According to preliminary analyses, Donald Tusk’s government will transfer about 42 million złoty into the pockets of Poles. How will these plans affect the state of the economy and the level of inflation?
On Tuesday, the new Prime Minister spoke for more than two hours as part of his presentation. He covered many topics and presented the composition of the Council of Ministers. He announced a qualitative change in Polish politics and the restoration of the principle of the democratic constitutional state. The leader of the Civic Platform presented a number of specific promises, which contrast sharply with his first statement in 2007, when more than 200 were counted.
Tusk announced, among other things: increases for teachers and the budget, cash PIT (entrepreneurs only pay income tax after receiving money from the paid invoice, and not from the invoice itself), payment of the 800 plus social benefit, biennial indexation of pensions when inflation rises above 5 percent, the introduction of ‘grandmother care’, facilities for entrepreneurs and changes in the military. – The Polish army will be well armed and respect the contracts already concluded – he announced.
How much will the government’s ideas cost?
Damian Szymański, deputy head of money.pl, calculated the cost of the government’s announcement. “Tusk’s government is following in the footsteps of PiS and wants to transfer up to PLN 42 billion directly into the pockets of Poland at the start of its term of office,” we read. And so Szymański sums up that: a 30% pay increase for teachers. (with at least PLN 1,500 per month) will cost about PLN 13 to 14 billion.
Estimation public sector wage increases of 20 percent. is difficult. “The broadest estimates of the number of people working in the public sector are about 1.5 million people, in the state budget sector alone it is about 0.5 million. According to PKO BP economists, the cost of this program will be about PLN 15 billion,” we read.
The so-called “grandma” (“active mother” program), assuming payment of a benefit of PLN 1,500 per month. The cost of the program will reach PLN 9 billion. However, Szymański adds that the net impact of the program on the budget result will be smaller and could amount to PLN 4-5 billion.
There still is waiving the payment of ZUS contributions for entrepreneurs – another PLN 4.5 billion.
What could be the consequences?
Experts from PKO BP estimate that the direct additional costs will amount to PLN 42 billion, and the impact on the deficit will be around PLN 38 billion. In September, the PiS government’s budget deficit will reach 4.5%. However, after KO’s announcements, this will be higher than 5%.
However, these calculations do not take into account 800 plus, a 20% increase in the minimum wage and the announcements of POs that have been postponed to an indefinite future (e.g. an increase in the tax free allowance).
Wages are expected to rise by about 10.5%. from year to year, and in turn the Polish economy will – according to the bank Citi Handlowy – grow by 3.5% next year. Government action can therefore affect consumption and therefore make it more difficult to fight inflation and raise interest rates. “Borrowers should not expect a rapid decline in repayments,” Szymański emphasizes.
“However, in the view of some economists, the expected economic recovery, current interest rate cuts, fiscal stimulus and 20% increases in the minimum wage (plus increases in the public sector) will not facilitate a rapid return of inflation to acceptable levels. ” we read on Money.pl.
Source: Do Rzeczy
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
