Budget draft raises a few eyebrows
The final draft of the 2001 budget delivered on deadline last Wednesday seems structurally sound, but analysts wonder whether it can achieve its planned deficit of no more than 1.6% of gross domestic product (GDP) without forcing cuts in promised expenditures.
"This budget is much better than the previous version," said Marcin Mroz, an economist with Wood & Co. brokerage, referring to the first budget draft from July in which an expected zl. 7 billion ($1.55 billion) in inflows from the upcoming sale of third-generation mobile telephone licenses had been factored in.
At that point, "the stability of fiscal policy relied on one action," Mroz said.
The tightening of the key economic deficit to 1.6% of GDP from 2.5% looks good, he said, although the narrower central budget deficit, which measures the central government's administrative spending, is being allowed to expand to 2.7% of GDP from an expected 2.2% this year.
With the economic deficit, analysts question whether or not it can be kept to 1.6% of GDP, or zl. 21.7 billion ($4.8 billion), even though the government has pledged not to let that happen.
Already threatening zl. 160 billion ($35.5 billion) in planned budget revenue are two budget-related proposals recently debated in Parliament.
One of the them would delay a promised pay increase to teachers by one year and if not passed, it could cause the economic deficit to run to 1.8%, as Finance Minister Jaroslaw Bauc recently told the press. The bill package also includes a road tax that would bring in zl. 800 million ($177 million).
The other bill, which concerns an effort to put off the increase from 7% to 12% of value-added taxes (VAT) on construction materials, which would deprive the budget of zl. 300 million ($66 million), was voted down by the Sejm Friday afternoon.
Some parliamentarians question the viability of the budget in light of the Sejm's decision to delay the increase in VAT.
"Today's vote on VAT in construction makes that budget defective from the start because Minister Bauc calculated an increase in VAT to income," said Wieslaw Kaczmarek, a Democratic Left Alliance (SLD) deputy. "The Sejm today threw that out. So the budget is being submitted with defects on the side of income from the very start. That means something has to be changed as far as expenditures are concerned or else the deficit will increase."
Dariusz Filar, chief economist at Bank Pekao, said that about zl. 1.7 billion ($377 million) in revenue is riding on the elimination of tax loopholes and inefficiencies.
"I can't exclude it, but I'm simply saying it could be very difficult (to collect that revenue)," Filar said.
If the budget comes up short, funding for the deficit will have to come from other designated expenditures. State agencies will not easily give up what they've been allotted, especially since they are known to overspend, analysts said.
But before worrying about whether the proposed budget will be able to fulfill its aims, it first has to pass through Parliament.
"At the moment, the problem of macroeconomic stability in Poland does not lie in the macroeconomic mechanism itself," Filar said.
Political turmoil could cause the Sejm to reject the budget, which would give President Aleksander Kwasniewski the right to dissolve Parliament and call for new elections. In that case, according to Polish law, the draft automatically becomes official during the transitional phase and until a new budget is voted in to replace it.
The cut in the zl. 21.7 billion ($4.7 million) economic deficit stems from revenue expected in the form of transfers to pension funds, which are counted as savings and not spending.
The deficit will be funded mostly through the sale of zl. 65 billion ($14.4 billion) in treasury securities and zl. 18 billion ($4 billion) in expected privatization inflows.
