Govt works to shape 2002 budget
As the Democratic Left Alliance (SLD) shapes a new government, uncertain details of Polands 2002 spending plan concern economists, though fixed income and currency markets, have remained optimistic about pending budget solutions.
SLD officials last week negotiated a fiscal strategy with potential allies in the Peasants Party (PSL) and could officially form a government after Parliament convenes Oct. 19. A final spending plan may not become law for months, however, as the SLDs financial expert said he would scrap the outgoing Solidarity Election Actions (AWS) blueprint and start fresh.
Markets remained strong, ignoring the budget and political news, as the złoty was mostly stable through the week to the dollar and euro, gaining slightly. At a treasury bill auction last week, investors bid zł. 5.77 billion ($1.37 billion) for a zł. 2 billion ($476 million), two-year bond offer.
Despite the generally optimistic outlook, specific proposals, especially an import tax and taxes on bank deposits and bonds, could trouble Poland if implemented in the coming year, economists said.
The only things that we know for sure are the limits for the central budget and expenditures, said Marcin Mróz, chief economist with SG Bank. Its too soon to say anything concrete about the budget.
But the most important initial worry is a proposal to introduce an import tax initially raised by AWS, discounted by the SLD, but resurrected by the PSL. The 5% tax could generate zł. 10 billion ($2.38 billion) next year but cause trouble with trading partners and, eventually, for Polish exporters, he said.
Poland cannot just implement an import tax without danger to external stability, Mróz said. The European Union and the World Trade Organization are likely to react negatively and could slap similar measures against Polish products.
The impact would be very negative, he said.
On SLDs side, predicted Finance Minister Marek Belkas proposals to tax individuals on income from bond interest and savings deposit interest could hurt capital markets, said Jarosław Deryło, a research fellow at the Adam Smith Research Center.
If hes determined to tax cap market activity, this is the least of three evils, he said, adding that other forms of capital gains taxes would be worse. But it is a problem.
The taxes are unlikely to cause a mass exodus but are a disincentive to save, he said.
Financial markets are most sensitive to symbolic regulatory changes and modest levels of taxation, Deryło said. Over the long term, the negative impact on banks could more than cancel out any short-term benefits to the budget from the tax revenue, he said.
Excluding inter-bank financing, individuals accounted for 70% of all domestic bank deposits at the end of July. At the end of last year, Poles accounted for 54% of domestic investment in the bond market, an increase from 23% in 1997, according to the Warsaw Stock Exchange.
Based on preliminary talks through last week and statements to public radio and the Polish Press Agency (PAP), a likely coalition would see PSL leader Jarosław Kalinowski, Unia Pracy (UP) leader Marek Pol and Belka as deputy prime ministers in a new cabinet.
