- Law and Justice has a taste for wide shields and covers that go not only to the poorest
- Introducing some creates pressure to introduce others. This was the case with the coal subsidy. There are many indications that more aid measures will have to be mobilized soon
- Shields are a way to curb inflation, but as economists say – temporary. Soon the troubles will return, and the shields will not be able to extinguish them when a crisis occurs
- Some economists warn that a target trap has been set in motion, in which it will be very difficult to abandon the shields and keep them unbearable for public finances. The energy crisis, in turn, may not be over in the coming year
- Some analysts, however, indicate that we are still in a privileged position compared to other European economies
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Shields, covers and surcharges have become the main method of fighting emerging economic threats. The amounts are already impressive, and there are many indications that the government will have to add more. We are only just entering the upcoming economic slowdown.
The upcoming parliamentary elections and social expectations that the authorities will have to protect citizens from the impending crisis with new shields are also prompting more spending. Economists, however, are divided as to whether the government will be able to do this, taking into account the enormous expenses already made.
Shield by shield
Just over two years have passed since the implementation of the first lockdown-related anti-covid shield. During this time, the government managed to adopt ten subsequent versions of it, covering a narrower group of beneficiaries as the pandemic faded out. The extinction of covid shields, however, coincided with the launch of subsequent support packages. The largest of these has become the anti-inflation shield, already present in two versions, i.e. tax cuts on food, fuels or electricity, recently extended until the end of this year.
As we calculated in Business Insider Polska, protection expenses will certainly reach PLN 60 billion, and with the extension of their duration until 2024, they may even exceed PLN 100 billion. And the budgetary burden will probably not end there.
There will be more
Government plans for contingency and cover spending are expanding rapidly. It was proved by the mechanism of subsidies to heat sources – after the announced payment of PLN 3 thousand each. PLN for coal smokers, it was also necessary to extend the aid to owners of other types of heating.
In recent days, Prime Minister Mateusz Morawiecki also announced that the government will launch a special tranche for local governments, which they will be able to allocate for subsidies to energy carriers, as well as for the modernization of existing heat sources. The total amount of support is to amount to PLN 13.7 billion.
However, this is not the end, as nearly PLN 4 billion has already been allocated to subsidies for fertilizers for farmers, and it is possible that this aid will have to be renewed soon. Fertilizer prices are rising dramatically fast, and food producers already indicate that the current financing is not sufficient to cover the rising costs of operations.
And extra spending can also trigger emergencies that the government also responds with shields. An example may be the so-called a shield for the borderland, supporting enterprises that were unable to conduct their activities due to the ongoing state of emergency at the Polish-Belarusian border. Its cost in the budget scale will not be high – as announced by the Minister of Development Waldemar Buda, it will cost tens of millions of zlotys.
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In the coming days, we are also going to get to know the details of support for companies losing out on the contamination of the Odra River. The minister of family and social policy, Marlena Maląg, assured that 10 thousand people would be covered by it. companies.
The shield policy will continue. How much?
Spending will therefore be significant, and economists agree that it will not slow down in the next year. Financing the shields, however, may turn out to be more and more difficult, as debt servicing will be more expensive. Even so, analysts would be surprised if the government began to tighten its belts next year.
According to Rafał Benecki, director of the macroeconomic analysis office and chief economist of ING, the proximity of next year’s elections means that the continuation of generous spending should still be expected. Financing shields and shields, however, will become more and more difficult. – With large campaign programs in 2023, the problem of higher borrowing needs will return, the financing of which will be expensive. Budget reserves that were created naturally in 2022 due to inflation are difficult to replicate in the coming years. There will be new costs in the form of valorization of benefits, it will be necessary to maintain expenses based on high, and not as previously forecasted low, inflation, at the same time the economy is slowing down, and thus providing less tax revenues – argues Rafał Benecki.
Inflation in the European Union.
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Adam Ziemienowicz / PAP / photos
Economists are also concerned about the possible prolongation of the war in Ukraine, which means that the global commodity market may still be under high price pressure. – We do not know if the war will be prolonged, so we must be prepared for many years without energy from Russia. We need expenditures that will make inflation possible to fall. We should invest in it, shields should not be massive, much more modest, and investment programs should be launched that will reduce our exposure to expensive fossil resources in the long term, says ING Chief Economist.
History may repeat itself
High hydrocarbon prices would mean that in 2024, anyway, Poland will have to face the energy challenge. However, it will then be more difficult to find money for cover. – We will face a correction in public spending, we will not be able to afford such instruments. Russia will not disappear and coal will not suddenly become, so history may repeat itself in a year’s time. And then we will no longer be able to afford these shields. Public debt is very expensive, the yields on Polish bonds have jumped significantly. World Government Bonds points out that our insolvency insurance is on the rise. Investors misjudge the condition of public finances, warns Sławomir Dudek, PhD, chief economist of the Civic Development Forum.
According to Rafał Benecki, the current design of the shields relying on universal support, it will therefore generate troubles and hinder the necessary reactions of the authorities in the future. – In the longer term, Poland has stumbled into a corner where shields are consuming a lot of funds, and it is difficult to get out of them immediately, because it will cause a large increase in inflation. At the same time, the shields do virtually nothing against inflation in the long term. Our therapy focuses on taking a painkiller rather than taking action to get back into good shape in the long term, he says.
What could be the consequences of this? – According to the estimates of the European Commission, in the years 2022-23 the total expenditure from the Polish budget is to increase with the fastest dynamics in the entire community. When the EU average is less than 5%, our spending will increase by approx. 22%. According to the forecast of the European Commission, next year’s inflation in Poland will also be the highest among the EU countries. And this includes by successive targets operating on the principle of dropping money – assesses Dr. Sławomir Dudek.
Eliminate shields? No, change it
On the other hand, it seems impossible to abandon the anti-inflationary shield at the moment. Rafał Benecki claims that it is not necessary to liquidate but to change the structure of the granted aid funds. – Different support shields may exist, but should fulfill a number of criteria. They must be precisely addressed, short-lived and with the possibility of efficient exit from them. Otherwise, and this is the case with the anti-inflationary shield, we will fall into a spiral of shields that help everyone, but only in the short term. Shields should not be massive, much more modest, but investment programs should be launched that will reduce our exposure to expensive fossil resources in the long term, says the chief economist of ING, adding that investments in renewable energy and nuclear energy must definitely accelerate.
– Wherever compensation is necessary, as in the case of the Odra River, it should be paid. But it is impossible to save everything and help everyone. It is money throwing, such a policy cannot go on. We give a few pennies to the needy, and larger amounts to those who do not need it. Illustratively, the richest people who burn a lot of fuel for several cars will benefit the most from the tax cuts on fuels – adds Sławomir Dudek.
As Dr. Maciej Grodzicki from the Jagiellonian University and the Polish Economic Network notes, the state budget can withstand this pressure. The problem is, however, that some of the expenses may turn out to be pointless – The financial condition of the state is not at risk. By themselves, fiscal transfers are not able to increase the amount of energy fuels, coal and gas available in the country. In the form adopted by the government, i.e. universal transfers for all households and enterprises, subsidies create new problems – such as increased inflationary pressure and the transfer of income to the richest – he confirms.
Or maybe it won’t be so bad?
Jakub Rybacki, head of the macroeconomics team of the Polish Economic Institute, perceives the problem differently. In his opinion, broad aid packages are not unfounded, and their introduction in the present shape does not necessarily mean great problems for the Polish economy in the future.
– Before the pandemic, for example, intervention buying was in operation, so the active policy of the state itself is nothing new. Currently, we are dealing with a number of shields and subsidies, but also because the natural or political phenomena we experience are larger than before. Climate change and the shift away from fossil fuels also necessitate more frequent and greater protective measures than before. And not only in Poland – points out the PIE expert.
As he adds, the broad support coming from the budget does not have to end badly. – Actions to prevent the effects of expensive energy and high food prices are actually a large expense from the perspective of the state budget. The scale of support in Poland is high compared to our neighbors and other Central and Eastern European countries. Remember, however, that we closed 2021 with a relatively small deficit of 1.8 percent. GDP, while, for example, in the Czech Republic it reached about 5.9 percent. Now it will probably be slightly higher in Poland than in the countries of the region, but I don’t think it will reach exorbitant proportions. The level of our public debt is lower than that of many European countries – he estimates.
Debt of EU countries.
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Maciej Zieliński / PAP / photos
He adds that in the long run, financial markets will understand the current need to increase spending. This means that Poland will not be negatively distinguished from other countries. – In the conditions of high inflation, the problem of public debt plays a less important role, because most European countries act similarly, reducing taxes on electricity and energy resources. A lot of help is necessary not only in Poland, but also in Belgium or Germany, and taxes related to energy are also lowered by France and Spain. In the current situation, financial markets look at it favorably, which means that concerns about, for example, ratings due to operating shields should not be excessive – indicates an expert of the Polish Economic Institute.