FOR Communication 29/2019: "Balanced" budget – a great manipulation
The Law and Justice government, when publishing the draft state budget for 2020, called it "balanced". This "balance" is based on one-off revenues and concerns only the state budget, which accounts for half of the entire public finance sector. After eliminating one-off revenues and taking all expenditures into account, the deficit will amount to 1.3% of GDP - that is, it will remain far from a sustainable improvement of public finances - and it will not take the promises of Saturday's Law and Justice election convention into account. Below we analyse the current draft budget. The question remains, however, to what extent the new program promises will change the deficit and how many more such changes the Law and Justice government will propose before the elections.
The "balance" of the state budget in 2020 is based on one-off revenues (1% of GDP) and an increase in social security contributions, mainly for the best earners (0.8% of GDP).
- One-off revenues will not be repeated in subsequent years and therefore cannot be part of a long-term improvement of public finances.
- The surge in pension contributions results from the planned liquidation of the annual limit of payments of pension contributions to ZUS in the amount of 30 times the average salary. As a result, the salary of persons earning more than PLN 5.7 thousand net will be burdened with as much as 52% of taxes and contributions above this threshold. Firstly, such a high tax wedge will discourage the most qualified specialists, whose work largely determines the innovativeness of the economy, from working in Poland. Secondly, such a change would discourage the reliable payment of social security contributions. As a result of the elimination of the limit on contributions, a small group of well-off and persons on average living longer should receive very high pensions in the future. At the same time, however, a significant group of people will receive minimum pensions, and this may raise fears of populist postulates of expropriating them from part of the payments.
Authors:
Aleksander Łaszek PhD, Chief Economist
aleksander.laszek@for.org.pl
Rafał Trzeciakowski, economist
rafal.trzeciakowski@for.org.pl
Files to download
