Poland and Hungary have a long history of collaboration, summed up by the catchphrase, “Poles and Hungarians, always good brothers,” which has at least two versions:
Polish: Polak, Węgier — dwa bratanki,
i do szabli, i do szklanki,
oba zuchy, oba żwawi,
niech im Pan Bóg błogosławi.
Lengyel, magyar – két jó barát
Együtt harcol s issza borát
Vitéz s bátor mindkettője
Áldás szálljon mindkettőre.
In practical terms, this means that Poland has been learning from Hungary’s latest political moves:
Foreign companies and investors in Poland are jittery. The new, conservative Law and Justice government seems to be aping political steps taken by Hungary’s ruling Fidesz party since 2010. So could Poland’s previously attractive business environment deteriorate as Hungary’s has done?
Law and Justice, known by its Polish initials as PiS, moderated its rhetoric during the election campaign — helping it secure a parliamentary majority in October. But the populist-nationalist party has since acted more radically, trying to strengthen control over the constitutional court in a way that echoes moves by Fidesz.
Should Poland follow Hungary’s steps in the business sphere, too, that could have broader repercussions.
The 38m-strong country is ex-communist Europe’s biggest and most successful economy — and for the past decade or more one of Europe’s most attractive investment destinations, for everyone from German carmakers to South Korean electronics giants.
The Fidesz and PiS economic platforms share similarities. Premier Viktor Orban’s party in Hungary shifted to a lower, flat-rate income tax, but under EU pressure to curb a budget deficit it levied “crisis” taxes on banks, retailers and telecoms companies — all sectors dominated by foreign players.
It imposed Europe’s highest banking tax, then made lenders take heavy losses from converting Hungary’s sizeable stock of foreign-currency mortgages, taken out before the financial crisis, back into forints.
Budapest also slashed regulated utility prices, again a sector with high foreign ownership. And in both banking and utilities, it tried to increase the share of Hungarian ownership.
Corporate bosses in Hungary warn that these moves together fostered a climate in which foreign businesses felt they were being targeted.
Poland’s PiS government has so far tried to reassure investors. Though it appointed hardliners in defence and security, its economy and treasury ministers were seen as business-friendly. Economy minister Mateusz Morawiecki previously headed Bank Zachodni WBK, Poland’s third-largest bank that is owned by Spain’s Santander.
Mr Morawiecki told the Financial Times this week suggestions the government would squeeze business were “unfair and unfounded”. It would be “very friendly” to companies.
But PiS needs to finance flagship election pledges to increase social spending, notably on child benefit — and has touted taxes on banking assets and large retailers.
Foreign banks account for more than 70 per cent of Polish banking assets and include some of the same lenders as in Hungary, such as Italy’s UniCredit and Austria’s Raiffeisen, as well as others such as Commerzbank and ING.
The new government quickly introduced a bill to impose a 0.39 per cent asset tax on banks. The rate is less than Hungary’s initial 0.53 per cent, though after a “peace deal” reached this year between Budapest and the banks, the Hungarian rate should fall to 0.31 per cent next year.
“If you look at it that as a result of the banking tax we can then lower taxes for all SMEs, then we are very pro-business,” says Mr Morawiecki.
But Poland also plans to ease pressure on struggling Swiss-franc mortgage borrowers after the Swiss national bank ended the cap on the currency in January, sending it soaring.
Analysts and executives fear PiS will make banks shoulder a much bigger share of the costs of converting the mortgages into zloty at preferential exchange rates than the previous Civic Platform-led government was planning.
As in Hungary, even if consumers have more money in their pockets, the combined effect of the banking tax and haircut on forex mortgages could eat into banks’ profits and capital cushions — and constrain vital lending.
A 2 per cent sales tax on retail stores larger than 250 square metres mooted by PiS seems to be on hold. But Otilia Dhand of Teneo Intelligence, a risk consultancy, warns the need for revenues to fund its spending pledges could force the government to tax retailers, and potentially — like Hungary — telecoms or other sectors.
“They are looking for extra money,” she says, “and they are looking at what the neighbours got away with. I don’t think [banks and retailers] are necessarily the end of it.”
Companies right across what is the EU’s seventh-largest economy can only hope those concerns prove wrong.