Has Brussels decided? Excessive deficit procedure for Poland

ine.org.pl 1 year ago

Zdjęcie: Chińska polityka energetyczna (36)

The College of Commissioners of the European Commission has taken key decisions for the fiscal freedom of associate States and the EU budget for 2025. The reasons for triggering the excessive deficit procedure (EDP) be for Poland and 6 another countries.

The European Commission has already covered Poland with this procedure once: in 2010. Over the course of respective years, the deficit has been reduced from 5%-7% to below 3%. [1] In 2020-2023, the procedure was suspended in connection with the COVID-19 pandemic.

The debt of the Treasury at the end of May 2024 amounted to PLN 1 trillion 449 billion. From the beginning of the year until the end of May, the debt increased by PLN 103 billion, which is only half a year. The debt structure is divided into 1 trillion 106 billion in national debt and 343 billion in abroad currency (23.7%). [2] It should be remembered that the PDP (state public debt) is not the full of our country's obligations. The full liabilities are measured by EDP – government and local government sector debt (the alleged general government in the EU methodology). This indicator besides includes the funds to BGK and PFR and the commitments of these entities. EDP debt at the end of the 3rd 4th of 2024 amounted to PLN 1 trillion 772 billion. The difference between EDP and PDP is presently PLN 360 billion, which translates into 11% of Polish GDP. [2] The difference gradually widens from the end of the pandemic. The debt-to-GDP ratio alone is not excessive and does not exceed the Maastricht convergence criteria. According to economists PKO BP, the public debt in 2024 will be 52.3% and in 2025 – 54.5%. Meanwhile, the deficit in 2024 will be 5.3% and in 2025 – 4.9% (GDP). specified a large nominal increase in debt stems from the pace of economical growth, inflation – expanding the cost of servicing debt – and rising expenditure, among others, on arms.

EDP will impose restrictions on the execution of the tasks spent by the Polish government, which will make it hard for the coalition government to carry out the election promises. This is peculiarly burdensome in the Polish geopolitical situation and with increased defence spending.

The procedure itself and the Maastricht convergence criteria are frequently subject to criticism. The allegations concern the inhibition of economical growth and improvement and the excessive focus on the sustainability of public finances. This is peculiarly crucial in times of increased spending for military, climate, technological and energy purposes. This is the basic argument that the countries covered by the procedure mention to the EC. The EC, on the another hand, emphasises that according to methodology, expenditure on military equipment can be deducted from deficits and debts only erstwhile the equipment reaches the country of the contracting authority. [3]

How does the excessive deficit procedure work?

The Excessive Debt Procedure is set out in Article 126 of the Treaty on the Functioning of the European Union and in Protocol 12 thereto. It is imposed by the EU Council erstwhile the state fails to fulfil the convergence criteria, with Poland exceeding 3% of the deficit. The country covered by the procedure must study to the European Union the actions it takes to break the deficit. The procedure is multi-stage and may yet even end in imposing sanctions. A country whose deficit exceeds 3% of GDP and which is covered by the EDP must break the deficit by 0.5% of GDP annually. [4]

Will the excessive deficit procedure impose austerity?

You're already walking distant from the paradigm of economics, which imposed belt tightening due to deficit breaking. The solution can, on the another hand, entail fresh taxation burdens. The austerity procedure did not work in 2010 and contributed to considerable social costs. In addition, the implementation of the procedure may have political consequences – the government gained an argument for giving up any of the expenses. The most likely script will be the correction of the Budget Act for 2025, on which work will take place at the turn of August and September of this year.

Already 30.04.2024 the government approved the Multiannual State Financial Plan for the years 2024-2027. It committed to consolidating and yearly deficits by 0.5% of GDP. [5]

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