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The Warsaw Voice » Business » September 29, 2014
Business & Economy
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Government Adopts 2015 Budget
September 29, 2014   
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The government has approved a draft budget for 2015 that assumes the Polish economy will grow 3.4 percent next year. For this year 3.3 percent GDP growth is projected.

The 2015 budget, drafted by the Finance Ministry, puts the deficit at zl.46.08 billion, with government revenue estimated at zl.297.25 billion and expenditure at zl.343.33 billion. Average annual inflation is expected to run at 1.2 percent, and wages are expected to grow 4.3 percent in nominal terms. Employment across the economy is expected to increase by 0.8 percent, and private consumption is expected to rise by 4.2 percent in nominal terms. The unemployment rate at the end of next year is expected to stand at 11.8 percent.

Defense spending will increase next year, and the same is true of spending on transport infrastructure, science and higher education, and culture. The 2015 draft budget also provides for an adjustment of pensions and a guaranteed raise of no less than zl.36 a month for every pensioner. According to the government, the most important change that will impact household budgets—and at the same time the level of government revenue from personal income tax next year—is a 20-percent increase in the tax break for families with three and more children. The budget bill also provides for reduced excise tax rates on motor fuels and a change in the rules for deducting value added tax (VAT) on passenger cars and other vehicles with a total weight not exceeding 3.5 tons as well as other expenses related to such vehicles (beginning July 1, 2015).

“The draft budget is a good—albeit a difficult—budget” said Finance Minister Mateusz Szczurek. “It is difficult because the economic situation is not improving as quickly we had hoped it would. Certainly, the very low inflation level, though favorable to many households, has not helped in drafting the budget.” According to Szczurek, external risks have less of an impact on the budget than the situation in the country. “The situation abroad is always a bit softer on the budget because national income is primarily influenced by domestic demand, consumption and investment.”

According to Deputy Prime Minister and Economy Minister Janusz Piechociński, the 3.4 percent GDP growth target adopted in the draft budget is reason for pride and satisfaction. The government adopted this target despite tensions in Europe and around the world, Piechociński said.

The macroeconomic forecasts contained in the draft budget are less optimistic than forecasts from June, when the government expected Poland’s GDP to grow 3.8 percent next year. But the severity of the conflict in Ukraine combined with an embargo imposed by Moscow in retaliation for EU sanctions—which has hit Poland’s exports to Russia—forced the government to revise downward its 2015 GDP growth forecast to 3.4 percent. The average annual inflation forecast was reduced from 2.3 percent to 1.2 percent, and the wage growth forecast was revised downward from 4.7 percent to 4.3 percent. The government is slightly more optimistic in its estimates of economic growth in subsequent years. For 2016, 3.7 percent GDP growth is projected, followed by 3.9 percent in 2017 and 4 percent in 2018.

According to most experts, the macroeconomic targets in the draft budget for 2015 are realistic, though burdened with a dose of uncertainty, mainly due to the external situation. Prof. Stanisław Gomułka, chief economist at the Business Centre Club, a leading Polish business organization, says there is still a lot of uncertainty related in part to the crisis in Ukraine and to a recent slowdown in economic growth in various European Union countries, including Poland. Another risk factor is an intensified “trade war” between Russia and the European Union. In light of the events in Ukraine and the significant slowdown in economic growth in the EU, the 3.4 percent target for Polish GDP growth in 2015 could prove to be too optimistic, Gomułka said.

Meanwhile, Rafał Benecki, chief economist at ING Bank ¦l±ski, said the government’s targets for economic growth, interest rates and inflation are realistic. Benecki told Polish Radio 1, “The projection for government revenue is also reasonable, and the actual level of revenue may even turn out to be higher than planned. In an election year—with a parliamentary election scheduled for 2015—this is certainly a nice surprise.”

According to Benecki, government revenue is forecast with moderate caution in the draft budget, while the spending target could have been set lower.
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