Budget cuts may be necessary to finance higher public sector wages

The government pledged to stick to tight limits on state spending next year despite promising faster real wage growth for public sector workers and pensioners, Labor Minister Jerzy Hausner said yesterday. The government trimmed its 2003 average inflation forecast to 2.3% from 3.0% but did not cut inflation-linked wage increases accordingly, in a move analysts said was aimed wooing voters ahead of next month's local elections. The decision increased average wage growth in the state sector to 1.7% in real terms from an earlier 1.0%. "The budget spending cap [of inflation plus 1%] will be kept," Hausner told a news conference, adding that other spending arrears will be curbed to make up for fast wage growth. If economic growth picks-up, state revenues will naturally grow and curb the budget deficit. If growth remains sluggish, the deficit will remain large, government officials said. Hausner did not reveal other revisions in next year's budget outline. Finance Minister Grzegorz Kolodko has said he would try to narrow the 2003 budget gap."That pledge is still in force," Hausner stressed. Analysts said that to keep its budget spending cap next year the government had to find additional spending cuts amounting to around zl. 1.3 billion. "It is not clear where the government will try to slash spending to make up for the faster wage growth," said Jacek Wisniewski, analyst at Bank Pekao. (Reuters)