CASE Highlights
Trade, Innovation, and Productivity
The lengthy Brexit trade negotiations finally came to an end on 24 December 2020, resulting in a trade and cooperation agreement between the EU and UK. The agreement is focused on four pillars: (i) a free trade agreement; (ii) cooperation on economic, social, environmental, and fisheries issues; (iii) a new partnership for citizens' security, and (iv) an agreement on governance. The free trade agreement is limited to zero tariffs or quotas on all goods that comply with the appropriate rules of origin. Beyond tariffs, lack of liberal provisions in several areas is likely to result in additional border costs and trade barriers. For instance, health certificates and sanitary and phytosanitary controls will be needed for the UK agri-foods entering the EU market. Also, since the EU regulations will gradually diverge with those of the UK, technical barriers to trade are likely to reappear. Furthermore, the UK service providers will no longer enjoy the country-of-origin principle for service trade, allowing automatic access to the EU Single Market for services. They will also lose the mutual recognition of professional qualification and must be certified by each EU Member State if they want to work in the EU. Preliminary general equilibrium simulations of the trade aspects of Brexit show the macroeconomic effects of Brexit significant mainly for the UK (0.9% of GDP in the short-run and up to 1.9% of GDP in the long-run) and Ireland with a limited negative impact on the rest of the Member States (0.1% – 0.2% of GDP). The impact on the UK is likely to depend on the future shape of the UK policy as regards trade with the third countries, i.e., multilateral trade liberalisation is expected to partially alleviate the negative impact on the UK economy.
Labour Market and Environment
According to the latest data from the Polish Office for Foreigners, the COVID-19 pandemic has contributed to an increase in applications for residence permits in Poland, particularly from nationals of neighboring countries. As the Office reports, in 2020 third country nationals (TCNs) submitted 281,000 applications for residence permits (12% more than in 2019) with 76% of proceedings having ended with a positive decision. Ukrainian nationals dominated among those applying for residence permits in 2020 (204,000 – 73%), followed by Belarusians (14,000), Georgians (10,000), and nationals of India and Moldova (6,000 each). The most popular type of residence permit was the temporary residence (260,000 – 93% of applications). The increase in the number of residence permit applications relates to those TCNs who were previously more likely to benefit from circular migration opportunities on the basis of long-term visas.
Macro and Fiscal
The beginning of 2021 brought multiple changes to the Polish taxation framework. Even though the statutory rates of the main taxes remained unchanged, abolition of certain exemptions, hikes in rates, and introduction of over a dozen of new taxes and levies are expected to markedly increase tax burden on many Polish firms and individuals. New levies will cover among others turnover of large-scale shops, ownership of commercial vehicles, oil change in vehicles, consumption of alcoholic beverages sold in small bottles as well as beverages containing sugar which alone are expected to increase tax revenue by over PLN 6 billion per year. In addition, significant hikes will affect levies on electricity generation, public TV subscription, garbage collection and real estate tax. In addition, changes introduced in 2021 will substantially increase income tax liability of individuals with foreign income and tax of income of limited partnerships. The additional revenue in the government budget will surely be reflected in prices of goods and services, and thus will drag the 2021 CPI above the current forecasts of ca. 2.4% on average.
