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The Warsaw Voice » Business » February 23, 2010
Business & Economy
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Cautious Welcome for Public Finance Plan
February 23, 2010 By A.R.    
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Businessmen have welcomed the government's plan to reform and consolidate public finances this year and next. But they called on the government to follow words with action.

Prime Minister Donald Tusk in February unveiled a plan under which the government would focus on reducing the public debt and deficit, and work to develop a new competitive advantage for the country over the next two years.

The government wants to limit retirement perks, raise the retirement age, reform the farmers' social insurance system, and speed up privatization to spur the country's economic growth.

The plan aims to "consolidate" public finances by reducing the government deficit to no more than 3 percent of gross domestic product in nominal terms, stabilize government debt at 40 percent of the GDP, and change the rules governing public expenditure.

To achieve these goals, the government said it would restructure public finances. New spending rules will be introduced under which so-called non-fixed spending will be allowed to increase by no more than 1 percentage point above the inflation rate. It is also assumed that government spending will grow at a slower pace than the economy did in recent years, Tusk said.

In another new rule, the government plans to introduce multiannual planning and a task-oriented budget to help stabilize public finances.

The business community has welcomed the government's ideas, but wants the government to promptly follow up with legislation to deliver on its promises.

"For the time being, the plan to reform and consolidate public finances is merely a collection of general guidelines," said Andrzej Arendarski, head of the Polish Chamber of Commerce (KIG). "To carry it out, it is necessary to come up with specific legal measures, start an effective dialogue with all social partners and have the bills passed by the parliament as soon as possible."

The Lewiatan Polish Confederation of Private Employers (PKPP) praised the government's proposals, but said it is worried about the idea to curb non-fixed spending. According to Lewiatan, this idea spells risk for Poland's development opportunities because non-fixed spending, in contrast to fixed expenditure, supports economic growth. In 2010, and to some extent also in 2011, the shortage of budget funds for development will be partly offset by European Union funding. But in the following years the inflow of EU funds will be smaller than needed, Lewiatan said.

Analysts at the BNP Paribas banking group are more skeptical about the government's plan. They say the government's assumption that economic growth will be faster and that inflation will stay low is based on fragile foundations. Without additional measures to boost fiscal revenue and cut basic expenditures it will be impossible to achieve a significant reduction in the deficit; it can only be reduced on paper, the analysts said.
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