Over 8 years, the regulation of law and justice has grown enormously in all respect: income, expenditure and deficit. This besides has serious consequences for the transparency of public finances.
This year, Polish government spending will one more time amount to almost 50% of GDP and the deficit will exceed 5% of GDP. In both of these categories, Poland is in the disgraceful top of the European Union countries. In terms of expenditure, it ranks seventh, ahead of all another countries of Central and east Europe, and the higher deficit will only be Romania. advanced public spending and the increase in the deficit in Poland are frequently explained by the increase in spending on modernization of the army in the face of the Russian invasion of Ukraine.
Before we accept this explanation, let us look at changes in spending over the last 10 years. Firstly, in 2015, public spending amounted to 41.5% of GDP, and so for a decade the increase will be 8% of GDP. Meanwhile, expenditure of 4.7% of GDP was recorded in national defence this year. For comparison, in 2015 Poland spent 2.2% of GDP. This means that defence spending will increase between 2015 and 2020 by 2.5% of GDP, much little than full public spending.
Secondly, this figure, which corresponds to 4.7% of GDP, is expenditure in the alleged cash flow. However, according to the EU methodology, the general government performance is calculated on the basis of gross and expenditure in the alleged accruals basis – in the case of the acquisition of military equipment expenditure will only increase the deficit at the time of delivery. Defence spending thus calculated will scope 3.2% of GDP4 this year. In 2015, Poland, according to ESA 2010 methodology, spent 1.6% of GDP on defence – this means an increase in military spending between 2015 and 2020 by 1.6% of GDP.
Thirdly, the deficit increased despite a very fast increase in public revenue, which is expected to scope 44% of GDP this year and to be higher by 5.1% of GDP than in 2015. Since gross has increased much more than defence expenditure, this means that another categories of expenditure must be liable for the increase in the deficit. The category that the government has no influence over in the short word is public debt spending (the government may search to reduce debt to pay lower interest in the future, but at a given minute it must pay it to its creditors if it does not want to declare bankruptcy). That's why we'll skip them in this analysis.
In 2015, public spending without interest on public debt amounted to 39.7% of GDP. As a consequence of the increase in public debt and its interest rate this year, the cost of interest will be 2.6% of GDP, which is 0.8% of GDP higher than in 2015. This means that with the current level of public debt and interest and the planned expenditure on defence, but maintaining the remaining public spending in relation to the 2015 economy, the Polish state would spend 42.1% of GDP this year (total expenditure without interest from 2015, increase in army spending and increase in interest). So alternatively of a deficit, we would have a large surplus this year.
It is so not actual that the advanced deficit is the consequence of spending on modernization of the Polish army. The increase in public spending in the last 10 years in Poland is mainly due to rising social benefits. This year Poland is expected to spend 17.4% of GDP on social transfers – 3% of GDP more than 10 years earlier. By comparison, in 2025 social welfare expenditure in another EU countries will be on average the same as in 2015.
The only EU country that will increase social welfare spending more than Poland in 2015-2025 is Lithuania, where this category of expenditure will inactive be much little important. Poland will spend in 2025 on social benefits the most of the countries of the region, as well as more than the developed welfare state of Sweden and Denmark. Only 5 EU countries are planning to spend higher than Poland in this category.
Over 8 years, the regulation of law and justice has grown enormously in all respect: income, expenditure and deficit. This besides has serious consequences for the transparency of public finances. This year, the public debt calculated according to the EU methodology is expected to be 58.9% of GDP. If this value were to correspond to the national definition, it would be essential to implement a sanctioning procedure involving the approach to the constitutional debt limit. This means that, in the current state of public finances in Poland, it is impossible to include all funds in the budget, especially as the debt to GDP will increase in subsequent years according to forecasts.
The current state of public finances only somewhat results from the request to increase spending on modernization of the Polish army. The Ministry of Finance has shown that the 500+ programme is simply a failure – the richest in Poland benefit from social benefits to the same degree as the poorest. Social policy so serves not to support households in financial difficulties, but to implement the “ideal” of universal publishing. In this way, however, we will not build unchangeable and sustainable public finances.
