Participants of an anti-government demonstration gather in front of the private house of Jaroslaw Kaczynski, leader of Poland's ruling party Law and Justice (PiS), on December 13, 2015, in Warsaw, to remember the centenary of the introduction of martial law by the authoritarian communist government on December 13, 1989. AFP PHOTO / WOJTEK RADWANSKI / AFP / WOJTEK RADWANSKI (Photo credit should read WOJTEK RADWANSKI/AFP/Getty Images)
Anti-government demonstration in Warsaw © AFP

Poland’s new ultraconservative government has sought to reassure investors fretting about the country’s lurch to the right that it remains committed to market-friendly policies.

The EU’s sixth-largest economy voted in October to evict a liberal, centrist government after eight years in office, replacing it with the more nationalist, conservative Law and Justice party that promises fiscal handouts, lower personal taxes and new levies on sectors dominated by foreign investment.

Since the election, Poland’s main stock exchange index has tumbled 17.5 per cent and the price of its 10-year debt has fallen, amid fears that the new administration will reverse years of fiscal tightening and squeeze businesses to fund expensive election promises.

“It is unfair and unfounded. We will be very friendly towards business,” said deputy prime minister Mateusz Morawiecki, a former Santander executive.

“This party has been associated sometimes with a less liberal approach . . . But the change should not unsettle investors. We are a market-oriented government that believes in a free economy.”

Since entering office, the government has stoked controversy and alarmed European partners by taking control of state-run agencies, challenging the independence of the country’s highest court and bickering with the EU.

It has promised a €120 monthly child subsidy, a cut to the retirement age, a tax reduction for lower earners and — most controversially — a new levy on banks and supermarkets, which are predominantly owned by foreign investors.

His appointment as deputy PM by a party not famed for its economic management skills was widely praised by Polish business figures and helped calm fears the new government would destabilise the EU’s fastest-growing economy over the past decade.

“I understand the markets. I know business and the real economy. I know how to speak the language of investors,” said Mr Morawiecki, who was dubbed the “superminister” by the Polish business press for his wide remit that spans roles traditionally held by ministers of finance, economy, infrastructure and innovation.

“Rather than discussing the nitty gritty of economic development among 27 members of cabinet, let’s just have those guys and girls that focus on the economy co-ordinate and decide on a view,” he said.

Even with the increased spending, Poland’s budget deficit next year will be about 3.2 per cent, Mr Morawiecki suggested, adding: “In the longer run, I would like to go even lower than this. But in the next couple of years we need public money for investment.”

One of only two non-politicians in the cabinet, the internationally educated business school graduate defended a proposed new 0.39 per cent tax on banking assets as “acceptable” and “proportional to similar levies in the UK and Germany”.

“I am extremely open to international investors, especially those that bring lots of value added,” he said in an interview. “We want to open the gates as broadly as possible.”

Mr Morawiecki said Poland will consider bringing in a version of the UK’s “diverted profits tax” — dubbed the “Google tax” — as a means to stop companies avoiding levies by routing profits overseas, and would seek to ensure Poland’s €87bn EU grant package over the next six years was “invested, not just spent”.

Adjustments to the tax code would also remove archaic rules that reward companies for importing overseas technology, designed to kick-start Poland’s Soviet-style economy in the early 1990s, and encourage research spending, which, at 0.8 per cent of gross domestic product, is among the lowest in the EU.

“In the next five to seven years we should be at the EU average level of 1.5 per cent. There are no incentives to innovate [today] . . . We are going to change that,” he said. “There will be more incentives through things like amortisation, depreciation and tax breaks.”

In addition to lowering their rate of corporate tax to 15 per cent from 19 per cent, Mr Morawiecki said Poland should not be afraid to support its plethora of small and medium-sized businesses whose export opportunities are hurt by protectionist measures in more developed economies.

“I get so many complaints daily,” he said, gesturing to a pile of letters. “Mid-caps are signalling to us that, more and more, they are encountering non-tariff barriers in western EU countries.”

Mr Morawiecki added: “More mature countries are helping their companies, their entrepreneurs much more wisely. We need to help them like Germany was helping its companies 30 or 40 years ago.”

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