Difficult road ahead
With Civic Platform and Law and Justice emerging victorious in the elections and expected to form the new government, difficult compromises lie ahead as their visions of how to deal with the economy's problems differ significantly
With the post election heat still on and the winning Law and Justice (PiS) and Civic Platform (PO) preparing to start coalition talks, Marek Belka's outgoing government passed the budget for 2006.
But the budget is likely to be short lived, as PiS has already announced that it has its own budget correction prepared, which will be presented to the new Sejm in late November or early December.
As Kazimierz Marcinkiewicz, PiS' economic expert and the current candidate for Prime Minister, has underlined on a number of occasions, his party plans to reduce the budget deficit by zł.2.6 billion from the current level of zł.32.6 billion to zł.30 billion.
Cutting red tape
Around zł.2 billion of these savings should come from cuts in the administration sector. Law and Justice wants to liquidate the Fund for the Rehabilitation of the Disabled (PFRON), certain government agencies, the Agricultural Property Agency, the National Health Fund (NFZ), and the National Broadcasting Council (KRRiTV), which is to be merged with the Office of Telecommunications and Post Regulations (URTiP).
However, analysts doubt whether such savings can be made solely by decreasing spending on administration.
"The new government should prepare a draft of the new budget as soon as possible," said BRE Bank's chief economist Janusz Jankowiak.
"I wish them a lot of luck. Cutting administrative costs will certainly be welcomed by the economists. But I do not think one can save zł.2 billion just on cuts in administration," he added.
The Adam Smith Center's Krzysztof Borusowski expressed doubts over whether PiS will really implement savings on administration. "This contradicts their statements on increasing state control over the economy. Plus cuts in administration are definitely not enough," he said.
Cash for kids
PiS' savings plan would appear to be complicated by the party's commitment to introduce tax breaks for children. Although the recently announced breaks are lower than those originally planned, PiS estimated that the old breaks would cost the budget around zł.6 billion. The party wants to spend a further zł.1 billion and launch its 'Family On Its Own' flat-building program.
In addition to the new budget, Jankowiak sees three other economic issues that urgently need addressing "Preparing a plan of reform of the public finances sector will be vital before working out a budget next year.
"Establishing contacts with the Central Bank to coordinate a joint program of adopting the euro and creating a Polish path to the euro are also crucial," he says.
"Another thing, perhaps the most urgent, is the annulment of those bills prepared in the last minute by the outgoing government."
Miner move
One of the most controversial examples of this was legislation that granted miners the right to early retirement. Although it will not come into effect until 2007, experts feel it needs to be repealed.
But as Jankowiak highlights, the likely coalition partners voted differently when the bill was debated in the Sejm.
Civic Platform's economic advisor Rafał Antczak said: "PiS voted for the early retirement option, while we were against the bill. However, it doesn't matter, it's Law and Justice's move now."
Taxing time
Apart from unemployment and making use of the opportunities presented by Poland's entry to the EU, Borusowski sees another challenge for the new government. "It will have to redefine the economic environment.
"It is necessary to do something with the tax system, to decide what role should the state play in the economy. Also the law has stopped being a coherent system, it is a set of random bills. Foreign investors are complaining about corruption and lack of coherence in the tax system," he said.
Tax issues were one of the most controversial matters in the election campaign. With alarmist TV spots showing food disappearing from the refrigerator and toys from the children's room, Law and Justice presented Civic Platform's flat-tax proposition as a gift for the rich at the expense of the poor.
The fact is that both parties advocate lowering taxes and changing the existing tax levels. While PO went to the polls with their '3 x 15' slogan widely supported by business circles, PiS is proposing two levels of tax at 18 percent and 32 percent (which in the future would be lowered further to 28 percent). "Our tax policy does not have any meaning right now, it is all up to PiS politicians to come up with some proposals," Antczak repeated.
Work to be done
Both PiS and PO see unemployment as the largest problem facing the Polish economy. Borusowski doubts whether PiS plans for reducing unemployment, based on different tax cuts, will really bring results. "None of their proposals meets my expectations as an employer to hire new people," he said.
Much controversy was caused by the privatization of Polish Oil and Gas (PGNiG), which was regarded as a huge success by market analysts, but was heavily criticized by both PO and PiS politicians.
"Constant repeating threats towards PGNiG, even after being designated as the candidate for Prime Minister, is irresponsibility in the highest form," Jankowiak said.
But when asked whether this poses a threat to the whole privatization process, which has received a lot of bad publicity with the PGNiG turmoil and the PZU commission of enquiry, Jankowiak said that both PO and PiS declared that they want income from privatization to reach zł.10 billion annually in the next three years.
We'll take the cash
However, the two parties have different visions of how the privatization program should look. While PO opts for speeding-up privatization by selling the state-owned stakes in partially privatized companies, such as PKN Orlen or PZU, Law and Justice wants the state to retain a blocking 25 percent-plus-one share in sectors key to Poland's economic security. It also favors a state majority in national champions and opposes foreign dominance in the banking sector.
Seeing the differences between the two winning parties Borusowski even risks a very bold statement: "I hope that Civic Platform will remain loyal to its voters and will not enter the government. Instead it could be a constructive opposition blocking the unwise bills and helping with those from which the economy would benefit."
Borusowski doesn't think that it would be a tragedy and a loss for the economy. "The Polish economy has shown many times that it can grow in spite of government decisions," he said.
Parliamentary election results
Number of deputies elected from each party
1. Law and Justice (PiS) 155
2. Civic Platform (PO) 133
3. Self-defense (SO) 56
4. Democratic Left Alliance (SLD) 55
5. League of Polish Families (LPR) 34
7. Peasants' Party (PSL) 25
Source: PKW
