Budget deficit in 2017: 2.9%

The government presented its draft budget bill for 2017. This will be the first budget prepared entirely by Prawo i Sprawiedliwość party. The state budget for 2016 was drafted by their predecessors, Platforma Obywatelska. National debt is planned at 59.3 billion PLN, which means the budget deficit will reach 2.9 % of GDP.

As it was expected, public expenses overshadow incomes. The ruling party in the election campaign made a lot of promises to the voters and now are trying to bring them to life. The priciest initiative of all is the 500 + child aid programme that a vast number of Polish families benefit from. The programme brings budget expenditures over the amount of 50 billion PLN.

The opposition is appalled by the huge debt the government puts the country into. Many critics say the budget in this form is unreasonable and unrealistic. They argue Poland may follow in the footsteps of Greece, which is still struggling with a painful financial crisis. The Ministry of Finance say the budget guidelines are good and realistic.

However, it is hard to notice the government’s expectations and the reality are not completely matching up. The draft budget anticipates strong GDP growth, while the economy is starting to slow down. Another problematic issue is the inflation. Higher inflation means more budget income from the VAT tax. Yet, the inflation for now remains in the negative territory.

The officials hold a firm belief that the economy will speed up in the second half of the year. The driving force behind this will be consumption. Unemployment rate in Poland recently hit a 25-year low, and the salaries and wages are on the increase. Personal spending is expected to boost thanks to the payments from the 500 + programme.

On the other hand, it is not a secret that the recently introduced retail tax will most probably not accrue as much revenue as the government planned. The same can be said about the new tax on banks and other financial institutions. The Ministry of Finance talks a lot about fighting white collar crime and sealing the VAT gap that will also help the budget.

It is very important for the government to keep state budget deficit below the level of 3%. Passing the threshold would mean activation of Excessive Deficit Procedure required by EU regulations. This means imposing a cap on public spending.