3%). Regarding tax revenue, regions were mostly impacted by the decline in CIT, which is highly sensitive to economic change, and municipalities by that of the PIT, CIT and service fees (e.g. swimming pool, cultural institutions, public transport tickets).
On the expenditure side, subnational spending increased by a tiny 1.5% between 2019 and 2020. This reflects higher current social expenditure (+11.8%), given the role of local governments in providing social assistance during the crisis, which was partially compensated by reduced spending related to lower demand for services and to the cancellation of events (e.g. passenger rail and cultural events for regions). By contrast, investment decreased by 3.3% in 2020 due to the pandemic. As a result, subnational debt increased by 6.1% in 2020 compared to 2019. The financial debt was financed by both bond issuance (+3.8%) and loans (+5.6%) in 2020.
ECONOMIC AND SOCIAL STIMULUS PLANS: Poland established a national recovery and resilience plan, in line with the EU Recovery and Resilience Facility (RRF) under the NextGenerationEU programme. Accordingly, the country can receive funds from the RRF, in the form of grants and loans. The plan includes several investment projects and reforms, which involves subnational governments, with a focus on green transition and digital transformation.
In addition, Polish regions will benefit from EUR 136 million of the REACT-EU and EU Cohesion fund in 2021 and 2022, which aim to support their recovery by fostering their investment in green and digital transition, as well as in healthcare infrastructure. The central government implemented a national recovery fund, the Government Local Investment Fund (GLIF), under its “Strategic Investment Project Programme”, to boost subnational investment in educational facilities, the construction of road and the modernisation of rail infrastructure. The fund amounts to PLN 13.25 billion, of which PLN10 billion were transferred to SNGs by the end of 2020.
Bibliography
Socio-economic indicators |
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Source | Institution/Author |
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Area and population in the territorial profile in 2020 | Central Statistical Office |
Link: https://stat.gov.pl/en/topics/population/population/area-and-population-in-the-territorial-profile-in-2020,4,14.html | |
World development indicators | World Bank |
Link: https://data.worldbank.org/indicator/ | |
World population prospects | United Nations |
Link: https://population.un.org/wpp/ | |
Demographic and Social Statistics | United Nations |
Link: https://unstats.un.org/unsd/demographic-social/index.cshtml | |
Unemployment rate by sex and age | ILOSTAT |
Link: https://ilostat.ilo.org/data/ | |
Human Development Index (HDI) | United Nations Development programme; Human Development Reports |
Link: http://hdr.undp.org/en/content/human-development-index-hdi |
Fiscal data |
|
Source | Institution/Author |
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Financial economy of local government units in 2018 | Central Statistical Office |
Link: https://stat.gov.pl/en/topics/national-accounts/general-government-statistics/financial-economy-of-local-government-units-2018,2,15.html | |
OECD (2020) Subnational governments in OECD countries | OECD |
Link: https://stats.oecd.org/ | |
OECD Revenue Statistics Poland | OECD |
Link: https://stats.oecd.org/ | |
OECD National Accounts Statistics | OECD |
Link: https://stats.oecd.org/ | |
Government Finance Statistics | Eurostat |
Link: https://ec.europa.eu/eurostat/web/government-finance-statistics | |
REGOFI Database | OECD |
Link: https://stats.oecd.org/ |