Polish government eyes deficit rise to 3.5% of GDP

By bne IntelliNews December 1, 2015

Seeking revenue to cover its spending plans, the Polish government may raise the budget deficit to as high as 3.5% of GDP in 2015.  The finance minister told local media on December 1 that he will look to add up to PLN3.9bn to the current target for a 2.8% shortfall.

Pawel Szalamacha of the new Law and Justice (PiS) told Rzeczpospolita in an interview he was not worried the hike would push Poland over the EU's 3% threshold and therefore run the risk of falling under the Excessive Deficit Procedure (EDP) once again. The previous Civic Platform government finally managed to escape the programme earlier this year.

The finance minister's words appear to contradict earlier statements that the government would take care not to allow the deficit to exceed the threshold. “There may be an incidental going over the [3%] threshold, but it should not result in launching of the EDP procedure against Poland,” the minister insisted to Rzeczpospolita.

“We do not understand [the minister's] claims,” the BZWBK analysts write. They calculate the spending rise would push the budget gap to 3.5%.

“Even if [the launch of an EDP procedure] does happen, we will accept it," Szalamacha added. "It will be an outcome of what we have been forecasting for years, when no one tackled the problem of effectiveness of taxes collection.” The finance minister has claimed Poland will collect PLN13bn less in VAT this year than assumed by the budget bill.

However, other analysts say they're not worried that PiS could become too frivolous about public finances. With the government seeking to find PLN30bn to meets its social expenditure promises starting from 2016, the hike in this year’s deficit may just represent a shuffling in order to “level out deficits” for 2015 and 2016, Bloomberg reports. Analysts quoted by the newswire said the impact of the deficit hike was neutral for debt market.

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