Business

Government lays out plans to cut deficit

29.01.2010 13:57

Prime Minister Donald Tusk and Poland’s finance minister presented what they said was a major reform of public finance to tackle the growing public and government deficits.

Speaking at Warsaw’s Polytechnic Friday morning, the prime minister and Finance Minister Jacek Rostowski laid out a two part plan - changes in tax laws with new acts on public-private partnership and privatisations, plus holding public spending increases down to one percent per annum.

“We have urged our partners in Parliament to increase the retirement age, so that the pension was will be higher [when people finally retire],” the PM told an audience of distinguished guests, including mayor of Warsaw and former head of the National bank of Poland, Hanna Gronkiewicz-waltz.

The Prime Minister was presenting the Plan of Development and Consolidation of Finance 2010-2011. There would be no immediate scrapping of the controversial KRUS pension scheme for farmers - who pay less in social insurance than normal workers, but there would be a gradual increase in contributions for the wealthiest farmers, Tusk said.

The government intends to cut public spending by 1.1 percent a year from this year. Pension rates for some workers, such as the uniformed services, miners and farmers.

“We will propose introducing an expenditure rule, under which public expenditure increases will not exceed 1 percent plus inflation over the next few years,” the Prime Minister said.

“We want to reduce debt so that Poland has become the most attractive place in Europe to invest. That we say to the Poles,” said Tusk.

Finance Minister Jacek Rostowski said the plan would fight to get government debt below 55 percent of GDP this year and in the years 2011 and 2012 finally reducing it to around 40 percent. (pg)

Comments: 8 Add new comment

Eugene Markow

29/01/2010 18:04:09

Reducing government debt is an excellent plan. Too much debt is more often than not the root of economic disaster.

Jasiek

30/01/2010 01:59:50

It is praiseworthy of the government to attach greater importance to long-term reform schemes than to stop-gap emergency measures. It is indeed necessary to spare resources to current social and economic issues, but with perfunctory long-term reform everything would go incoherent and bring about a crisis as seen in Hungary, Portugal, Ireland, Iceland, Ukraine and Greece. Both Mr Tusk and Mr Rostowski as well as Messrs Buzek, Belka, Balcerowicz, etc. have always insisted on the long term gain for short term pain, and they have all been proven to be right after all.

Maciej Skiba

30/01/2010 21:20:48

Nicely said Jasiek....

If anybody is interested here's a great video describing the cause of this current economic crisis. The first guy you can skip over the guy has no idea what he's talking about. I recommend watching Peter Schiff.

Peter Schiff debates Professor from Columbia University
http://www.youtube.com/watch?v=zM23TZxzOw8

For those who don't know who Peter Schiff is he's only one of the few that predicted this current economic crisis. Video of that is below.
http://www.youtube.com/watch?v=LfascZSTU4o

Maciej Skiba

30/01/2010 22:07:10

http://www.youtube.com/watch?v=Aq1N70vym1g&feature=related

One more good video

Leszek

31/01/2010 09:15:35

While cutting expenditure is vital, creating some sort of imposed limit can create problems. For example, what happens if new infrastructure ends up costing more than expected. Or if there is a natural disaster. Or if a great thing comes along that would benefit the economic growth of the nation. The answer to much of this, normally, would be to forgo some of the existing spending to pay for the unexpected spending. However, that is not always possible.

I'm not denying that cutting expenditure is necessary just pointing out the problems with a simplistic rule. A wise man (Dr Karl Kruszelnicki) once said that every problem has a perfectly simple, perfectly logical and perfectly wrong answer.

Maciej Skiba

31/01/2010 23:41:53

Leszek,

You can easily build into budgets funds for unexpected situations while still reducing the deficit. It those unexpected situations don't arise, the money left over will go back to paying down the deficit or back to taxpayers. Let's say revenues are $10, you can make expenditures $8 and $1 for unforeseen events. Thus leaving $1 to reduce the deficit, and possibly another $1 if no unforeseen event occurs. Granted even with the most conservative of budgets, things don't always go according to plan, nevertheless more times then not you will be within the budget if you make one properly (if corporations can do it, the government can also). But lets say an unforeseen circumstances does occur (and it would run over budget), the government can sit down and contemplate if going over the budget is worth it. Clearly if you spent 9 billion on a project and you're over budget 100 million you might as well finish it. However the most important thing in all this is the attitude the government has when using taxpayer money. Reducing the deficit should be the long term goal, even though in the short term it might be a rollercoaster ride.

Leszek

01/02/2010 04:31:49

Maciej

I agree about cutting the costs. My only comment is that having a regulation to cover this is probably unworkable.

As we all know, the gov will never be able to create a nest egg and not touch it unless it becomes necessary. There will always be a necessity - anyone could argue that cleaning the fluff out of the navel is necessary and - bang - there goes the nest egg. Even politicians are human and they will make the same stupid errors we do (just on a vastly grander scale). I don't think that having such a regulation would work.

A philosophy of reducing the deficit is a much better idea although I see problems with that, too.

Maciej Skiba

01/02/2010 05:02:48

Leszek,

That is completely untrue, its that type of thinking that actually perpetuates the increase in a country's deficit. The US went from around 100% deficit of GDP (right after WW2) to around 60% and now its going back up. If politicians understand the fundamentals of economics and economic freedom than its very simple to do it. You say when there is a nest egg most politicians will tap into it, while thats true (thats only because their is no strict rules set aside for them to prevent them from being able to do so). If you set up laws that politicians have to jump through many hoops (or even better yet punish the government)in order to tap into that money, you already provide an disincentive for politicians to use that money. Deficits occur not because there impossible to prevent but because citizens don't hold their politicians accountable. Your theory is thats its impossible to spend less then you take in, thats just not logical. There's hundreds of millions of households that do it (even with emergency's) there millions of private businesses that do it, and there's hundreds of thousands of corporations that do it.

You seem to think the philosophy is rigid that there is no room to make exceptions, of course there is, however certain procedures need to be followed to ensure if the budget is overrun its for a good reason.

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