Will the New Social Transfers Sink the Polish Economy?

The ruling Law and Justice Party has a new idea for winning the upcoming European Parliament elections to grow the Polish economy: a “Five+”, a package of five ideas that is to make voters happy, including a 13^th pension for all pensioners, increased tax-deductible expenses threshold, exemption from income tax for young people, loosening the requirements for participating in the “500+” child benefit scheme and revival of bus transport in small towns. Critics say that if implemented, the program will have awful consequences for the Polish economy.

Even though party leaders assure there will be enough funds in the next year’s budget to pay for the social transfers, there are numerous experts who warn against destabilising the state finances. It has been rumoured that the Minister of Finances Teresa Czerwińska had filed for a resignation and will soon leave the government, as she does not want to allow the country to follow in the footsteps of Greece.

The budget deficit is definitely going to go up. Poland’s GDP growth is expected to slow down as well, even though substantiable social transfers will provide some impulse for growth. The World Bank expects the Polish economy to be developing at the rate of 4 percent in 2019 and 3.6 percent in 2020, while last year it was exceeding 5 percent. Poland will be affected by an economic slowdown in Europe. There are already some worrying signs coming from the German industry.

Leszek Balcerowicz, a former Minister of Finance, warns that the upcoming regulations may be dangerous. He points to the fact that instead of preparing for tougher times, the government is spending money and increasing the budget deficit. What is likely to follow is an increase in taxation. Another option is withdrawing money from Demographic Reserve Fund, which is not good either.

“Five+” is expected to cost approximately 40 billion PLN.