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GRAYLING

AcTrend G r a y l i n g ' s r ep o r t o n l eg i s l a ti v e c h a n g es a c r o s s C en tr a l & E a s ter n E u r o pe 14th November 2016

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Contents

Contents .............................................................................................................................................................. 2 Report methodology ......................................................................................................................................... 3 The political environment across CEE and Russia .......................................................................................... 3 Grayling’s AcTrend report: The key findings ................................................................................................... 7 Outlook .............................................................................................................................................................. 13 About Grayling ................................................................................................................................................. 15 Contact ............................................................................................................................................................. 15

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Report methodology This report was prepared by Grayling Central & Eastern Europe (CEE)’s Public Affairs Practice Group and examines laws passed in six CEE countries (Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia) between 1 August 2015 and 1 August 2016. Grayling's Public Affairs teams used publicly available data for the research and the report covers acts of Parliament only. In terms of media coverage, Grayling’s teams did not make a quantitative analysis of the coverage generated by each piece of legislation; if an article focusing on the act in question appeared in one of the most respected and/or widely-read media titles, it was categorised as an act which generated “significant” media coverage.

The political environment across CEE and Russia

Bulgaria In 2016 the ruling GERB party receives support from coalition partners, but also from parties and MPs that are not an integral part of the official ruling coalition. This strong support base makes the majority stable in the short-term and expedites the legislative process. However, developments around the ongoing presidential elections have the potential to stir things up for the ruling coalition, since the ruling GERB performed poorly at the first round of the elections and is currently discussing a cabinet resignation.

Czech Republic The Czech Republic is enjoying a rare period of political stability and economic growth. Despite experiencing occasional internal clashes, the center-left coalition government is managing to meet its programme goals and is likely to last until the next parliamentary election in autumn 2017. Recent regional and senate elections confirmed the popularity of the ANO movement, the political party of Andrej Babiš, the Deputy Prime Minister, Minister of Finance and billionaire. ANO was the clear winner of the elections, leaving in its wake its largest coalition partner, the Social Democrats. The economy is reporting the lowest unemployment rate in Europe and standards of living are steadily increasing. Well aware of its strong position, the government is passing coalition bills but blocked opposition proposals throughout the whole of the election period. This year, the most important legislation came from the Minister of Finance, whose long-term priority is the fight against the shadow and black economy, as well the improvement of the tax collection system.

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Hungary After the governing parties lost their two thirds majority in 2014, the legislature’s focus has shifted from constitutional amendments to legislative change. The popularity of the government started to decline slowly in late 2015 and certain elements of society (e.g. teachers and healthcare workers) launched demonstrations against it. The cabinet disarmed these movements with minor measures and some targeted salary increases in the problematic sectors, but the requested structural reforms have still not materialised. In the past 18 months, government policy was strongly affected by the need to manage the migration crisis. Hungary was among the first countries to criticise the EU’s policy towards the migration issue. The conflict with Brussels escalated after the EU decided on migration quotas, as it provided an opportunity for the Hungarian government to focus on the EU’s “failed” policy. During the summer, the government repeatedly expressed that resettlement cannot be an option and initiated a referendum for early October. The government used the referendum to strengthen its political position internally (the majority of Hungarians agree with the government’s position in this topic). Although the referendum against migration quotas was invalid due to the low turnout (only 41% of the public submitted a valid vote), the government considers the result a big victory andthe Prime Minister stated that the will of 3.3 million voters should be take into account. Fidesz went ahead with the amendment of the Basic Law with clauses that exclude migration quotas in Hungary, but the proposal failed at the parliamentary vote.

Poland After the spectacular victory of Law and Justice (PiS) in the general election of autumn 2015, the party holds an overall majority in the Parliament, fills the post of President, and is in charge of all governmental bodies. For the first time since 1989, no leftist party made it into the Sejm. This situation, in effect, gave PiS an independent majority in the Parliament. This is the first time since the fall of communism that a single party has ruled the country without the need for a coalition. Beata Szydło, a relatively unknown politician, was put forward as the PiS candidate for Prime Minister in order to allow the party to win over centrist voters. However, it is Jarosław Kaczyński who remains the dominant figure and who enjoys undisputed leadership on the right side of the political scene. The specific primus inter pares role is played by Deputy Prime Minister Mateusz Morawiecki, who is, in fact, even more powerful than Prime Minister Szydło. Kaczyński officially emphasises his trust in Morawiecki’s role and the newly established Ministry of Development in boosting the Polish economy. December 2015 to June 2016 was a period of the most intense legislative work in Poland and, right after the general election, PiS entered into conflict over the election procedure of judges to the Constitutional Tribunal (CT). The law proposed by PiS was claimed unconstitutional by CT and was, later on, the basis for the European Commission to open control over the rule of law in Poland. The reaction to the government and Constitutional Tribunal conflict triggered the moves supported by some opposition parties under the name of the Committee for the Defence of Democracy.

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Romania The Cabinet led by former European Commissioner Dacian Ciolos was the result of a political compromise reached in November 2015, when the Social Democratic government of Prime Minister Victor Ponta resigned amid mass protests sparked by a night club fire that left many young people dead. Protesters blamed widespread corruption and politicians for the incident and forced a quick change in the government, as well as a repositioning of all of the political parties. Almost a year after the appointment of the technocratic government, Romania’s two major parties, the leftist Social Democratic Party (PSD) and the centre-right National Liberal Party (PNL), continue to dominate the domestic political scene, even without making major changes within their own ranks – they gathered nearly 80% of the vote in June 2016’s local elections. In office until 2019, President Iohannis assumed the role of mediator over a political class under siege by anti-corruption investigations, political infighting and a lack of credibility.

Russia In quantitative terms, the State Duma again slightly increased the number of bills passed over the last 12 months (586 vs 542), which is in part explained by the end of the sixth State Duma convention and the election held on 18 September2016. Interestingly, the sixth convention (2012-2016) was also the most “productive” in 20 years, with 1,817 bills passed in total (vs 1,608 bills during the fifth convention). In qualitative terms, as with the previous reporting period, State Duma discussions were dominated by anti-Western sentiments and the urge to promote import substitution and national producer support. However, an economic motivation was added: the need to replenish the federal budget, now facing a 3% deficit. Many high profile bills with a negative impact on the foreign business community were adopted in the IT sector – probably because the IT sector is one of strategic importance to the Russian import substitution framework. Examples include the law obliging foreign entities to pay 15.25% VAT on eservices provided to Russian citizens (a similar law exists in the EU but the timing in Russia indicates a connection to economic dynamics and national producer support, as Russian companies already pay such a tax); the law regulating news aggregators (virtually making them equivalent to the mass media); the law banning foreign telemetry companies from working in Russia, and many others. The main aim is to substitute foreign services and products with Russian ones or at least to give Russian products an advantage over foreign products. Besides, one of the main legacies of this session is the package of anti-terrorism bills adopted and signed by the President. These are justified on the grounds of security but in fact introduce many restrictions on the activities of legal entities in various fields, and on members of the public. For example, they include a provision allowing a person to be sentenced to a jail term for a repost on social media. In the IT sector, the package obliges telecoms operators and IT companies to store the content of messages, video and photographic recordings transmitted by users for up to six months for use by law enforcement (to be determined by the government) as well as to disclose information needed for the decryption of encrypted messages (backdoor codes). Although the bills have been adopted, it is still not clear how and whether they will be implemented due to a lack of equipment and mechanisms. This is an illustration of the State Duma’s priorities and, 5 – Grayling AcTrend Report 2016

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in some cases, its disregard for the interests of the business community and even the population as a whole. On 18 September 2016, Russia held parliamentary elections in which the governing party United Russia received a constitutional majority allowing it to adopt laws without the consent of other parties. It means that the government’s current course will be maintained and that it will be even easier to pass bills enacting government priorities. It is also likely to lead to closer cooperation between the State Duma, the government and the Presidential Office (the new State Duma chairman is a former first deputy head of the Presidential Office).

Slovakia The general election, which was held in March 2016, changed the overall shape of the Slovak political scene, but the ruling party, SMER, remained in power. After four years of single-party government, SMER has been left in need of political partners as the election distributed political power to eight different parties. The election turmoil resulted in an unexpected left-right coalition made up of four parties: SMER, SNS (Slovak National Party), Most-Hid (Slovak-Hungarian Party) and Siet. For the first time since the fall of communism in 1989, there is a radical ultra-nationalist party in Parliament: the People's Party – Our Slovakia (LS-NS), openly referred to as “neo-Nazi”. However, the high percentage of the vote that LS-NS secured is a shock not only for Slovakia, but for the whole of Europe, and is a serious warning to the established Slovak political elite.

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Grayling’s AcTrend report: The key findings 1. The number of approved acts is still increasing in the region 1,098 acts were approved in the six CEE countries between August 2015 and August 2016. The number of adopted laws increased by 57 (5.47%) compared to last year, and is 207 (23.34%) more than in 2013/2014. Although the number of approved acts decreased significantly this year in Poland and Hungary, the order of countries with the most active legislators – Romania, Poland and then Hungary – has not changed over the past two years. In Poland, the Parliament approved six further laws, but the President did not sign them, so they were not formally adopted. This was a result of the opposition candidate being elected President in May 2015 and rejecting six laws proposed by the ruling coalition. The most significant change came in Bulgaria, where the number of approved acts increased by 73 (76.8%). In 2014-2015, midterm elections were held which rendered Parliament inactive for a significant part of the year, hence the number of acts adopted dropped significantly. The Parliament was very active in beginning to mid-2016. The rest of the year figures are expected to drop due to an unexpected vacation in relation to the Presidential Elections in the country.

The number of approved acts 350 299

300 227

250

290 257

249

214

200

186 168

178

153

150 112 100

95

115

96

103

94

97

97

50 0 BGR

CZE

HUN 2015/2016

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2014/2015

POL

ROU

SVK

2013/2014

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2. Almost every second adopted act had a direct impact on business This year, 483 acts (44%) had a direct impact on business, a similar result to 2014/15. 37% of the adopted laws which had a direct impact on business were related to general business. The proportion of sectors impacted by adopted acts did not change significantly. The most affected industries are finance (16.98%), services (11.8%) and agricultural (10.97%), while the least impacted sectors remained energy (6.42%), industry (4.97%) and ICT (3.11%).

Impacted sectors in 2015/2016 Energy 6%

Industrials 5% Health Care 9%

General business 37%

Finance Sector 17%

Agriculture 11%

Service sector 12% ICT 3%

Impacted sectors compared to 2013/2014 and 2014/2015 (number of approved acts) 200

177

180

168

160 140

120

120 100 80 60 40

93

82

68

65

53 34

31

44

31 33

43 23

20

57

24

15 19 10

27

47

53

20

0 Agriculture

Energy

Finance Sector 2015/2016

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General business

Health Care

2014/2015

ICT

Industrials

Service sector

2013/2014

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3. The most productive MPs work in Poland and Romania Although the proportion of adopted acts with a direct impact on business submitted by the government is lower than last year, most of the acts were still initiated by the governments (361 laws, or 74.74% of the total). In line with that, MPs have become more active as 24.22% of the acts were submitted by them, compared to the 16% of the last year. MPs in Poland were very productive with 33 proposed acts related to the business sector(42.86%), while last year only 1.72% of adopted acts were submitted by them. The number of approved acts (among those with a direct impact on business) increased by 31. The high number of acts proposed by MPs during the last year was the result of rushing through legislative change before the general election on 25 October in 2015. According to Polish law, a draft act presented by the government is required to be accompanied by an impact assessment of the proposed regulation. This requirement lengthens the legislative process substantially, therefore projects prepared by the government are sometimes presented as MPs’ projects to speed up the adoption process. This method is also sometimes used to avoid public consultation. After the general election, the new government also submitted a few projects from its MPs so that they could be finalised and adopted before the end of the year (e.g. tax legislation). Romania (27%) and Bulgaria (25%) were still among the countries with the most active MPs, while in Hungary the proportion of acts proposed by representatives remained around 22%. The number of acts submitted by MPs in Romania increased for the second year in a row. The main reason is the approaching end of the parliamentary term. Likewise, the new electoral law will reduce the number of MPs in the next Parliament, which stimulates lawmakers to make an impression in an attempt to secure eligible seats on their party’s candidate list. With a general election due to take place on 11 December 2016, parliamentary activity over the last year has been marred by populist debates, with lawmakers rushed to promote bills with a visible social or economic impact. Other political players were active in the Czech Republic, where besides MPs and the government, the Senate proposed an act. In Hungary and Poland, parliamentary committees also submitted one and two acts respectively.

Proportion of acts with impact on business submitted by MPs in 2013/14, 2014/15 and 2015/16 50%

43%

40% 30%

30% 25%

22%

28%

27%

27% 23% 19%

12%

20% 7%

10%

22%

12% 14%

17%

9%

5%

2%

0% BGR

CZE 2015/2016

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HUN 2014/2015

POL

ROU

SVK

2013/2014

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4. The extraordinary procedure is a regular method only in three countries 91 out of the 483 adopted laws with impact on business, or 18.8% of the total, were approved through an extraordinary procedure to speed up the implementation process. Similar to last year, the number of acts adopted by extraordinary procedure was the highest in Romania: 66 acts (51.66%) were approved by that method. As well as Romania, this method can also be witnessed in Hungary and Poland. In Slovakia and the Czech Republic, every act in 2015/16 was approved through a standard procedure, whereas an extraordinary procedure was used to adopt 6-7% of acts in 2014/15. In the Czech Republic, the Parliament was dissolved in 2013 and therefore the Senate had to approve some legislation through an extraordinary procedure before the new Chamber of Deputies was formed. In Slovakia, it was simply not necessary to use an extraordinary procedure and there was an election year, so the Slovak political scene was focused on standard political activities. In Hungary, the proportion of acts which had an impact on business and were adopted by extraordinary process increased from 6 to 14 and reached 15%. Urgent debate was requested to pass acts mainly related to some sensitive issues in the financial sector. The approved acts impacted legislation on FX loans and capital market regulation after the bankruptcy of a key player in the sector.

Proportion of acts approved by extraordinary procedure (concerning act with impact on business) in 2014/15 and 2015/16 60%

55.17% 51.56%

50% 40% 30% 15.56%

20%

12.99% 9.52%

10%

6.12%

2.59%

6.98%

1.15% 0% BGR

CZE

HUN

2015/2016

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POL

ROU

SVK

2014/2015

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5. The media’s attention was greater than last year Almost half of the adopted acts generated significant media coverage (48.4%), which is 15% higher than last year. The biggest increases were recorded in Slovakia (39%) and Romania (20%). In Romania, the final year of the current parliamentary term has introduced important legislative changes with an impact on both society and business. The laws that generated most media buzz were the new fiscal code introducing significant tax cuts, the debt discharge law on offering property against debt relief, new provisions to increase wages for state employees and several pieces of legislation introducing restrictions on food trade and smoking. The increased media attention is partially due to the fact that Romania is approaching general elections. Additionally, the current technocratic government, appointed in November 2015, has been more transparent in its decisionmaking, publicly defending its position on major legislative initiatives, which has contributed to the increased media coverage. In the pre-election campaign in Slovakia, the media highlighted every possible issue concerning SMER (the ruling party). In general, there was significant interest from the media in analysing acts as it could possibly weaken the ruling party’s position (the majority of the media were/are anti the ruling party).

Proportion of acts which generated significant media attention (all approved acts) in the past three years 80% 69%

70% 60% 45% 50% 40%

52% 43%

45%

44%

40%

49%

43%

33%

30%

21%

20%

16%

32%

19% 11%

10%

9%

13% 8%

0% BGR

CZE 2015/2016

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HUN 2014/2015

POL

ROU

SVK

2013/2014

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Across CEE, media attention was greater for the acts which had an impact on business: it was 58.59% this year. As above, Slovakia and Romania led the way in this field too, but most of the countries were between 40 and 60%. In the Czech Republic, every third acts generate significant media attention, which is higher than 2014/5, but still the lowest in the region.

Proportion of acts which generated significant media attention concerning the act with impact on business 80%

72.66%

70% 60%

48.28%

57.78%

61.04%

HUN

POL

70.21%

50% 40%

29.63%

30% 20% 10% 0%

BGR

CZE

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ROU

SVK

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Outlook

Bulgaria The Government dominates the political debate. It is the major source of new legislation and, at times, it pressures Parliament into adopting controversial legislation. Despite the stable majority, the Prime Minister is contemplating his resignation because the first round of Presidential Elections in Bulgaria (held 6 Nov 2016) showed reduced support for the ruling GERB party. The current Parliament configuration does not allow many flexible coalitions, so the country is on the verge of another political crisis if the GERB party decides to withdraw from the cabinet and force it to resign.

Czech Republic In the remaining year of this electoral period, the government will focus primarily on employment legislation and the so-called ‘Anti-smoking Act’. The amendment to the Labour Code is expected to change the rules for the calculation of vacation entitlement and its transfer between years, as well as the rules on flexible working hours. Additionally, there are two proposals in the legislative pipeline that amend the Act on income tax. The draft acts would change the withholding tax and measures related to tax concessions and tax deductions. Apart from these proposals, the following acts will be amended: the Act on Sickness Insurance, the Act on State Social Security Benefits, the Act on Specific Medical Services and the Civil Code. Finally, the government has re-tabled the bill on smoking in public places after the previous versions were many times swept aside, leaving the Czech Republic as the only EU member state with almost no smoking restrictions in place.

Hungary The next general election will be held in 2018, but the unofficial campaign is running on an ongoing basis. The popularity of the governing forces is still high compared to the far-right Jobbik and the fragmented left-wing, so the primary aim of the opposition parties could be to force Fidesz to set up a coalition government instead of trying to replace it entirely. It is expected that the government cannot keep the migration issue at the centre of the agenda for two years, so Fidesz has to find new issues and messages to maintain support amongst voters. Such issues might include the further increase of salaries and the reduction of utility costs. Recent changes in the decision-making procedure could also affect the speed of the legislative process. During the summer of 2016, the government divided its work into two cabinets: one for economic and one for strategic decisions. The aim of the new cabinet system is to give more time to the preparation and discussion of important decisions boosting the efficiency of government.

Poland PiS’s economic goal is to create the conditions for Poland to escape the so-called “middle income trap”: a situation in which Poland delivers primarily mid-level technological parts/components to other countries who use them to build high-tech products, which when sold deliver the biggest margins. 13 – Grayling AcTrend Report 2016

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Instead, Poland should enter a path of growth through innovation. Mateusz Morawiecki took the lead in economic policy and became one of the most important decision-makers in Beata Szydło’s cabinet. In February 2016, the Minister for Development presented the government’s action plan, the so-called “Morawiecki plan”. The strategy is based on reindustrialization and innovation through increased R&D spend. The plan also envisages the creation of new branches of industry thanks to a programme of intelligent national specialisations, clusters, and industrial ‘valleys’ supported by EU Structural Funds. In the upcoming year, we expect a number of legislative proposals implementing the Morawiecki Plan. Among the regulations that are now in the pipeline and should soon be presented are a new public procurement law, a set of regulations enhancing business (especial SMEs), a Constitution for Business, a law on innovation and tax incentives for R&D. On the other hand, the Polish government is determined to reduce the VAT and corporate income tax gaps. To tackle this issue, fiscal administration reform is being prepared by the Ministry of Finance. Ambitious plans to reform personal income tax and public dues collection for retirement and social security are also being considered by the government and may soon take the form of a legislative proposal.

Romania With general elections scheduled for 11 December, a new political government is expected to replace the current technocratic Ciolos cabinet. At the official start of the campaign, the two largest parties in Romania get ready to fill in at least two thirds of next Parliament’s seats. Main leftist party (Social Democratic Party - PSD) ranks first in all polls slipped to the public eye in the last two months, whether they’ve been commissioned by its representatives or by its opponents, at an apparent comforting 40% voting intention. PSD’s main competitor, the National Liberal Party - PNL (centre-right) constantly comes second, at a steady distance of 10%, very close to reaching the psychological verge of 30% that any great party in Romania needs to overcome in order to have a chance to rule the country. One third of the seats, however, are still auctioned off. Several parties across the political spectrum are in for the battle of their life, with few expected to actually come out well, or alive, at least. By Romanian law, a political party needs to reach a minimum 5% threshold in elections to win seats in the Parliament. The polls suggest many of the small parties are on the edge in reaching the threshold. But those who make it on 11 December will be the ones able to tip the balance towards the next parliamentary majority.

Slovakia On 1 July, Slovakia took over the Presidency of the EU Council. The Slovak Presidency came at a time when the EU faced an entirely new and unexpected situation. The result of the UK’s referendum on EU membership means that, for the first time, the Union has to face the membership list shrinking after a long track record of successful enlargement. The Union must also reflect on itself with honesty and responsibility. The Slovak Presidency has therefore had to focus on many different areas – to work hard on the priorities that were identified as being topical for the Presidency and, together with the other Member States, to work on the fallout from Brexit and be a positive, constructive and efficient partner in facing many others internal and external challenges.

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About Grayling Grayling is a leading global communications network founded in 1981 to deliver data-driven strategies for Digital Marketing, Public Relations, Government Affairs, and Investor Relations. Grayling operates from 54 offices in 26 countries worldwide across Europe, North America, the Middle East, and Asia. The firm works across multiple sectors including Energy, Environment & Sustainability, Healthcare, Technology, Consumer Brands, Financial Services, Transport & Logistics, and Government & Public Sector. For more information visit www.grayling.com Grayling is part of Huntsworth plc (www.huntsworth.com) an international consultancy group focused on public relations and integrated healthcare communications.

Contact For further information please contact: Gergely Ábrahám Head of Public Affairs Practice Group Grayling CEE phone: +36 (1) 266 7833 mobile: +36 (20) 319 9550 e-mail: mailto:gergely.abraham@grayling.com @gergelyabraham

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Grayling Actrend Report 2016  

Third edition of the Grayling AcTrend Report prepared by Grayling Central & Eastern European Public Affairs Group. The study examined laws p...

Grayling Actrend Report 2016  

Third edition of the Grayling AcTrend Report prepared by Grayling Central & Eastern European Public Affairs Group. The study examined laws p...

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