Time for a Polish Ministry of Consumer and Small Business Affairs

The recent Polish Presidential elections have shown that electors are tired of the same old arguments between PO and PiS (the two main parties) but are not at all sure what they do want. Well let me help electors:

The real albeit not articulated concern of ordinary people be they rich or poor (i.e those who do not believe in conspiracy theories or that the only moral issues are in vitro and gender)  is the issue of citizen rights as consumers and as small entrepreneurs.

I am sure that I cannot be the only citizen who is sick and tired of being taken for a ride by T Mobile trying to sell me services I do not want or need, PGNiG and RWE trying to tie me into long term contracts with the offer of cheaper energy only in the first year, LOT having a reservation system which requires me to enter my mobile phone number in two different formats and an on line check in system which does not allow check in on a code share flight operated by Lufthansa or TAP, a totally user unfriendly social security authority requiring me to prove that I am not a camel, having to queue five (yes five) times to apply for a disabled parking permit, being unable to apply for a passport or ID card by post or internet and having to supply “civil” servants with information which the state already has.

A recent press article shows how easy it is for large corporations to collect moneys not due from consumers and small businesses using the e-sąd system where the virtual judge does not even ask the putative debtor to put their side of the argument before issuing a payment order which allows the baillifs to run riot. And woe betide if you have moved house and TPSA has ignored your contract cancellation and continues to issue invoices sent to your old address and the court sends the payment order also to that and not your current address completely ignoring that you are now “zameldowany” somewhere else. As recent scandals have shown the state is powerless against baillifs who sell assets not belonging to the debtor and against officials in the Prosecutors office who allow the photgraphing of documents.

The government has just now published guidelines for how the various central and local government departments should communicate using the rather derogatory benchmark of language understandable by a mentally deficient grandmother. Well what about the language of contracts. What about the principle of equal treatment of the parties and defense of those who do not have access to full information? What about small print in contracts. By the by I now sign contracts and add the words I have NOT read the terms and conditions. When was the last time you tried to return faulty goods to any retailer and in particular the large multi nationals? Why do you as a consumer have to check sell by dates just because the fines for selling out of date goods are so laughably small as to be irrelevant?

Why as a small producer do you still have to wait for months for the likes of Tesco and Auchan to pay for goods they have long ago sold? Why if electors say that they are against so called “rubbish” employment contracts do they continue to buy Chinese products which clearly are produced by in effect slave labour? Why are banks able to increase charges by stealth?

And lastly why is the new Minister of Health a doctor who represents the supply side of health care rather than someone who would represent the consumer?

So come on Prime Minister Kopacz. Time to take the political debate away from substitute issues and concentrate on issues which would make life far simpler for consumers and small businesses who actually create employment. Time to do away with Social Security (ZUS) as a seperate tax system and move to a single system of taxation which would not create artificial anomalies. And time to create a Ministry for Consumer Affairs able and willing to create a truly level playing field.

There is a world of difference between a free competetive economy and one in which the freedom applies to only large state owned enterprises and oligarchies. The State is there to create a level playing field and protect the weaker. And the weaker is clearly the consumer i.e you and I.

Poland continues to attract investors

The more serious Polish press report today a ranking of inward investment published by fDi Magazine. In 2014 inward investment into Poland totalled 6 billion US$. In terms of numer of investments Poland raked 5th in Europe.

In terms of country of origin 909 investments came from the UK, 378 from Germany, 252 from Spain and 237 from France.

German mittelstand businesses have always invested in Poland. It is a pleasure to see however that UK owner managed businesses are beginning to come to Poland. The high ranking of Spanish investment is probably on the back of Santander having acquired some years ago BZWBK from AIB.

The 6 billion invested into Poland has to be seen as part of an on going move of production eastwards and the growth of the Polish domestic consumer market.

Interest rates at record lows, what now?

Last week the central bank of Poland reduced interest rates by a full 0.5% with the headline rate now standing at an all time low of 1.5%. Most commentators believe the main reason for the move is the fact that the Polish economy is dangerously close to deflation. Now the reason deflation is a bad thing is the fact that consumers hold off purchases expecting proces to fall and manufacturers reduce stock. Which causes a down turn. So maybe holding interest rates relatively high was a bad move (hindsight is of course a wonderful things).

The question however remains as to whether near zero interest rates will in fact encourage businesses to borrow for investment and for consumers to buy more goodies (such as TV’s) on credit. As far as consumers are concerned it would appear that the major consideration with credit purchases is the amount of monthly repayments and not the rate of interest. For a short while the news of interest rate reductions can cause a feel good factor and of course for those with significant mortgages their disposable income increases. For corporations the key issue remains whether they believe that investment will pay off and whether the banks will be willing to lend.

There is another aspect to the equation. The central banks world wide primarily look to keep inflation within a narrow range. All well and good but what do the indexes measure? The average shopping basket which in a quickly changing world soon becomes misleading. And of course the inflation indicators do not measure asset inflation. With surplus funds looking for a home we have already seen a dramatic increase in house prices in the UK (well the South East at least). Stock markets have also bounced back.

But what of Poland? Will businesses invest in research and development and new technology as we are told is vital to achieve the next level of growth? Only if they believe there will be a market for the products. John Palmer from BNP Paribas Real Estate reports in a current review that the yield rate on Polish logistics properties has fallen to 7.15% to 7.25% having previously tested double figures and vacancy rates have dropped to 5.7%. The yield rate shows clearly that investors are back in the market whilst the fall in vacancy rates suggests that businesses are gearing up for increases in sales and hence need for warehouse space. Time will tell whether these are the first signs of growth rates increasing.

One of the key issues is that for the demand for employees to grow the Polish GDP has to grow more than gains in productivity. With the government side tracked by the double elections and having fallen into the trap of acceding to demands from public employees (miners amongst others) there is little chance that the still remaining barriers to business are removed any time soon.

Substance over form

There are many areas where the British approach to both the law and to accounting regulations in particular has no real equivalent on the Continent (defined some time ago by the famous headline in the Sun newspaper “Fog in the Channel – Continent cut off).

One such area is the accounting concept of substance over form. This basically says that accounting treatment should follow the economic/ commercial reality of an event or transaction irrespective of what formal name it is given. For a very short period of time (beginning of the nineties) Polish accounting legislation contained substance over form “istota nad treścią” as an overriding accounting priciple. This in effect allowed common sense to prevail in situations where the Polish law had inadequate or indeed misleading definitions. One such area was indeed leasing.

However the lawyers very quickly enforced the removal of this principle arguing that Poland followed the Continental Code Napoleon which requires everything to be defined and in particular that the law should not allow the concept of substance to overrule the strict interpretation of the law.

This would be fine if the legislator was able to foresee all possible forms of transaction and in particular new forms of economic activity such as internet based trading etc. Given that the legislators are totally incapable of writing even simple legislation in a clear manner the result has been predictable.

The subject came up in a recent “round table” discussion where logic dictated that the accounting treatment could not follow the strict wording of contracts as the substance of the trade was actually materially different to that implied by the Polish translation of UK based contracts. Which leads to the nonsense of a completely different basis for preparation of local statutory accounts and that used for head office reporting.

Of course the Polish company could apply IFRS treatment but only if this was in respect of an issue not covered by the Polish accounting legislation.

Why o why has Poland not adopted IFRS for ALL companies and not just quoted entities and their subsidiaries. But then again what would the learned professors of bean counting do if no longer gainfully employed in writing local Polish accounting standards in the full knowledge that sooner rather than later the EU will get around to enforcing IFRS for all reporting requirements.