The liberal opposition in Poland, which is expected to form the next coalition government, will need to empty the coffers to follow through on several electoral promises for tax breaks and public spending.
The pledges to increase salaries for public sector workers and double the income tax allowance will cost 50 billion złoty (€11.1 billion), funds that are not currently accounted for in next year’s budget.
According to finance ministry data, the shortfall in this year’s budget is 92 billion złoty (€20.44 billion), which means that the public finance deficit for this year is likely to be 5.5 percent. According to government plans, the deficit next year of 4.5 percent is still well above the 3 percent EU target.
With the incoming Europhile coalition expected to be far more subservient to the will of Brussels, it remains to be seen how it can please both the European Union’s target and its voters.
According to sources in the largest party of the new parliamentary majority, the Civic Coalition, the money may be found by reducing the price of bonds, saving up to 20 billion złoty (€4.4 billion); increasing growth to earn another 10 billion złoty (€2.2 billion); and cutting subsidies to public media for another 3 billion (€666 million).
Meanwhile, another 1 billion (€222 million) could be recovered by the exchequer by allowing shopping on Sundays again. In addition, 12 billion (€2.67 billion) could be secured by transferring the debt that is now owed to the Polish National Development Bank and the Polish Development Fund back into the budget.
But the situation remains tight, as Poland risks ending up in the category of having excess debt and thereby needing to cut its spending rather than increasing it. That procedure could lead to sanctions from the European Commission, limiting access to EU budget funds until the deficit is brought under control. And this is in addition to EU funding for rule of law violations.
If the EU does not place Poland on such a tight leash, economists calculate that as a result of the electoral promises made by the incoming administration, the deficit for next year could reach 200 billion złoty (€44.4 billion).
Economists from Grant Thornton believe that Poland is being too optimistic about its next year’s growth forecast of 3 percent. This means that, if that target is not reached, the deficit will be even greater. If Poland tried to fund existing commitments out of revenue rather than debt, it would have to double the rate of VAT to 46 percent, triple its income tax yield, or quadruple the corporate tax yield. That would be economic armageddon.
