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The balanced budget principle was put into law as part of the public finance act in 2013. For violating this legally binding principle, the prime minister and the minister of finance would face the state tribunal.

To put it simply: the current law links public expenditure to the annual GDP growth rate, restricting government spending beyond that limit. To put it even more simply: it keeps the government from excessively expanding the budget.

It is the main point of reference for rating agencies to assess Poland’s financial viability.

The balancing principle has been bothering PiS for a while now

Speculations about the Ministry of Finance planning to liberalize or even suspend the current law are not new.

Dr Sławomir Dudek, director of the macroeconomic policy department and a supporter of the legal status quo, left his post at the ministry last autumn.

Back then, our sources told us that: „they are looking to replace Dudek with someone who would tell them how to get around the spending limits”.

The ministry denied having any plans to change the law at that time, but this is clearly no longer the case.

A bill revising the expenditure cap can already be found in the Ministerial Council’s legislative record under the number UD92.

Currently, the public finance act allows to bypass the balanced budget principle only in a state of emergency, during a state of war, or in case of a natural disaster affecting the country’s entire territory.

Now, the ministry wants to expand that list to include the state of epidemic threat which the Polish government announced on March 20.

„The updates will allow to introduce measures similar to those adopted by the European Union which lift the EU spending limits to contain the COVID-19 outbreak” – the ministry assures us.  

Other than a state of epidemic threat, to lift the spending limits, only two additional conditions will have to be met: a recession and a projected budget deficit exceeding 3% GDP.

We can already see that both will be the case.  The government expects a 3.4 % drop in GDP and even a 8.4% increase in budget deficit. Most likely, the ministry of finance will already try to suspend the balanced budget principle while adjusting this year’s budget.

The government’s fiscal gimmicks

It is yet another example of the government’s financial gimmicks. Mateusz Morawiecki and his cabinet have been following a consistent policy of financial reshuffle aimed at expanding their budget.

Other examples?

PiS pushes the expenditures used to fight the coronavirus outbreak out of the public sector, so that they are not evidenced in the national debt statistics.

That was exactly the case with 100 billion zł of assistance offered to businesses. It was the Polish Development Fund (PFR) that acquired the money (PFR issues bonds which are bought up by banks, the National Bank, in turn, buys it from them).

The same applies to the 100 billion zł raised within the framework to counter COVID-19 – in this case, it was the State Development Bank of Poland issuing the bonds.

In both cases, however, the National Treasury is the ultimate guarantor. What was the purpose of all this? The constitution prohibits that gross government debt exceeds 60% of GDP. One way or another, this will be evidenced in the EU statistics.

How long will this limitless spending last?

-The bill reads that depending on the economic forecasts, returning to status quo ante will happen within the next two, three, or even four years- says Łukasz Kozłowski, chief economic of the Polish Entrepreneurs Federation and the vice-president of the Legislative and Political Economy Research Centre (CALPE).

Economic experts are torn. Some see the idea as the only way out. Kozłowski, for example, praises the government’s proposal as a „systemic solution to the current crisis”.

One of the opposing voices, on the other hand, told us that „it is clear that PiS used the epidemic as an excuse, and finally achieved what it wanted”.

On Monday, leading Polish economists appealed to the government to bring back transparency in public spending, respect the Polish (constitutional and legislative) and European fiscal principles, and to engage in substantive discussion about the necessary steps to achieve a balanced budget. “Through the last couple of years, we’ve been seeing the government’s growing temptation to bypass the principles of a responsible budgetary policy” – they wrote.

The appeal also advocated „upholding the balanced budget principle and sealing it (including all extra-budgetary funds and operations)”

Bill expected to pass by the end of June. Piotr Patkowski appointed to oversee the works

The person responsible for overseeing the legislative project, and thus also lifting the spending cap, is the recently appointed deputy minister Piotr Patkowski.

Patkowski replaced the former deputy minister Leszek Skiba, who, among other things, was responsible for the government’s macroeconomic policy and tax law.

The new deputy minister is 29 years old. Last year, he was running for office in Lublin, as one of PiS’ local candidates. He was listed as number 18, got 1028 votes, but did not get elected. He studied law at the Marie-Curie Skłodowska University in Lublin. He was first an intern and then an employee at the Sobieski Institute.

Patkowski has a close working relationship to prime minister Morawiecki. He was a member of Morawiecki’s political cabinet (when he was still the deputy prime minister), and later worked as his advisor, also in the political cabinet.

In January, he was promoted to the post of the ministry’s policy impact assessment coordinator. He has no official financial education.

The new bill is expected to pass by the end of June. It is likely, however, that the Sejm finds time to address it well before that.

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Every day, 400 journalists at Gazeta Wyborcza write verified, fact-checked stories about the coronovirus pandemic for you.

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