Ruling party prepares for general election and second term

Law and Justice (PiS) is to hold a Congress in Katowice in early July to discuss its plans for its next term in office.

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PiS is looking ahead to the general election due in the autumn. Having won the European elections convincingly and smoothly reshuffled the government the ruling party is now turning its attention towards getting a second term in office.

Back in 2015, after winning the Presidential election and ahead of the Parliamentary election that brought it to power, the party held a Congress at which it unveiled its programme. Now the party wants a repeat performance. It will again hold a Congress focused on preparing a programme for the general election.

The former PM Beata Szydło, who has just been elected to the European Parliament polling more than half a million votes, admits that this time around there will be no announcements of major social spending commitments. “We have already delivered several social programmes” she admits.

The Deputy PM Jarosław Gowin hopes that the ruling party will now concentrate on winning support in urban areas and look at pro-enterprise policies to do so. He leads a party that has been in close alliance with PiS since 2014 and which plans to concentrate on winning over urban voters.

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EC recommends concentration on innovation, employment and reform of public finances

In its recommendations for member states, the EC is advising Poland to raise the retirement age in order to tackle the problem of low pensions and labour shortages. But this will not fly with the ruling party as lowering the retirement age was one of the most popular promises on which it delivered in its current term in office.

The EC recognises the progress Poland has made with lowering unemployment but feels that the country needs to create incentives to increase employment among those with low qualifications, the disabled and the old. This means doing more on childcare, education and training.

The Commission is advising Poles to do more to encourage cooperation between employers and research bodies in order to boost innovation. More priority should be given to investing in innovation as well as transport, energy infrastructure and renewable energy, digitalisation, and health care.

It is also advising the government to increase the effectiveness of public spending. It recommends the net increase in public spending not to exceed 4.4 percent in 2020.

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Entitlements mean pressure on spending

The social programmes which have been activated by PiS have created a set of entitlements and an air of expectation which will be hard to go back on. If economic growth fails to meet expectations the government will be faced with a choice of cutting spending on investment, raising revenue through tax hikes, increasing the budget deficit, or a combination of all these instruments.

The problem with any tax hike is not just that it is unpopular with voters. It can also contribute to reducing demand in the economy which leads to both a reduction in growth and tax yields. Increasing borrowing, on the other hand, leads to spiralling spending commitments for the future. Cutting spending on investments would also be a dampener on growth.

In the 2015-2019 term of office, it is the tightening up of the tax system ensuring that they are paid which has paid dividends at a time when demand on the domestic and export markets has been riding high. The money was redistributed via social programmes such as the child benefit (500+).

In a global economic downturn, such an approach would obviously come under pressure. This is why the classic cautious approach to the economy has usually entailed tax cuts and increases in investment while looking for a budget surplus at a time of growth. In such a scenario when a downturn kicks in the government can borrow more in order to balance the books while taking measures to stimulate the economy.

The current Polish government has pursued a bolder, some would argue more risky, strategy. It has not aimed for budget surpluses, preferring to concentrate on stimulating the economy through social spending and tax reductions.

So far that strategy has worked. The budget deficit has been held in check and the economy has grown at close to five percent per annum.

However, the last finance minister Teresa Czerwińska decided to leave her post and move to the National Bank of Poland as she felt that the spending commitments would be difficult to meet in 2020. It will now fall upon the new Finance minister, Mr Banaś to work out a strategy on how to boost revenues, maintain social spending programmes and keep the budget deficit in check.

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