Great expectations
Finance minister Grzegorz Kołodko will this week present his fiscal reform programme to the cabinet, his effort to shore up public finances for the costs of the country becoming a European Union member in May 2004, and to subsequently prepare it for adopting the euro as early as 2007.
But Kołodko's effort to knock the country into financial shape for the EU may be too little too late in coming, especially before the crucial accession referendum in June, as it lacks detail in several areas, has unrealistic expectations and is dampened by other economic and political uncertainties - all of which throw shadows of doubt on support for the programme.
Economists have criticised Kołodko's plan for failing to provide sufficient details about changes in the central budget and the elimination of tax breaks while allowing for income tax cuts and the expansion of the country's tax base. It is believed that the financial overhaul will also involve unpopular spending cuts. Unrealistically, the plan also assumes increased economic growth, reaching 6% by 2006 - a highly unlikely goal considering last year's 1.3% GDP growth.
Some even regard Kołodko's plan as one of the longest suicide notes in history. His proposal, for example, to get rid of all tax breaks, especially the joint taxation of husbands and wives, would increase the tax bills of most citizens. This comes at a time of economic stagnation, mass unemployment and general frustration with the governing elite. Meanwhile, the sweepstakes on who will be the next finance minister are already open all over Warsaw.
Though Kołodko's fiscal reform agenda received a nod of approval from the International Monetary Fund, we believe that it is filled with inappropriate economic assumptions and will fail to achieve its goals.
The scant details about some aspects of the programme are fair indications that it is deficient. Jacek Piechota, deputy labour, economy and social affairs minister, for instance, argues that the plan does not ensure economic growth. Furthermore, the programme will likely receive opposition in parliament from the ranks of the SLD, which disagree with Kołodko's reforms. It is, in fact, doubtful whether MPs will approve the package, and certainly not before the crucial EU referendum.
Furthermore, the country's ongoing political and economic disorders will scuttle Prime Minister Leszek Miller's negotiations to win allies among the minor parties in parliament to obtain the remaining 19 votes he needs to get the package passed. The unresolved Rywingate scandal continues to cast Miller in an unfavourable light among MPs, even though he denies any wrongdoing.
In the meantime, Miller has tried to deflect attention from the political turbulence - but has inadvertently diverted attention away from Kołodko's reform programme as well - by once again making plans to try to eliminate the central bank's rate-setting Monetary Policy Council, which the SLD has criticised for not lowering interest rates quickly enough.
Another mitigating factor that may throw a spanner into Kołodko's plan is that the country will lose billions of euros in union aid unless it speeds up its preparations of investment projects to be financed by the EU after accession.
Kołodko has proposed the release of at least one-third of the €6.18 billion (zł. 27 billion) extra cash provision, set aside to finance the country's foreign debt costs, for co-financing EU development projects in 2004. But the central bank, which would have to mandate the release of the funds, deems this a risky move that would create additional money supply, while some Monetary Policy Council members say that the release would be illegal since current policy guidelines do not provide for it.
None of which does any good to help Kołodko's great fiscal expectations.
But Kołodko's effort to knock the country into financial shape for the EU may be too little too late in coming, especially before the crucial accession referendum in June, as it lacks detail in several areas, has unrealistic expectations and is dampened by other economic and political uncertainties - all of which throw shadows of doubt on support for the programme.
Economists have criticised Kołodko's plan for failing to provide sufficient details about changes in the central budget and the elimination of tax breaks while allowing for income tax cuts and the expansion of the country's tax base. It is believed that the financial overhaul will also involve unpopular spending cuts. Unrealistically, the plan also assumes increased economic growth, reaching 6% by 2006 - a highly unlikely goal considering last year's 1.3% GDP growth.
Some even regard Kołodko's plan as one of the longest suicide notes in history. His proposal, for example, to get rid of all tax breaks, especially the joint taxation of husbands and wives, would increase the tax bills of most citizens. This comes at a time of economic stagnation, mass unemployment and general frustration with the governing elite. Meanwhile, the sweepstakes on who will be the next finance minister are already open all over Warsaw.
Though Kołodko's fiscal reform agenda received a nod of approval from the International Monetary Fund, we believe that it is filled with inappropriate economic assumptions and will fail to achieve its goals.
The scant details about some aspects of the programme are fair indications that it is deficient. Jacek Piechota, deputy labour, economy and social affairs minister, for instance, argues that the plan does not ensure economic growth. Furthermore, the programme will likely receive opposition in parliament from the ranks of the SLD, which disagree with Kołodko's reforms. It is, in fact, doubtful whether MPs will approve the package, and certainly not before the crucial EU referendum.
Furthermore, the country's ongoing political and economic disorders will scuttle Prime Minister Leszek Miller's negotiations to win allies among the minor parties in parliament to obtain the remaining 19 votes he needs to get the package passed. The unresolved Rywingate scandal continues to cast Miller in an unfavourable light among MPs, even though he denies any wrongdoing.
In the meantime, Miller has tried to deflect attention from the political turbulence - but has inadvertently diverted attention away from Kołodko's reform programme as well - by once again making plans to try to eliminate the central bank's rate-setting Monetary Policy Council, which the SLD has criticised for not lowering interest rates quickly enough.
Another mitigating factor that may throw a spanner into Kołodko's plan is that the country will lose billions of euros in union aid unless it speeds up its preparations of investment projects to be financed by the EU after accession.
Kołodko has proposed the release of at least one-third of the €6.18 billion (zł. 27 billion) extra cash provision, set aside to finance the country's foreign debt costs, for co-financing EU development projects in 2004. But the central bank, which would have to mandate the release of the funds, deems this a risky move that would create additional money supply, while some Monetary Policy Council members say that the release would be illegal since current policy guidelines do not provide for it.
None of which does any good to help Kołodko's great fiscal expectations.
