Budget deficit slashed

The government has approved a draft budget for 2009 which projects a deficit of zł.18.2 billion, down from zł.27.1 billion this year. The government's goal is to reduce the deficit to below three percent of GDP, a key requirement for joining the euro zone, which Prime Minister Donald Tusk last week announced he would like to achieve by 2011.

The budget predicts that economic growth next year will reach 4.8 percent, which some experts consider too optimistic.

According to economists at bank Citi Handlowy, economic growth is to come in at just 4.3 percent in 2009, but they noted that higher inflation could help fulfill the government's targets.

"Since we think there are risks of even slower economic growth, meeting next year's budget may be more difficult than in previous years ... On the other hand, we admit the next year's budget should be helped by higher inflation," Piotr Kalisz, head economist at the bank, said in a report.

The draft budget is fairly optimistic on inflation, predicting 2.9 percent in 2009, whereas inflation in July was at 4.8 percent. Citi Handlowy experts expect CPI next year to remain above three percent.

The draft introduces a change to Poland's tax system, which will be simplified to two tax brackets of 18 and 32 percent, with the vast majority of Poles set to pay the lower rate. This adjustment of the system is likely to cost the budget around zł.8 billion in personal income tax revenues.

The 2009 draft budget also promises to boost spending on education, defense and highways. It calls for zł.12 billion in revenues from privatization, and a rise of 8.9 percent in total budget revenues. Monetary Policy Council (RPP) member Halina Wasilewska-Trenkner said the draft was ambitious, but added, "Although it will be very difficult to execute, it is still possible."

The draft budget is expected to be debated in the Sejm before the end of September. According to the Polish Constitution, the president does not have the authority to veto the budget bill