14:26 21 June 2024
Poland Faces Excessive Deficit Procedure: Government to Raise Taxes?
Poland is set to enter the European Union's Excessive Deficit Procedure (EDP) due to its rising budget deficit, which reached 5.1 percent of GDP in 2023, significantly above the EU's 3 percent threshold. This situation prompts critical questions about how the Polish government will address the fiscal imbalance.
The Ministry of Finance is in dialogue with the European Commission, explaining that increased defense spending, a priority amid current geopolitical tensions, should be considered a mitigating factor. This argument has found some support in the EU, potentially allowing Poland a more extended period to correct its deficit—from 4 to 7 years.
Despite these discussions, Poland still faces substantial fiscal challenges. Economists suggest that to manage the deficit, the government should consider raising taxes or cutting social spending. Piotr Kalisz, the chief economist at Citi Handlowy, notes that while the deficit can be managed, the cost of borrowing could rise, impacting public finances further.
As the government prepares its midterm fiscal plans, addressing the excessive deficit will be crucial. The outcome will depend on balancing necessary economic reforms and maintaining public and political support amidst rising financial pressures.
(Forsal)
