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The Warsaw Voice » Business » May 27, 2011
Business & Economy
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Government Adopts 2012 Budget Bill
May 27, 2011   
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The government has set targets in its 2012 budget bill that may be difficult to reach, and opposition politicians are crying “foul.”

Parliament is expected to approve next year’s budget by the end of July, several months earlier than in previous years. The government says the speedup is necessary because of Poland’s forthcoming presidency of the European Union and the parliamentary elections scheduled for the fall. “The bill has been adopted early so as to prevent the budget from becoming a reason for political disputes during the election campaign,” Prime Minister Donald Tusk said.

Finance Minister Jacek Rostowski said it was the first budget drafted under the new expenditure rule which limits the rise in non-fixed spending to the inflation level plus 1 percent. “As a result, non-fixed spending will increase by a mere 3.8 percent,” Rostowski added. However, total budget expenditure will grow by 4.6 percent under the plans compared with this year’s 4.1 percent. Revenue in 2012 is projected at zl.293 billion and expenditure at zl.328 billion, leaving a deficit of zl.35 billion.

Next year will be dominated by efforts to cut spending. Teachers are set to get a pay rise of only 2.2 percent while spending on training programs for the unemployed would be reduced by more than half under the budget plans. A small increase of 4.2 percent is planned in old-age and disability pensions.

No major changes would be made in taxes. The government has frozen personal income tax (PIT) thresholds while excise tax on tobacco products would be raised by 4 percent. VAT would generate the highest receipts—zl.133 billion—for the national budget, while zl.30 billion would come from corporate income tax (CIT), zl.42 billion from PIT and zl.63 billion from excise tax. The sale of state-owned property is expected to add zl.10 billion to state coffers.

The government assumes that Poland’s GDP will rise by 4 percent and that average annual inflation will stand at 2.8 percent. The unemployment rate is projected to drop to 10 percent by the end of next year. It is also assumed that the employment rate will increase by 1.3 percent and real wages by 2.9 percent.

Under the government bill, spending on education and research would rise. “Despite the crisis, we want to significantly increase spending on what is the strongest development driver, that is, research,” Tusk said. “In 2012, we will increase this spending by 9 percent compared with 2011. This means a lot of money. However, it is still too little, compared with the most developed countries, for us to be able to boast about it.”

Opposition skeptical
As expected, opposition parties criticized the budget bill. Mariusz Błaszczak, head of the Law and Justice (PiS) parliamentary group, said the bill was adopted by the government in order to promise people the moon before the elections. “This is a repeat of the scenario we already saw in 2009 when an unrealistic budget law was adopted, to be later amended after the end of the election campaign,” Błaszczak said. “The indicators are also unrealistic this time. Unemployment now stands at 13 percent while under the budget bill it is to drop to 10 percent. How is the government going to reduce unemployment if the amount of money for active forms of support to the unemployed has been reduced?”

Marek Wikiński, deputy head of the Democratic Left Alliance (SLD) parliamentary group, says that adopting a budget bill in May is like building sand castles. “The budget bill assumptions are very optimistic. The projected unemployment rate of 10 percent in 2012 is probably counting on an exodus of Poles to Austria and Germany after the opening of these countries’ labor markets,” Wikiński said. He also criticized the inflation rate projection of 2.8 percent in 2012 as too optimistic.

Economists unconvinced
Economists are also unconvinced by the government bill. Stanisław Gomułka and Janusz Zieliński, economic experts of the Business Centre Club (BCC), say the targets of the 2012 bill—such as lowering the government deficit to 3 percent of GDP in 2012—are commendable, but are not very realistic and could only be achieved through statistical manipulation. “In our view, the government projection for a 14.7-percent increase in private sector investment in real terms is also too ambitious,” the economists wrote.

The Lewiatan Polish Confederation of Private Employers also has reservations about the government spending plan. It is feasible if some of its optimistic assumptions are met, the Lewiatan experts say, but the bill includes no clues as to how to make the necessary structural changes to gain these optimistic results. According to Lewiatan, many of the bill’s macroeconomic assumptions are acceptable, including the economic growth rate in 2011 and 2012. But the government is too optimistic in its inflation and unemployment projections and about the pace of investment, especially in 2011 when investment is projected to rise by 10 percent.

“The projection for budget revenue in 2012 is also very optimistic,” reads a statement released by Lewiatan, which says the budget document projects a rise in total revenue of up to 7.2 percent while spending would be “only” 4.6 percent up, a figure that seems excessively high considering the austerity measures taken by most European Union countries. The statement also said the spending plan makes no effort to correct the shortcomings of past budgets, such as the domination of fixed spending while investment and development are crippled by insufficient spending.

The Lewiatan experts say the government is continuing a strategy started in mid-2010 of “thousands of small steps.” Many of those steps were proposed and supported by economists and businesses years ago. These include adopting the expenditure rule—limited to a small category of items, including ones that support development—freezing tax thresholds, abolishing some tax breaks and raising taxes, mainly VAT. The last measure is unpopular but regarded as a necessary evil by businesses. However, the sharp increase in the minimum wage by as much as 8.2 percent, recently proposed by the government, contradicts its own philosophy as it would trigger a rise in a number of social benefits and raise the costs of business operations.
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