Thursday, 15 July 2010

Public Opposition to Spending Cuts

The financial crisis hardly featured as a topic in the recent presidential elections in Poland. Throughout Europe political leaders are attempting to out-do each other by implementing wide-ranging public spending cuts in order to 'heal' their burgeoning budget crises. However, in the Polish presidential elections the two main candidates were competing in their promises of increased social spending.

To date the Polish economy has avoided falling into recession and its public finances are in a relatively good state. Although the budget deficit increased from 1.9% in 2007 to 7.3% in 2009 and public debt rose from 45% to 51% of GDP during the same period, these are manageable figures within the present European context. The influx of EU money in recent years has meant that the government has been able to partly fund some large infrastructural projects. This use of public (both Polish and EU) money has partly offset the fall in private investment and helped to keep the economy afloat during turbulent global economic times. Furthermore, the improved economic performance, since the stagnation at the end of the 1990s and beginning of the 2000s, has allowed for some increased spending on public services. This has included rises in some public sector salaries, which had been severely depressed throughout the postsocialist transition.

It now seems that this may be coming to an end. Public debt in Poland is predicted to reach nearly 60% of GDP by the end of 2011. Big deal you may say. After all, in countries such as Belgium, Greece and Italy public debt already exceeds 100% of GDP. The problem however is that written in Poland's constitution (adopted in 1997) are a number of so-called safety thresholds. These culminate in the proviso that if public debt reaches 60% of GDP then the government must introduce a balanced budget for the next year. This would obviously trigger a round of severe spending cuts.

This excessively restrictive monetarist piece of legislation is now beginning to impact upon the government's policies. Without the fear of a presidential veto the PO government has announced that it will freeze the wages of half a million public employees – including the police, army and civil servants (it will not include teachers.) Earlier the government had agreed that these employees would receive salary rises equal to the inflation rate + 1% (which would be an increase of around 3.3%).

These initial attempts reduce social spending are unlikely to be accepted by the majority of Poles. In a recent opinion poll 51% agreed that spending cuts would help the economy, against 43% who disagreed. However, 53% are against (40% for) freezes in public sector salaries and 81% (16% for) would oppose freezing rises in pensions or cutting unemployment benefit. Also, 66% of Poles are against another government proposal to raise the retirement age of women to 65. The government's ongoing project to 'commercialise' (read: privatise) the health service is also not supported by the vast majority of Poles. 58% believe that privatising the health service would be negative for society (17% believe it would be positive)and 51% consider that medical treatment is cheaper when provided by the state (10% believe that it would be more cheaply provided by the private sector).

Despite the political offensive underway in the media, a large majority of the population is opposed to the government's programme of public sector cuts and market reforms. For months the government has been presenting Poland as a 'green island' in a continent of negative economic growth. The greatest threat to this position is the government withdrawing money out of the economy at a time of huge economic uncertainty.

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