Polish PM warns radical reforms are off the agenda

By bne IntelliNews May 30, 2008

Jan Cienski in Warsaw -

Donald Tusk, Poland's prime minister, is making it increasingly clear that the fundamental economic reforms that many economists say Poland needs to keep its growth rates high are not on offer during his government's term of office.

"Many politicians, commentators and experts feel that good governing means constant reforms which upend people's lives," Tusk told reporters in mid-May as he summed up the first six months of his government. "We have decided to undertake changes in a determined but calm fashion."

Just how calm can be seen in the government's legislative achievements since it took office in November, where little progress has been made on any of Tusk's election campaign promises concerning the economy.

The idea of bringing in a flat income tax has been pushed to at least 2010, but that would be close to the term of the next elections, and the government is unlikely to want to run the risk of introducing such controversial legislation just before the poll. A survey released May 29 by Ernst & Young and PBS DGA for a local daily found that 68% of Poles are against the introduction of a flat tax, with just 25% in favour, which constitutes a 3-point decline from 2007. The finance ministry also still has not presented a plan to fix public finances, although it promises to radically reduce the budget deficit by next year. Likewise, pledges to slash the red tape in one of Europe's most bureaucratic economies have not made it through parliament.

Why so slow?

That go-slow approach is a consequence of politics. While Tusk has long been a liberal and his commitment to putting Poland's economy in order is undoubted, he faces a formidable obstacle in the person of Lech Kaczynski, Poland's president.

Kaczynski was dismayed that last year's elections cost his twin brother, Jaroslaw, his job as prime minister, and has made it clear that he will veto any radical reforms proposed by Tusk's government. In order to overturn a veto, Tusk needs to marshal more than three-fifths of parliament, something that is almost impossible to do. His own Civic Platform party and its smaller coalition partner from the Polish People's Party have 230 seats in the 460-member parliament. Law and Justice, founded by the Kaczynskis, would not vote against the president. The ex-communists, with 42 seats, have turned hard left and now are strongly opposed to Tusk's government. As a result, Tusk has steered clear of confronting the president with reform legislation he knows will get vetoed, costing him popularity but not actually changing the economy.

That cautious approach has infuriated more determined reformers, who saw the victory of Civic Platform as a way to finally put Poland's economic house in order; preparing the country to enter the euro and for a more challenging global environment due to the ongoing impact of the credit crunch.

Stanislaw Gomulka, a former lecturer at the London School of Economics and an advisor during Poland's 1989 economic reforms that introduced capitalism, recently quit as deputy minister of finance because he saw there was no scope for ambitious reforms. "I felt I could not discharge my duties as someone who was supposed to initiate a programme of significant reforms in public finances," Gomulka said, adding that he felt the government had decided it could not overcome Kaczynski's veto and had decided to wait until after presidential elections in 2010 and parliamentary elections in 2011 before embarking on a more active course of reforms.

So far the strategy of being non-confrontational is paying off in terms of public relations. Civic Platform consistently scores above 50% in most opinion polls, while Law and Justice gets below 20%, and Tusk would easily beat Kaczynski for the presidency. If the polls do not change dramatically over the next few years, Civic Platform would be able to rule alone. However, that is becoming increasingly unlikely. An end-May poll by the GfK Polonia agency for the daily Rzeczpospolit found that Civic Platform had lost 8 points of support to 41%, not to the opposition Law and Justice but to the undecided column. The problem of ensuring that the party retains its popularity will be especially difficult if economic growth slows dramatically and perennial problems such as the inability to build new highways are not resolved.

A head-on clash with the president may yet be on the cards.

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