Poland Needs To Do More To Correct Budget Deficit

by Ulrika Lomas, for LawAndTax-News.com, Brussels

16 November 2006

The European Commission announced on Tuesday that while it has made a significant improvement in the last few years, Poland is not yet taking sufficient action to be able to correct its budget deficit in 2007, as recommended by the Council in July 2004.

The Polish draft budget for 2007 sets the deficit at 3.7%, including the costs of pension reform, but according to the Commission’s autumn forecast it may turn out slightly higher.

Joaquín Almunia, European Commissioner for Economic and Monetary Affairs suggested that:

"Poland should make more ambitious efforts to consolidate its public finances given the strong economic growth that it is enjoying at the moment. This is in the interest of the Polish economy and people irrespective of the target date that is set for the adoption the euro.”

Poland recently notified a deficit of 2.5% of GDP in 2005 to Eurostat and expects a deficit of 2.1% this year. The draft budget for 2007 sets the deficit at 1.7%.

However, these figures reflect a transitional arrangement accepted by Eurostat under which Poland continues to account contributions to second-pillar funded pension schemes as government revenues. At the expiry of the transition period, on 1 April 2007, higher figures will have to be used for the deficit and debt (incorporating pension reform costs). Under the new accounting the deficit figure would be 3.7% in 2007.

As the next steps under the Excessive Deficit Procedure do not apply to countries not yet in the euro area, the Commission’s next step will be to recommend that the Council address a new recommendation to Poland.

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