Unbalanced budget
After weeks of political turmoil and failed coalition talks, the ruling Law and Justice (PiS) party's budget has finally made its way through the Sejm. Though the bill's passage clears up Poland's financial future for the coming year, the country's political situation remains unstable, with the threat of early elections still lurking in the shadows. The agreement could also hinder foreign investment, as generous spending measures in the budget and PiS' latest concessions to the parliament's populists are making economists queasy.
The political crisis that has gripped Poland over the past few weeks showed signs of dissipating, as the government's controversial budget bill finally lumbered its way through the Sejm, with 269 votes in its favor, 180 against and two abstentions.
The bill was supported by the ruling Law and Justice (PiS) party as well as the smaller parties, including the Peasants' Party (PSL), Self-defense (SO) and the League of Polish Families (LPR). These smaller players could suffer the most from early elections, which could severely reduce or entirely eliminate their contingents in parliament. Civic Platform (PO) and Democratic Left Alliance (SLD) voted against the government's proposal.
The bill sets the state's expenditures for the year at zł.225.5 billion and projects revenues at zł.194.9 billion, leaving a deficit of zł.30.54 billion. A government amendment, to spend an additional zł.1.3 billion on previously passed bills not included in the budget, such as the 'baby bonus' and increased social outlays for farmers, was unanimously accepted. However, the budget might result in the final parting of PiS and PO, and dash any last hopes of a coalition between the two largest parties in parliament.
Amendment acrimony
Before the vote, PO had underlined that it would only support the budget if all of its 120 amendments, aimed at cutting spending, mainly on administration, were passed. When the votes were counted, only one of PO's amendments (slashing zł.10 million from the President's Chancellery) was passed. PO's leader, Donald Tusk, expressed his disappointment with the budget, saying that it doesn't solve the country's problems and doesn't look for means to create jobs by cutting administration costs. "We had a festival of decisions that increase, not decrease, the costs of government administration," Tusk said.
Przemysław Gosiewski, the leader of PiS' parliamentary club, responded: "We think that those amendments introduced by PO could only destabilize the state and the administration." He added that the government has already proposed significant cuts in administration.
Far from perfect
Although PiS politicians are generally satisfied with the budget, few economists share their point of view. "It is definitely better to have a budget than not to have one," said BRE Bank's chief economist, Janusz Jankowiak, but added that from the macroeconomic point of view, the budget is far from perfect.
"The budget doesn't move the reform of public finances forward," he claims. Jankowiak points to the fact that fixed spendings, which usually make up around 60 percent of expenditure, now amount to 70 percent. "The bulk of the expenditures are outlays on consumption rather than on investments," he says.
"PiS has sent a signal that it has formed an informal coalition with parties critical of market economics," the vice-president of the Polish Confederation of Private Employers (PKPP), Jeremi Mordasewicz, said. "PiS has decided to pay pensions to those retiring earlier rather than salaries to workers building highways. [This is] a budget of stabilization, not development."
Early elections
Though a final split between PiS and PO seems to have appeared, the passing of the budget hasn't put Poland's political turmoil to an end, as the prospect of earlier elections still hangs over parliament.
The budget bill will now go to the upper house of the parliament, the Senate, for approval. If the Senate does not introduce any amendments, the budget goes to the President. However, if the upper house decides to make some changes to the bill, it will have to go back to the Sejm before being sent to the President for signing. According to Poland's Constitution, the President has the right to dissolve parliament if the budget does not arrive on his desk for approval within four months of its presentation in parliament. President Kaczyński claims that he should have the budget bill on his desk by February 1 - four months after the budget proposal was presented by Marek Belka's outgoing government. The opposition claims that the budget deadline expires on February 19, since Kazimierz Marcinkiewicz's government presented its modified version of the Belka budget on October 19 .
"With all due respect to President Kaczyński, there should be no doubt in this case. We have a principle of discontinuation, according to which the four-month period should be counted from the second budget proposal," Ryszard Kalisz, a Democratic Left Alliance (SLD) member and former Minister of Internal Affairs in Marek Belka's government, told WBJ. "There's no doubt that the four-month period expires on February 19. All these speculations are meant to use the law for the purpose of realizing PiS' political goals," he added.
That isn't stopping PiS, however. Prime Minister Marcinkiewicz reinforced speculations that early elections could be on the cards by announcing that the government would challenge some of the amendments introduced by the opposition in the Senate. If that delays budget proceedings as expected, President Kaczyński could call early elections as soon as the end of March or early April.
All about power
Recent polls show PiS could gain from early elections, perhaps garnering as much as 40 percent of votes. But early elections would likely prove deadly for smaller parties such as PSL and LPR, which would probably not gain the required five percent of votes to be included in parliament. Thus the ruling party has been threatening them with early elections in order to push them to sign its Stabilization Pact, which would mean supporting PiS legislative initiatives and not voting against government Ministers. At the same time, PiS continues to refuse to rule out a coalition with PO.
PO, however, is becoming increasingly frustrated with the current political turmoil. "Nobody knows what's going on, who is meeting whom, who is dating whom, who is getting married and who is getting divorced. We want to stay away from this," said PO's Bronisław Komorowski, a Deputy Speaker of the Sejm. He says PiS is unwilling to compromise and seek cooperation.
"It is all about power. PiS just wants - with all available means, either by scaring its allies or by getting guarantees in the form of a pact - to stay in power. This seems to be the only motivation," Komorowski said. "These actions are destabilizing the political scene. They just prove that PiS knows how to win elections, but doesn't know how to rule and use the power they won."
A simple solution?
With PO firmly opposing the government's initiatives and smaller parties fearing early elections, the stage is set for closer cooperation between PiS and the minor players. "The passing of the budget is another argument for the possibility of stabilization and making earlier elections less likely," PiS' Przemysław Gosiewski said. He also added that a good budget is "a milestone on the road to the Stabilization Pact." He accused PO's members of not wanting stability, and claimed they were responsible for the failure of the coalition talks.
"We now have little chance of reaching an agreement with PO, although they were our first partner," Gosiewski said. "If the stabilization proceeds among the four parties and talks with one party don't proceed, then the solution is obvious."
Forgotten investors
Economists are less than enthusiastic about the chances of political stability based on PiS' Stabilization Pact and a tenuous agreement with market-hostile populist parties.
"In the long-run this has an equally negative effect on the economy and the structure of the budget," says BRE Bank's Janusz Jankowiak. "The prospect of introducing reasonable solutions is less likely than if a PO-PiS coalition had been formed." He claims that foreign investors, for whom long-term economic policy and stability is crucial, won't be too happy about the possible turn in Polish politics.
According to Jeremi Mordasewicz, short-term investors will benefit from the Polish government issuing bonds needed to cover the budget deficit. "This will strengthen the złoty, which will make life more difficult for our exporters," he explained. "The budget of stability chosen by PiS means economic growth at the level of four percent of GDP rather than six percent. It will cost us zł.20 billion annually and means around 200,000 less jobs ."
PiS launched multilateral talks aimed at reaching an agreement on the Stabilization Pact with PSL, LPR and SO last Friday, making coalition prospects with PO even less likely. However, if the budget is delayed in the Senate as expected, it will be President Lech Kaczyński who decides whether stability can be achieved with the status quo, or if parliament needs to be rebuilt from scratch.
