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2019/03/11 / Erste Group Research

CEE Special Report: Election-induced fiscal stimulus in Poland

Will hefty fiscal stimulus, worth around 1% of GDP this year and twice as much next year, be as easily financed as first round of 500+ introduced two years ago? In order to do so, Poland would need to cut VAT gap to 0.1% of GDP, and even such improvement in tax collection may not be enough to cover all expenses. Expected economic slowdown is likely to put additional pressure on the budget.

According to Polish think tank CASE, the VAT gap dropped from 14.7% in 2017 to 7.2% in 2018 of total tax liabilities (or 1.9% and 0.7% of GDP, respectively). Having it at 0.1% of GDP, however, means at most an additional PLN 11-12bn. We consider such scenario as ambitious and optimistic. At the same time, the cost of extending the 500+ program and the 13th month pension is estimated at around PLN 16bn this year alone and another PLN 29bn in 2020. Other promises such as lower tax income only add to the bill.

Being successful in closing the VAT gap this year makes the improved tax collection story hard to sell next year. With a weakening global outlook, growth prospects may remain soft in 2020 as well. How likely will hitting the 3% of GDP limit become then? We also cannot exclude further increase in government expenditures as there are other social groups (teachers, health and social care workers) that may ask for wage increases. Is this the whole fiscal loosening, then?

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu
Sector in focus-


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