Government changes spending rule in the budget due to inflation and war
14:22
The Finance Ministry wants significant changes to the spending rule, which calculates the allowed limit of state spending. Without these changes, the budget would be wrong. The MoF has prepared a draft amendment to the Public Finance Act, which it wants to modify the rule. The government is expected to take it up soon.
The spending rule is a formula for calculating the maximum spending limit of the most important state institutions – expenditures cannot grow above this amount. The procedure is based on several economic variables, the most important of which are the GDP growth rate and inflation. Since 2015, instead of current inflation, the rule's formula has included the NBP's inflation target, which is fixed at 2.5 percent.
According to information accessed by 300Gospodarka, the most critical change prepared by the MF will be a reversal of the one introduced by the Law and Justice government just in 2015. An indicator of projected real inflation will replace the NBP's inflation target.
Łukasz Czernicki, the chief economist at the Finance Ministry, explains that in a situation where the current inflation has deviated from the central bank's inflation target as far as it has now, such a modification of the rule is necessary.
"After all, some budget expenditures are increased with current inflation. For example, we will have a pension indexation much higher next year for this reason. There are more such expenses in the budget, which must increase because inflation is rising," Czernicki said.
