Analysts frown on budget measures
The Sejm (http://www.sejm.gov.pl) was expected to approve amended spending and revenue figures late Friday, compensating for a significant budget gap caused largely by a slowing economy and inaccurate government income projections, politicians and analysts said last week.
While not certain at press time, politicians said the budget measure, which was given the go-ahead by the Sejm's public finance committee, would be approved by the lower house's legislators and implemented after the Senate and president sign off on it.
"It is unfortunate but necessary," Pawel Arndt, a Solidarity Election Action (AWS) MP and member of the public finance committee, said of the budget amendment. "It has to happen."
The opposition Democratic Left Alliance (SLD) remained critical of the measures and skeptical of government savings projections but was not expected to oppose the amended budget amendments. The government, which has talked about a revenue shortfall that could exceed zl. 17 billion ($4 billion), plans greater deficit spending and some cutbacks totaling zl. 13 billion ($3.1 billion), analysts said.
"If the situation deteriorates, they will implement deeper cuts," said Katarzyna Zajdel-Kurowska, head of treasury research at Bank Handlowy. "From the beginning, they said the most bearish forecast is zl. 17 billion. However, now they think zl. 13 billion-zl. 17 billion. They will cut some spending now and monitor the situation very carefully."
The government said the amended budget would allow zl. 8.6 billion ($2 billion) more in deficit spending than originally planned, and it outlined cutbacks in subsidies for the Social Insurance Administration (ZUS), the country's social insurance fund, savings from unspent emergency reserves and so-called natural savings. The natural savings are dubious, SLD deputies said, and the term left some economists scratching their heads while costs related to flooding in southern Poland could erode the emergency reserve account, analysts warned.
Arndt conceded that the plan is possibly not enough. The stopgap measure will likely get the AWS-led government through the next few months; public opinion polls indicate that AWS will be voted out of office during parliamentary elections in September.
"The problem will have to be solved by the next government anyway," said Marek Wagner, a Democratic Left Alliance (SLD) member of the Sejm's Public Finance Committee. He said the SLD would abstain from voting because the amendment is not a solution but simply a way for Prime Minister Jerzy Buzek to duck responsibility for an ill-conceived budget.
Analysts are also wondering whether the Finance Ministry (http://www.mofnet.gov.pl)'s plan is too optimistic especially projections that tax revenues will rebound.
"I am concerned about the further performance of the economy and this effects the revenue side," Zajdel-Kurowska said. "The government expects that indirect taxes will improve but I'm a little concerned that the situation cannot be so positive. Maybe a slowdown is ahead of us. Maybe we are too pessimistic but there are no signs of recovery yet."
The economic picture is increasingly bleak. Bank Handlowy has revised its gross domestic product (GDP) growth projections down to 1.7% for the year, one of the lowest among economists. The government had originally planned on growth at 4.5% but has since lowered its expectations.
Economy Minister Janusz Steinhoff Friday said that first-half GDP growth would be 1.9%.
The Finance Ministry's plan to increase the budget deficit by zl. 8.6 billion would, depending on economic growth, bring it to about 4% of GDP instead of the 2.6% originally planned by the government.
This year's troubles stem largely from lower-than-expected economic growth, which has left tax revenues below projections. Privatization of state-owned companies was also expected to generate funds though that process has been slow. The budget deficit reached almost 100% of this year's plan two months ago, recovered slightly with an injection of funds last month, but will probably approach 100% when this month's figures are announced.
