After quelling internal rebellion, government is expected to pass 1999 budget
"There is a coalition agreement to accept the government's budgetary provisions and we hope it is binding," Piotr Dubno, a Finance Ministry spokesman said Thursday. "It's a budget for a country which will be ranked as one of the five most dynamic economies of the world in one of the gravest crises in this century."
The government's 1999 budget calls for expenditures of zl. 142.1 billion ($40.6 billion) and revenue of zl. 129.3 billion ($36.9 billion). The resulting budget deficit of zl. 12.8 billion ($3.6 billion) would represent 2.15% of gross domestic product (GDP). The budget also envisions cutting inflation to 8.1% by the end of this year, compared to last year's 9.5% target and gross domestic product (GDP) growth of 5.1% against last year's rate of 5.6%.
The budget had been thrown into doubt when the AWS members on the Sejm Finance Committee supported a decision made before Christmas to enlarge government spending this year by zl. 650 million ($185.7 million). The committee argued that such an increase could be financed through additional duties and profit from the National Bank of Poland (NBP).
Finance Minister Leszek Balcerowicz, who is also the Freedom Union (UW) leader, described the decision as "a move on paper" that was not in tune with revenue estimates.
"There hasn't been such a case, except for Russia, to enlarge revenue regardless of the government's estimates," Balcerowicz told the Polish Press Agency (PAP) earlier in the week. "I hope we won't see a replay of Russian methods in Poland."
However, some in the Sejm believed it is the government, not the Parliament, that is being overly optimistic. Earlier in the week Henryk Goryszewski, an AWS deputy and head of the Public Finance Committee, argued that the planned 5.1% GDP growth is overly optimistic. Such a view is in keeping with that of outside economists, who expect GDP to grow anywhere from 3-4.5%.
The Finance Ministry's Dubno said growth will depend on worldwide factors. "But even if economic growth does not exceed 5%, and government estimates were made in the summer, the Polish economy will look extremely dynamic when compared to the average world economic growth rate estimated at 2%," he added.
While the government seemed to have quelled rebellion within its own ranks, opposition parties Democratic Left Alliance (SLD) and the Peasants Party (PSL) were set to vote against the budget.
"We are unanimous in that," Marek Wagner, an SLD member of the Public Finance Committee told the Business Journal Thursday. He added that the budget was flawed because it underestimated growth and did not take into account necessary expenditures for government reform programs.
"What worries me is the continuous decrease in the growth of GDP," Wagner said. "It is a consequence of last year's excessive cooling of the economy. Without it there will be more funds for the reforms."
He added that the goal of curbing the budget deficit at all costs is not justified. "Additional funds for reforms would be compensated for in the future by savings made as a result of the changes," Wagner said.
But Krzysztof Dzierlawski, an adviser to the management of Warsaw-based think-tank the Adam Smith Research Centre, described the temptation of increasing the budget deficit as a politically attractive illusion. "One should not cherish an illusion of making money by incurring deep debts," he said. "The burden of the domestic debt is huge." Service of domestic debt in 1999 is expected to amount to zl. 22 billion ($6.2 billion), which equals the amount to be spent on patient funds that were introduced through the health reform plan.
Dzierlawski emphasized positive tendencies in the budget such as a decreasing share of public sector spending as a percentage of GDP. It is to drop to 45.3% in 1999 from 45.9% in 1998. "That means smaller burdens for the economy and may have a positive impact on economic growth," he said.
In addition, Dzierlawski said that unlike last year, revenue from privatization will not be included for the purpose of calculating the budget deficit as a percentage of GDP. This is in line with Maastricht criteria, which are used by the European Union (EU) to determine if a country is fit for monetary union. In 1998, the zl. 13.1 billion ($3.7 billion) deficit was calculated including zl. 6.7 billion ($1.9 billion) in privatization revenue.
"So, it's a positive sign that the deficit has decreased regardless of changes in calculating budget revenue," he said.
The government's 1999 budget calls for expenditures of zl. 142.1 billion ($40.6 billion) and revenue of zl. 129.3 billion ($36.9 billion). The resulting budget deficit of zl. 12.8 billion ($3.6 billion) would represent 2.15% of gross domestic product (GDP). The budget also envisions cutting inflation to 8.1% by the end of this year, compared to last year's 9.5% target and gross domestic product (GDP) growth of 5.1% against last year's rate of 5.6%.
The budget had been thrown into doubt when the AWS members on the Sejm Finance Committee supported a decision made before Christmas to enlarge government spending this year by zl. 650 million ($185.7 million). The committee argued that such an increase could be financed through additional duties and profit from the National Bank of Poland (NBP).
Finance Minister Leszek Balcerowicz, who is also the Freedom Union (UW) leader, described the decision as "a move on paper" that was not in tune with revenue estimates.
"There hasn't been such a case, except for Russia, to enlarge revenue regardless of the government's estimates," Balcerowicz told the Polish Press Agency (PAP) earlier in the week. "I hope we won't see a replay of Russian methods in Poland."
However, some in the Sejm believed it is the government, not the Parliament, that is being overly optimistic. Earlier in the week Henryk Goryszewski, an AWS deputy and head of the Public Finance Committee, argued that the planned 5.1% GDP growth is overly optimistic. Such a view is in keeping with that of outside economists, who expect GDP to grow anywhere from 3-4.5%.
The Finance Ministry's Dubno said growth will depend on worldwide factors. "But even if economic growth does not exceed 5%, and government estimates were made in the summer, the Polish economy will look extremely dynamic when compared to the average world economic growth rate estimated at 2%," he added.
While the government seemed to have quelled rebellion within its own ranks, opposition parties Democratic Left Alliance (SLD) and the Peasants Party (PSL) were set to vote against the budget.
"We are unanimous in that," Marek Wagner, an SLD member of the Public Finance Committee told the Business Journal Thursday. He added that the budget was flawed because it underestimated growth and did not take into account necessary expenditures for government reform programs.
"What worries me is the continuous decrease in the growth of GDP," Wagner said. "It is a consequence of last year's excessive cooling of the economy. Without it there will be more funds for the reforms."
He added that the goal of curbing the budget deficit at all costs is not justified. "Additional funds for reforms would be compensated for in the future by savings made as a result of the changes," Wagner said.
But Krzysztof Dzierlawski, an adviser to the management of Warsaw-based think-tank the Adam Smith Research Centre, described the temptation of increasing the budget deficit as a politically attractive illusion. "One should not cherish an illusion of making money by incurring deep debts," he said. "The burden of the domestic debt is huge." Service of domestic debt in 1999 is expected to amount to zl. 22 billion ($6.2 billion), which equals the amount to be spent on patient funds that were introduced through the health reform plan.
Dzierlawski emphasized positive tendencies in the budget such as a decreasing share of public sector spending as a percentage of GDP. It is to drop to 45.3% in 1999 from 45.9% in 1998. "That means smaller burdens for the economy and may have a positive impact on economic growth," he said.
In addition, Dzierlawski said that unlike last year, revenue from privatization will not be included for the purpose of calculating the budget deficit as a percentage of GDP. This is in line with Maastricht criteria, which are used by the European Union (EU) to determine if a country is fit for monetary union. In 1998, the zl. 13.1 billion ($3.7 billion) deficit was calculated including zl. 6.7 billion ($1.9 billion) in privatization revenue.
"So, it's a positive sign that the deficit has decreased regardless of changes in calculating budget revenue," he said.
