Warnings: In 5 years we have become as indebted as in the past 29 years [OPINIA]

The text was created as part of the WP Opinie project. We present the diverse views of commentators and public opinion leaders on key social and political issues.

One billion on Monday, and one billion on Tuesday

Considering that both the original draft budget and its update were based on an assumption of average annual inflation of 6.6 percent, and the current market consensus assumes this inflation would be less than 4 percent, it is tax revenues that most revenues will come from. Important are those related to value added tax.

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It can be assumed that lower inflation will lead to a decrease in revenues by PLN 20-30 billion and the planned debt increase should be increased by this amount.

Even assuming that the figure is close to the lower end of the range indicated above, it will turn out that the planned increase in debt will amount to PLN 366 billion (345 + 21). As you can easily calculate, in 2024 we will be in debt at a rate of 1 billion zlotys per day. All days of the year.

By how much should taxes be increased to prevent the debt from growing?

Let's compare the planned tax revenue with the planned increase in debt to achieve How much public financial spending has been “decoupled” from this?The amount of taxes collected on an ongoing basis.

As for the planned state budget revenues, they are as follows:

If we want to “eliminate the increase in debt” of the general government sector in 2024, the increase of which can be estimated quite conservatively at 366 billion PLN* and if we apply a method to increase revenues proportionally – it is naive and impossible to implement in practice, but by clarifying The size of the challenges arising from taxation amounts to a total of 366 billion PLN, we must:

  • Or increase revenue from GST by 1.25 times – that is, the VAT rate, for example, is 23%. It must be 53 percent;
  • Or increase ICT revenues by 5.2 times, meaning that the ICT base rate will not be 19%, but 99%;
  • Or increase PIT revenue by 3.36 times, or 12%. It should be raised to more than 40%. With a concurrent increase of 32 percent. to more than 100 percent;
  • Or make a combination of the changes mentioned above (i.e. increase all taxes, but less than if only VAT, VAT or income tax were increased).

Such a radical tax increase would lead to mass business closures and offshoringalong with the exodus of all those who would have the opportunity to flee to other tax jurisdictions.

No one in their right mind would suggest anything like that. but this A thought experiment shows how poorly balanced our public finances areHow much expense is not covered by revenue?

Worse still, such a large increase in debt was planned for a year in which the economic growth rate would be similar to the so-called potential growth rate (roughly: the growth rate that our economy can “afford” given the number of employees and productive assets). The basic rules of budget policy state that in such a situation the deficit should be close to zero.

At the same time, we planned a record debt increase in nominal terms (over PLN 360 billion) and as a percentage of GDP (over 5 percent of GDP). Moreover, this deficit – planned by the outgoing government – does not yet take into account the electoral promises made during the election campaign.

These – as follows from “Fighting election promises” money.pl and FOR -Ranging from one hundred and tens of billions of additional expenditures per year to more than 200 billion Polish zlotys. If we added the promises of the parties that form the government coalition, we would obtain astronomical sums that would be impossible to finance in the market.

So, we have a situation where the deficit planned by the previous government is very high, and there is also a risk of increasing it by trying to fulfill some promises. How we solve this problem will tell us a lot about the fate of our public finances and our finances as a country. What is the alternative here?

The rut of promises, that is, the constant increase in debt

Basically we have two directions. The first: the “rut” that we have unfortunately begun to “ride” in recent years. Politicians make more and more spending promises, especially social ones, to buy off the preferences of one social group or another with public money, and they outbid each other on these promises.

Sovereign He begins to believe that the government has invested some financial resourcesWhich are now extracted and distributed with a broad gesture “to make people feel that someone cares about them.”

The truth is that there are no such resources, there is only increasing debt.

It began on an unprecedented scale in Covid 2020, When general government sector debt rose to a record level: PLN 291 billion this year alone.

This year was also a major breakthrough because the then government began to explore and exploit methods of debt that had eluded the national definition of debt.

Pushing expenditures into off-budget funds, “bond distribution” and a dozen or so other ways of not including the increase in debt in the official deficit have led to the fact that in 2021, the official budget deficit showed only ten percent or so of the real increase in public debt. To the government.

That is why I use here the category of “increase in general government debt” and not the concept of “deficit,” which would be more natural. In the current reality, the budget deficit shows only a portion of the debt at the central levelIt is not a complete picture of public finances.

Let's remember that from the end of 2019 until the end of 2023, we owed PLN 652 billion (increase in general government sector debt), and if we add PLN 334 billion planned by the previous government, we have PLN 990 billion of “new” debt. “Only in five years.

Almost as much debt has been generated or will be generated in five years as it has in the past 29 years (1990-2019).

This is the classic populist pattern: This leads to constantly generating new expenditures and chronically high deficits, leading to increased debt on the one hand, and inflation on the other hand. Let's hope the new government can turn public finances around.

Are there positive scenarios?

So. They assume a return to the policy that gave us the highest GDP growth among post-communist countries since 1990. It was based on free market solutions and undisturbed by the corporate sector in its growth and business management.

We must return to this trend in order to return to the path of stable development, based on productivity growth and investments.

how? Entrepreneurs cannot be surprised by ill-considered and ill-considered ideas; Which strongly affects their activities and sometimes turns them upside down.

In cooperation with business and labor unions The government must start removing the most harmful and burdensome regulations.

Any newly introduced regulations should be consulted carefully. Evaluations of the effects of regulations should be conducted comprehensively and objectivelyLegal leave – extended as much as possible.

If it can be done, maybe we can start too Work on a comprehensive reconstruction of tax laws and regulations.

Why couldn't we develop simple, understandable and easy-to-use taxes within a few years? Why couldn't we transform the most complex and difficult-to-use tax system in Europe into a simple and friendly one?

* PLN 345 ​​billion are included directly in the law, in addition to PLN 21 billion due to lower VAT revenues, thanks to lower inflation.

He is the owner of the opinion Dr. Marcin Mrwick, chief economist at Grant Thornton in PolandShadow Economy Secretary for the Business Center Club. The opinions presented are an expression of personal thoughts, and not the position of the institutions with which he is associated.

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