Ruling coalition divided on pension system reform

While ruling Civic Platform unveiled a plan to gradually transfer farmers from their privileged pension system (KRUS) to the national system (ZUS), Waldemar Pawlak, the Economy Minister and leader of junior coalition partner, the Polish People’s Party (PSL), said KRUS was better, simpler and more effective.

Mr Pawlak’s idea, to transform the national pension system to resemble KRUS met with mixed reactions from economists. “The KRUS contribution is a flat fee, which gets you a basic pension,” Mr Pawlak told Dziennik Gazeta Prawna last week. “Not much, but systems in Sweden or Canada operate on a similar basis.”

Mr. Pawlak said that in these countries people take care of above-standard benefits themselves. “This solution is more liberal, because it assumes that above-standard benefits are based on the economic freedom of citizens,” he added.

Bartosz Marczuk, an expert at the Sobieski Institute, a conservative Polish think tank, called the proposal “cheap social engineering,” while the Business Centre Club (BCC), which represents entrepreneurs and employers, called it “bizarre.”

“Presently, only seven to eight percent of KRUS pension payments are financed from farmers’ contributions,” said Stanisław Gomułka, BCC’s expert on public finance. “The rest is paid out from the state budget, from the taxes of Poles working outside the farming industry.”

ZUS receives around 40 percent of its funds from the state budget, meaning 60 percent of payments are financed by worker contributions.

Arkadiusz Michaliszyn, head of CMS Cameron McKenna’s tax practice in Warsaw, said “The distinction between the ZUS budget and the state budget is an artificial one”. “Pension contributions are taxes, just named differently.”

However, Robert Gwiazdowski, president of the Adam Smith Center, a think tank espousing free-market and classical liberal views, has been an advocate of KRUS for years. He has said repeatedly that ZUS is too convoluted and expensive to operate.

Reforming KRUS is a pillar of Civic Platform’s plan to curb public spending by 2012, but the move is opposed by PSL, which draws its support from farmers.

Martyna Olik