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The Warsaw Voice » Business » June 25, 2008
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2009 Budget Targets Set
June 25, 2008 By Andrzej Ratajczyk   
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The government has fixed some key targets for Poland's 2009 budget. Under these preliminary guidelines, the economy is expected to grow 5 percent next year and inflation is projected at 2.9 percent.

Government revenues are expected to go up by 10.2 percent to zl.310 billion next year, while expenditures have been put at zl.328.2 billion, an increase of 6.4 percent compared with this year's budget target. The budget deficit is expected to be zl.18.2 billion, the lowest figure since 2000, said Finance Minister Jacek Rostowski.

Under the government's convergence program for entry into the euro zone, Poland's budget deficit should drop by 0.5 percentage points next year, and the same should happen in 2010, so that the country's deficit does not exceed 1 percent of the GDP by 2011, Rostowski told reporters after the government approved the budget guidelines June 10. "This will be the lowest deficit since 2000, proving that we have been successfully pressing ahead with the public finance reform," Rostowski said.

This year's budget deficit has been fixed at zl.27.1 billion, yet the actual figure will probably be lower than the budget-law target, Rostowski said. This is because the government's revenue is expected to be zl.3 billion higher than initially planned.

In the first quarter of this year, Poland's GDP grew 6.1 percent, and the projection for the whole of the year is 5.5 percent, said Rostowski.

Stanisław Gomułka, chief economist at the Business Centre Club and former deputy finance minister, says the government's macroeconomic targets are realistic and do not differ much from market forecasts. The 5-percent GDP growth target is optimistic albeit workable, Gomułka said. "The government revenue target can also be considered realistic because of the expected fast increase of domestic demand, significantly faster than the growth of GDP-despite the planned personal-income tax reform that is bound to hurt government revenue."

Gomułka says his main concern is that the government's overall public finance strategy provides no new lawmaking initiatives aimed at reducing the level of what is called fixed expenditure and the rate at which these expenses are growing.

Experts from the Polish Chamber of Commerce (KIG) say the finance ministry has come up with an ambitious plan for reducing the country's budget deficit in 2009. But this will require the government and parliament to approve many laws to cut expenditure, KIG says, including a law to reform the pension system by introducing "bridging" pensions for early retirees. According to KIG, the government should take advantage of the current period of good economic trends in the country to contain the deficit so that the budget can be balanced within a few years.

KIG has applauded the government's plan to increase revenues in the 2009 budget. This is particularly important in the context of the planned introduction of a two-bracket personal-income tax system next year, with rates at 18 and 32 percent depending on annual income-a move that may reduce the government's revenue by zl.7 billion, according to KIG. "The optimistic target for government revenue-as well as the 5-percent target for economic growth and the 2.9-percent target for inflation-cannot be met without a further development of entrepreneurship in Poland," said KIG head Andrzej Arendarski. "It is necessary to rid the Polish legal system of defective regulations. Meanwhile, work on amendments important for the business community, including laws on VAT, public-private partnerships and the freedom of economic activity, has either slowed down or been put on hold."

Meanwhile, the Organization for Economic Cooperation and Development (OECD), in its latest report on the Polish economy, notes that Poland's economic growth in the last two years, at 6 percent, was the second-highest among the organization's 30 member states. Only Slovakia was ahead of Poland during this period, says Andrew Dean, head of the OECD's economic department. One of the main driving forces of Poland's economic growth has been foreign direct investment, and the country is likely to continue to grow rapidly in the years to come, the report says.

In turn, the World Bank, in its Global Development Finance 2008 report, says that Poland's main problem may be reduced capital inflows rather than slower economic growth. According to the bank, Poland's GDP will continue to grow at a rate of more than 5 percent until 2010. Yet the bank expects the country's GDP growth to decelerate from 6.6 percent in 2007 to 5.7 percent in 2008 and 5.1 percent in 2009. These forecasts are more optimistic that those by the Polish government, which expects the country's GDP growth to be 5.5 percent this year and 5 percent next year.
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