Poland's New Pitch to Brexiting Bankers: Pay Higher Taxes

(Bloomberg) -- After Britain voted to Brexit, Polish leaders lustfully eyed the thousands of finance jobs that might leave London, expecting banks to embrace their country for its eager young workforce, inexpensive office space, and fast-growing economy. Now, Poland is adding a less welcoming element to the pitch: higher taxes for many of the people who might fill jobs imported from the U.K.

The lower house of parliament on Nov. 24 approved a bill that would remove a cap on social security contributions for salaries topping 127,890 zloty ($36,000) per year, saddling them and their employers with additional levies. That could boost costs for banks such as JPMorgan Chase & Co, UBS Group AG and Goldman Sachs Group Inc. that have said they’ll shift some operations to Poland.

The proposal is “a red light” for companies considering investments in the country, according to the Association of Business Service Leaders, an industry group whose members -- including Google, HSBC Bank Plc, and Orange Poland SA -- employ more than 150,000 people in Poland. The association said the law would affect about a third of its companies’ employees in jobs such as accounting and technology and more than 60 percent of those in research and development.

The organization says the bill is being implemented too hastily, with the proposal surfacing only in October, after many companies had prepared their financial plans for 2018. The hurry-up schedule is “proof that the government is ignoring the needs of entrepreneurs who create valuable jobs,” the group said in a statement.

The bill must be approved by the Senate, which reconvenes on Dec. 5, and signed by President Andrzej Duda, who hasn’t yet weighed in on the issue. In presenting the measure to parliament, the Labor Ministry said it would increase fairness in society and “ease tensions created by the market economy.” Deputy Labor Minister Marcin Zieleniecki said it was important to get the law on the books in time to be implemented for 2018. And he said businesses will be able to adjust because in early months social security charges will be deducted as usual, so “most of the impact will come in the second part of the year.”

The new levy would affect the top 1.4 percent of Poland’s 25 million taxpayers, adding 29 billion zlotys to public coffers over the coming decade as the country’s $470 billion economy grows at the fastest pace since 2011, the Labor Ministry forecasts. The government is scrambling to secure funds for welfare programs such as increased subsidies for child care and a decrease in the retirement age from 67 to 65 for men and 60 for women.

For a department head at a bank making $75,000 per year, the change would mean $2,921 in extra social fees and other charges and cost the employer $6,317 in additional payroll taxes. For those earning 1 million zloty ($281,825) gross per year, the new rules would cost the employee and the company a combined $58,775.

“This kind of regulatory change is destabilizing,” said Rafal Kozlowski, chief financial officer Asseco Poland SA, the country’s largest software maker. He said the law would add as much as 9 million zlotys to Asseco’s annual labor bill of about 370 million zlotys -- a calculation that doesn’t include the extra taxes his employees will face.

The measure threatens the government’s goal of luring jobs from London after Britain leaves the European Union. In January, Deputy Premier Mateusz Morawiecki said Poland could attract as many as 30,000 British jobs to its business-service sector this year alone. Morawiecki, who also serves as finance minister, in October said the government was in the “final stage of negotiations” with two global banks on moving operations to Poland.

The tax change poses “a serious risk” to any such plans, said Jeremi Mordasewicz, an adviser at Konfederacja Lewiatan, a lobbying group of 4,000 big companies that has asked the government to delay the new taxes until at least 2019. “The extra costs could make investors reconsider their hiring policies and move high-skilled jobs out of Poland.”

--With assistance from Piotr Bujnicki and Marek Strzelecki

To contact the reporter on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net.

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net, Wojciech Moskwa, David Rocks

©2017 Bloomberg L.P.