Polish government touts deficit cut ahead of election

WARSAW (Reuters) - Poland’s government approved a plan on Tuesday to eliminate its budget deficit for the first time since 1990, Prime Minister Mateusz Morawiecki said, a move that could help bolster public support for its ambitious social spending plans ahead of a national election on October 13.

Polish Prime Minister Mateusz Morawiecki attends a news conference in Warsaw, Poland August 27, 2019. Agencja Gazeta/Slawomir Kaminski via REUTERS

Robust economic growth and improved tax collection has kept Poland’s deficits low in recent years, despite substantial welfare spending. Last year’s deficit totaled 10.4 billion zlotys ($2.65 billion) and is to be cut to zero in 2020.

“We present a balanced budget for the first time in 30 years,” Morawiecki told a news conference devoted to the 2020 budget draft approved by his cabinet.

It has yet to be approved by parliament, which will be reconstituted after the elections.

Both budget revenues and spending are envisaged at 429.5 billion zloty ($109.40 billion), Morawiecki said.

In the last election, the opposition criticized the PiS’ social spending programs, saying the country could not afford them. The balanced budget could help to show voters they are fiscally responsible and firm up support for their ambitious social plans.

Critics say however that the budget’s assumptions are based on one-offs and are too optimistic in light of an expected economic slowdown.

“In large extent this is thanks to big one-off payments, such as pension reform fees, CO2 emission certificates, the sale of 5G frequencies - these elements add up to two thirds of the 2019 planned deficit,” chief economist at ING Bank Slaski Rafal Benecki said.

The budget situation might turn out to be less rosy, especially once economic growth slows down to 3.7% next year from 4.4%, according to a Reuters poll published by Refinitiv.

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Earlier, the newspaper Rzeczpospolita reported that the 2020 budget would benefit from the sale of mobile phone frequencies, rights to carbon dioxide emissions and cash connected with a pension reform. Taken together, those steps should bring in 17.8 billion zloty.

Another 14.9 billion zloty will come from improvements in tax collection and 5.2 billion zloty will come from changes to social security system payments.

Higher alcohol taxes are expected to bring in 1.1 billion zloty, a new tax for millionaires another 1.1 billion zloty and changes to the ecological tax an additional 1.4 billion.

“If you take out 20 billion zloty from Poles’ pockets, and cut spending on health sector at the cost of people suffering from cancer and heart diseases, then you can get a balanced budget easily,” said Izabela Leszczyna, a member of parliament for the opposition centrist party Civic Platform (PO.

Despite scandals that have plagued the PiS in recent weeks, it still leads in opinion polls. Whether it could form a government - alone or in a coalition - would depend on the mix of parties that win seats in the election.

The newest poll conducted by Indicator pollster for state TV said on Tuesday that PiS could earn 41% of votes, PO 29%, leftist Lewica 11%, and coalition of agrarian party PSL and anti-system Kukiz’15 6%.

In a reaction to the news on the balanced budget, bond yields fell by seven basis points in the afternoon - mBank dealer, Mateusz Milewski explained that investors expected the government to issue less debt.

Poland’s zloty currency did not react to the news. It is slightly positive, but the market is more focused on the global environment, Warsaw-based dealers said. At 15:08 Warsaw time euro was quoted at 4.366 zloty, up 0.1% on a day.

(This story corrects to clarify timing of budget date in lead).

Reporting by Marcin Goclowski and Joanna Plucinska; additional reporting by Anna Wlodarczak-Smeczuk, Alan Charlish and Alicja Ptak; editing by Larry King and Angus MacSwan