Ever since the Law and Justice party (PiS) came to power in Poland in 2015, it has been at loggerheads with the European Union. The main bone of contention between Warsaw and Brussels has been the PiS attempts to remove some of the hard-won democratic reforms and interfering with the way judges are appointed.
Any prospective member of the EU must meet set criteria for having active democratically progressive policies — and an independent judiciary free of political interference. In Poland, the PiS has turned that notion on its head by getting parliament to appoint judges. That it controls parliament simply means it controls the judiciary.
For months, Warsaw and Brussels have been in a standoff, and the crisis has recently abated somewhat with Warsaw making concessions to appease the European Commission’s concerns.
But Poland is still under the watchful eye of Eurocrats — and there’s nothing that gets those Brussels bean counters in a tizzy more than the prospect of a EU nation spending more and taking on higher debt levels. And that’s why they’re watching Warsaw very carefully.
As it looks on paper, Poland’s finances aren’t that bad. It’s not part of the 19 EU nations that uses the euro, the common currency across the EU, and still retains the zloty that is roughly equal to one dirham, or 0.23 to €1. Its debt levels stand at roughly 50 per cent, which compared to other EU nations is good. Critics of Warsaw’s economic policies, however say that there are fundamental issues with the economy and its current balance sheet are only looking good because of a range of once-off measures and improved tax collection regimens on value-added tax (VAT), for example.
Nothing loosens the purse strings like an election and soon, Poles will be going to the polls twice — to elect new Members of the European Parliament at the end of May, and a new national parliament in the autumn. And the PiS is intent on buying the support of its supports.
The PiS now, however, faces an opposition that is united. Five smaller left-leaning parties have formed a grand coalition and are posing as a united front against it.
Opinion polls over the past months show that the PiS is standing at roughly 38 per cent, with the united opposition coalition at 33.5 per cent — so you can see why the PiS is looking over its shoulder and beginning to fret and sweat.
Earlier this week, the PiS pledged to spend billions of zlotys directly on family support, cutting taxes and boosting social spending in a blatant attempt to get the support of voters.
Poland’s growth during 2018 was impressive and its economy expanded by 5.1 per cent — more than enough, the PiS says, to be able to afford the election giveaways.
So how generous is the new programme? Very. Anyone under 26 will be exempt from income tax, pensioners will get an extra month’s payment and other income tax rates will be lowered across the board. Families with children will get higher benefits and have great tax thresholds.
Economists point that growth in 2019 will slow to 3.5 per cent or so, and that the 40 billion zloty spending programme is bordering on recklessness and will increase Poland’s debt levels — hence the concerned Eurocrats in Brussels.
The PiS says the new measures will be funded by cutting government costs in other areas and continuing to make the tax-collection system more effective.
Brussels, however, is concerned that the spending programme will increase Poland’s annual current account deficit from the 1.7 per cent it is now, to beyond the 3 per cent threshold permitted by the common rules that all EU nations abide by — the so-called fiscal compact. That fiscal compact is the same that the new right-wing and populist government in Italy ran afoul of in trying to bring in a spending budget, but admittedly Italy’s debt levels are far higher, at 133 per cent, compared to Poland. But Brussels is concerned even if it hasn’t intervened — yet.
But then there’s that Brexit issue as well. Since Poland joined the EU, many of its young workers have left and moved to neighbouring Germany, the Netherlands, the United Kingdom and Ireland in search of service-sector jobs where minimum wages are higher and the euros sent home go a lot further in the zloty economy. With Brexit on the horizon sooner or later, there is an economic hit coming — with those service-sector jobs at risk, or with Poles giving up on the UK altogether. Either way, things are not as rosy as the PiS government would like Poles to believe.
For its part, the opposition coalition is only united by its opposition to the PiS and while it is critical of the new spending plans, it’s at an obvious disadvantage.
Certainly, if Brussels were to intervene and rap Warsaw over the knuckles again, this time over its finances, the opposition would get a boost. The reality though is that one way or another, the PiS is determined to buy its way to victory at the end of May, and back to the corridors of power in the autumn.