Trouble with tax cuts

The government last week approved its 2008 draft budget, which foresees economic growth of 5.5 percent, a two-percent rise in unemployment and a six-percent rise in wages. The plan also predicts a budget deficit of zł.28 billion, but critics have suggested that recently passed family tax-relief legislation could sink the plan.

"If the Senate approves a doubling in the tax relief for families, we will be forced to increase the budget deficit to zł.30 billion," Finance Minister Zyta Gilowska said. She also commented that Poland could have trouble meeting euro-adoption requirements after the passage of further tax cuts.

Poland's lower house, the Sejm, had already approved the measures and last Friday the Senate did as well.  What concrete effect the vote will have remains to be seen through.

The draft budget for 2008 sets spending at zł.275 billion and revenues at zł.247 billion.

Average inflation for next year is forecast at 2.3 percent. However, the forecast for Poland's current-account deficit predicts a widening to five percent of GDP, up from the predicted four percent for this year. That could be a signal that higher inflation awaits.

The National Bank of Poland's Monetary Policy Council has an inflation target of 2.5 percent. Its main interest rate is currently 4.75 percent, after three quarter-point rises this year.

The draft budget predics that economic growth will slow to 5.2 percent in 2009 and to 5.0 percent in 2010. (Reuters)