Poland passes 2017 budget in controversial circumstances

By bne IntelliNews December 18, 2016

The Polish parliament passed the 2017 budget bill on December 16. The vote took place in controversial circumstances sparking doubt over its legality and large protests.

The budget bill assumes the Polish economy will grow 3.6% in 2017, while inflation will rise to 1.3% on average. In GDP terms, the deficit is assumed at 2.9%.

However, the bill was passed outside the lower house chamber by a show of hands without the presence of the opposition or media. That led to large protests outside the parliament on the evening of December 16 and the following day, with critics claiming the PiS government is disarming democracy.

The growth target in the budget appears highly optimistic, but is fundamental in keeping the deficit below the EU threshold of 3%. PiS needs revenue to power a programme of enlarged expenditure.

Policies include a new child benefit scheme - estimated to cost some PLN23bn in 2017. The government will also kick off a costly reform of the pension system that reverses the previous administration's reform to raise the retirement age to 67.

Polish growth has been faltering of late. In the third quarter, the economy expanded only 2.5% y/y, with forecasts for the final three months of 2016 largely predicting growth of 2% at best. Most current forecasts for 2017 expect GDP growth below 3%.

Other key indicators contained in the budget bill assume wages will grow 5% in 2017, while employment will increase 0.7%. This should help keep consumption on elevated levels. Consumption has been the key driver of growth in 2016, while investment remains weak.

The budget bill was passed by PiS amidst much controversy, with the ruling party’s MPs leaving the plenary to vote in a different room after the opposition blocked the plenary in protest against limiting media access to the parliament. The opposition claims the vote was illegal because it is not clear whether PiS had the quorum to carry out with the vote. 

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