May 25, 2017 / 4:13 PM / 2 years ago

Poland's low deficit set to rise with investments, retirements: FinMin

WARSAW (Reuters) - Poland’s finance minister said on Thursday that the 2017 budget deficit will be lower than the planned 59.4 billion zloty, but its size depends on how many people take advantage of a lower retirement age in the autumn.

Deputy Prime Minister Mateusz Morawiecki speaks at the Reuters Central & Eastern Europe Investment Summit at his office in Warsaw, Poland May 25, 2017. REUTERS/Kacper Pempel

Finance minister Mateusz Morawiecki also said in an interview at the Reuters Central & Eastern Europe Investment Summit that he expects no changes to taxation next year and the deficit forecast for 2018 is likely to be lower than 2017.

The central budget deficit reached 1.5 percent of the full-year plan in the January-April period, the finance ministry said earlier this week. In comparison, in the corresponding period of 2016 the deficit reached 20.3 percent of the full year plan.

“Such a low deficit is not sustainable (in coming months), as there are a number of expenditures,” Morawiecki said referring to planned spending on infrastructure projects and pensions.

“There is one big uncertainty. New pension bill (cutting the retirement age) comes into life in October and because of that 330,000 people get a right to retire,” Morawiecki said.

This means Poland, with a population of 38 million, may see up to 550,000 new pensioners, Morawiecki added. He expects 80 percent of those that are eligible to retire. Every 10 percent will cost the state 1 billion zloty, he added.

“If it is 70 percent, then the deficit might be really significantly lower. This is why we are working with labor minister (Elzbieta) Rafalska on incentives for people who refrain from retiring,” he said.

This factor will also determine the 2018 budget deficit forecast, Morawiecki said.

Analysts expect the full-year deficit may be lower than the full year plan by up to 15 billion zloty this year.

Morawiecki said budget forecasts will not be impacted by recent announcements from a number of state-run firms such as Energa (ENGP.WA), PGE (PGE.WA), and KGHM (KGH.WA) to sharply cut their dividend payout plans.

He also did not envisage any change in the VAT tax rate next year and thinks the copper tax could be maintained in some form.

“We’re continuing what we’ve inherited in terms of (VAT) rates levels,” he said.

The copper tax, or levy on mining income, eats into profit at KGHM, which is Europe’s second biggest copper producer as well as the world’s largest silver miner.

The recent strengthening of the local currency, zloty, which rose against the euro five percent since beginning of the year to 4.18 zloty, is not yet a concern.

“I would say that the range 4.0-4.5 is a range which doesn’t worry me,” Morawiecki said.

Reporting by Marcin Goclowski, Pawel Florkiewicz, and Pawel Sobczak; Editing by Elaine Hardcastle

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