The latest study by economists, presented during the European Financial Congress, paints a grim image of the future of Polish public finances. Experts from the Institute of Public Finance, Citi Commercial and the Monetary Policy Council inform that without immediate and extremist reforms, Poland is facing a deep fiscal crisis. Poland already has the second highest deficit across the European Union, and the debt spiral may shortly get out of control. The black script assumes an increase in public debt to 107% of GDP in just 15 years. This is simply a threshold where the state loses credibility in financial markets and the consequences are felt by all citizens. This would mean not only the possible elimination of flagship social programmes specified as 800 plus, but besides drastic taxation increases and a credit collapse.
End of 800 plus and 14th retirement? This is the first victim of the crisis.
In the face of a fiscal crisis and debt exceeding 100% of GDP, the government will be forced to search savings. The experience of countries specified as Greece and Spain shows that the first victims of budget cuts are usually broad social programmes. The 800 plus programme, which costs around PLN 60 billion a year, it can be completely liquidated or radically limited, for example by introducing an income criterion. Additional pension benefits are likely to await a akin fate.
Thirteenth and fourteenth pensions, which represent a combined burden on the budget of around PLN 30 billion per year, would besides be targeted. fresh benefits, specified as the widow’s only-introduced pension or the Active Parent scheme, known as ‘grandmother’, could be suspended before they enter into force for good. At present, social transfers in Poland account for as much as 17.1% of GDP – it is more than in countries who claim to be welfare countries, specified as Sweden and Germany. That's why, in a crisis situation, These spending will be the easiest goal for austerity politicians, much easier than cuts in administration or investment.
Drastic taxation increases inevitable. What's it gonna do?
Cost cuts are just 1 side of the coin. At the same time, the government will gotta look for ways to increase budget revenues, which inevitably leads to taxation increases. The Polish taxation burden is presently around 3 percent points lower than the EU average, which gives the rulers area for manoeuvre. The first candidate for an increase is VAT, whose main rate could emergence from the current 23% to 25% or even 27%.
But it's not over. Analysts foretell that the next step would be an increase in income taxation (PIT), hitting especially the mediate class. The introduction of completely fresh danes, which has been discussed for years, would be almost certain. We are talking about solutions specified as:
- Cadastral tax from the marketplace value of the property.
- New higher rates inheritance and donation tax.
- Potential property tax for the wealthiest.
A steep increase in excise work on fuels, alcohol and tobacco products, up to 30-50%, should besides be expected. Social safety contributions would besides increase. The effect of all these changes would be sharp decrease in purchasing power of Poles and the suppression of consumption that drives the economy.
Mortgage will become a luxury. Young Poles with no chance of living?
High government debt has a direct impact on the cost of money throughout the economy. To encourage investors to buy Polish bonds, the state must offer higher interest rates. This in turn leads to a central bank raising interest rates. For the average Pole, this means 1 thing: drastically more costly loans. The interest rate on mortgage loans could go up to 10-12% per year, which would mean a deficiency of creditworthiness for many families.
Young generations, dreaming of their own apartment, could be completely cut off from the market. At the same time, companies would have immense problems with access to investment finance, which would slow down development, make fresh jobs and lead to higher unemployment. This phenomenon, called the crowding out effect in economics, is that the state, competing for capital with the private sector, effectively blocks its development. Real property crisis and investment freeze would be almost a consequence.
Paralysis of public services and hazard of external intervention
In the fiscal crisis scenario, the state is no longer viable. This means deep cuts in the financing of public services. Further extension of queues to doctors, restrictions on access to specialists and under-financing of hospitals is expected. A akin destiny would await education, with the liquidation of smaller schools, and public transport. The neglected road and rail infrastructure would become the norm. As a consequence Poland could be permanently trapped in average income, without a chance of further civilization.
If the situation became dramatic, Poland could be forced to request assistance from external institutions specified as International Monetary Fund (IMF) or European Union. This would mean a real failure of sovereignty in financial policy. Examples of Greece and Portugal show what this means in practice: an externally imposed austerity programme, including wage cuts in the budgetary sphere of 20-30%, massive dismissals of officials and increased retirement age. The social costs of specified "help" are gigantic and felt for decades.
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Poland's debt is getting out of control. That's the end of 800 plus and inexpensive credit?
