No more pies in the sky

(© PAP)

Polish party leaders are forced by media to specify the costs of their election promises. A decade ago no one bothered. Polish democracy is maturing.

The debate preceding this year’s presidential election focused heavily on comparisons of costs of the promises made by two candidates, the incumbent Bronisław Komorowski and the (successful, as it turned out) challenger, Andrzej Duda. Economists estimate that Komorowski’s promises would cost taxpayers between PLN18bn and PLN35bn over the 5-year presidential term. What his opponent declared would amount to an estimated PLN175bn to PLN292bn. To finance this, the annual budget deficit would have to be expanded by at least 70 per cent (calculations of the cost have been presented by, among others, Civil Development Forum and Association of Polish Employers).

The issue of the costs of the promises has resurfaced in the present parliamentary campaign. And it is with true delight that we see the idle, hate-filled battles over ideological issues such as the Smolensk catastrophe or “gender ideology” replaced with arguments on how parties are going to finance the changes they want to introduce once they are in power.

Rising civic awareness

Overly expensive promises could ruin the budget and, as a result – through the need to raise taxes, for example – upset the business environment, leading to a loss of confidence among investors and international economic institutions. If bad came to the worst, it could result in the repetition of the Greek scenario in Poland.

The recent popularity of debates on the costs of political promises in Poland may lead to a situation where parties will be afraid of losing votes due to financially unreasonable promises, and as a result the politicians will exercise more restraint in making promises concerning future economic policy. They will either give up touting budget-busting expenditures or plan specific revenue-generating measures to fund the promised expenses.

The debate would be best served if it were accompanied by a deeper reflection on the necessity of announcing costly expenditures – would they really improve people’s social and economic standing? For example, the idea of paying a monthly PLN500 per child to the majority of families could weaken the willingness to work among low-skilled workers or those re-entering the labour market after a long break (e.g. women after several years of maternity leave). Who would be able to take up employment only for a wage lower than the median salary of PLN3115 gross (e.g. for PLN2500)? The fact that costs of political promises are being debated should therefore incline Polish politicians to adopt a reasonable fiscal policy once they gain power.

The positive impact of the debate on future fiscal policy may prove negligible, yet at least it is teaching people to be sceptical and wary of the politicians’ proposals. The multi-billion amounts of the costs, repeated over and over again during the debates, have already woken voters up to the fact that planning the state budget is something else than good-heartedly raising a child’s pocket money by a few zloty –  as many politicians would have it.

It is easy to guess that the discussion on the costs and the potentially missing budget revenues is gradually convincing the public, who tend to have a down-to-earth attitude, that in the face of reality, the government won’t be able to provide too many freebies at a time, for all it might try. For example, it is increasingly clear to many that in the event of a sharp rise in social benefits, they could kiss goodbye a higher tax-free income threshold, however hard the politicians try to prove otherwise.

Citizens have learned to be sceptical

The debate on the costs of election promises is affecting people’s views on this matter, making them more sceptical, and their expectations of the post-electoral economic policy more rational. The relationship seems to some extent reciprocal: the Poles, no doubt thanks to the expansion of economic knowledge, want to hear and read about the costs of the politicians’ promises – or else the topic would not be that hot in the media.

Suspension of budgetary prudential thresholds in 2013 and the uncompromising transfer of assets from the Open Pension Funds (OFE) to the Social Insurance Institution (ZUS) in 2014 were the two events likely to have boosted Poles’ awareness of public finance issues, making them rather averse to further expansion of the public debt. These political decisions were generally ill-received. The number of people who, despite having to submit a declaration to ZUS, decided not to resign from their participation in OFE  is telling – as many as 2.5 million.

Another factor that may have influenced the public, including those uninterested in economic matters, is the general awareness of the economic crisis and the need for austerity it entailed. It can be hypothesized that exactly these events made Polish politicians realize that in the upcoming election campaign people would probably expect information on the costs and ways of financing the political promises, and would protest – whether in the form of an uncast vote or in on-line comments – against the actions leading to the growth of public debt.

Neither is the current dramatic position of the indebted Greece without significance. Press reports from that country show the public that they’d better not vote for politicians willing to run up public debt. Polish politicians no longer dare to say they would finance the costs of their promises with more debt. Rather, they are proposing to boost state revenues (even if some of their calculations are rather off-the-wall).

Debate over Beata Szydlo’s promises

Beata Szydlo is a candidate for PM of the major opposition party Law and Justice (PiS). During the party’s programme convention in Silesia on July 4, 2015 in addition to the estimate of the costs of the promises such as the PLN500 monthly allowance for every second and subsequent child (according to PiS – PLN22bn), Szydlo also indicated where she planned to get the money for her promises. As she assured, additional funds would come from, among others, the tightening of the tax system (PLN52bn) and from an additional tax imposed on banks and super- and hypermarkets (PLN8bn).

Importantly, not only did the candidate for prime minister present the calculation of changes in spending and revenues, but the presentation was immediately followed by a discussion of what was being offered in the Polish media. Instead of hearing empty slogans about the “fair living conditions” they were going to get, voters could learn whether the candidates had a reasonable approach to public finance or whether they were heading for a “second Greece”.

Reservations could be raised both to Szydlo’s calculations and the criticism launched against her by the competitors from the ruling Civic Platform (PO) and many independent economists. For instance, the increase of over PLN50bn in budget revenues due to the closing of tax system loopholes, as announced by Szydlo, seems completely unrealistic. In addition, it raises the concern that in order to meet this target, tax authorities will also prey on honest businesses. However, raising the tax-free income threshold to PLN8000, as proposed by PiS, may indeed reduce the budget revenues by a mere PLN10bn, and not PLN20bn. One has to remember that an increased amount of tax-free income may convince people previously unwilling to engage in professional activity or those working in the grey area to take up official employment.

Most importantly, the debate is going on: it could make the politicians prune their excessive proposals for fear of losing voters or of crushing criticism of the media and opponents – all to the benefit of the sustainability of public finance and the social and economic development of the country. For example, president Andrzej Duda and Beata Szydlo will have to decide whether the benefit of PLN500 is to be granted “for  every child” or “for every second and subsequent child” and what would be the income threshold to make potential beneficiaries eligible.

If the benefits were to apply to every child of all (even the most affluent) parents, the annual cost of would amount to over PLN40bn (for comparison, the total budget expenditure in 2015 will amount to PLN343bn). Economists also remind the politicians longing for the old retirement system that the costs of restoring the previous retirement age would not only include the short-term costs of several billion but also much larger long-term costs of this operation, in view of  the aging of the population.

Keep an eye on everybody

The weakness of the Polish debate on the costs and financing of election promises is undoubtedly focused on one party – PiS. And yet, PO is also proposing hefty expenditure: supplements to the lowest pensions, subsidizing the employment of young people, and even, according to media reports – zero income tax for people under 30. Even if the PO promises are less costly than those of PiS, the ruling party’ ideas are also worth watching closely. After all, its government has a record of dubious decisions such as the takeover of funds from OFEs or stubborn subsidizing of unprofitable state-owned companies, such as the LOT airlines.

One instance of the locus of the debate being shifted away from PiS is the act on assistance to the so-called Swiss-franc debtors. The act was adopted by the Sejm in August with the support of the MPs of the PO and the Polish People’s Party (PSL). According to the calculations of the Financial Supervision Authority (KNF), it will cost banks almost PLN22bn. The requirement to cancel part of every third Swiss-franc denominated mortgage, imposed by the state on the banks, will mean a loss of tax revenues, resulting not only from less tax paid directly by the banks, but also from the economic downturn caused, i.a. by the banks’ smaller propensity to extend investments loans.

It is worth noting that even the newly founded Nowoczesna.pl party, which, according to popular opinion is very far from fiscalism, is not free of costly promises, as it is willing to provide extensive state financing of in-vitro treatment for infertile couples.

Cost of promises not always discussed in the past

In comparison with the previous election campaigns, the emergence of analyses of the costs of the election promises is a new phenomenon in the Polish public debate. The only political proposal whose costs were criticized as widely as Szydlo’s current plans or the franc-debt legislation of the ruling coalition, was Lech Wałęsa’s promise from the 1990 presidential election, according to which every Pole was to receive PLN100m (after the 1995 zloty’s redenomination this would amount to approx. PLN30,000, adjusted for inflation in the years 1991-1995).

Not much attention was paid to the costs in the case of the fulfilled election promise of the Democratic Left Alliance (SLD) of 2001 – the “medicine for one zloty” reimbursement programme. In November 2002, the parliament accepted the legislation implementing this project. The critics of the programme – both political opponents of SLD, and the representatives of the medical profession –  pointed to such shortcomings of the programme as the limited list of cheap medicines, and the necessity to restrict the availability of “medicines for one zloty” only to those actually needing them.

During the parliamentary debate of the act, the issue of costs was raised several times: opposition MPs acknowledged that the amount allocated to the program was too small. “If we assume that the vast majority of pensioners receive medical treatment and take a wide range of drugs, then the amount of PLN28.3m allocated for this purpose is really symbolic” – insisted Tadeusz Cymański from PiS. “It should be understood that the PLN 28.3m is the measure of our social sensitivity. Anything above this amount is not available for the patients benefiting from this new form of aid” – proclaimed Ewa Kopacz ironically, then – as today – representing PO. Interestingly enough, rather than surrendering to the pressure of spending more money on “cheap medication”, the ruling party admitted in the words of Maria Gajęcka-Bożek: “Yes. Right now our sensitivity is limited to the amount of PLN28.3mn. As a state, we cannot afford more”.

In 2005, it was clear that the scandal-ravaged left wing had no chance of staying in power, and the government would be formed by either PiS or PO (for a long time, a PO-PiS coalition was almost certain). But did anyone debate on the costs of PiS flagship promise –  the memorable plan to build 3 million flats? The answer is, no. Indeed, the idea of building millions of apartments was (and still is) often derided as a classic example of politicians going back on their promises after they win the election, but during the government of Kazimierz Marcinkiewicz (2005-2006) there was no discussion of the costs of such a bold promise. It was only Marek Zuber, then serving as economic adviser to Marcinkiewicz, who calculated that the proposal would involve with an almost unbearable cost – for example, housing subsidies would reach PLN18bn in 2012, and this only including the expenditure of one financial year.

It seems that for the first time the costs of the election proposals seriously entered the Polish public debate as a result of the 2001 FOR analysis entitled “The estimated costs of election promises”. The authors presented in detail how the promises of the six parties, which, according to the polls, had a chance of winning seats in the parliament, may reduce or expand the budget deficit. PSL’s plan proved the most expensive – if it were to be implemented during one term of office of the Sejm, the state would have to spend an additional PLN200bn. Since the release of the FOR analysis, the issue of the costs of the politicians’ promises has enjoyed more attention from the media and the public than in older times, when the consequences of electoral promises for the public finance were rarely considered.

Debate is important, but…

The new custom according to which politicians present the costs and ways of financing of their electoral promises shows that Polish voters are no longer happy with empty slogans. This is a sign of Polish democracy and political culture becoming more mature, amidst many still existing shortcomings. Mindful of the necessity to rationally plan the expenditures and not to allow them to be financed with debt, however, we cannot forget that, besides the numbers representing the costs of the political promises, their content is also important.

One should criticize, for example, any announcements of further programmes such as state-owned Polish Investments for Development, whose activities thus far have shown how inept state-run institutions are at boosting investment. But a programme to build affordable housing for rent would be reasonable, even if it were to cost PLN20bn –  provided that it would indeed enable young people with poor credit standing to become independent, thus liberating young families of the perspective of handing over half of their income to the banks for 30 years.

 

The criticism of the costs of promises should not lead to the other extreme, i.e. abandoning any actions that might temporarily increase expenditures or reduce state revenues. And this is how one could construe the criticism of the PiS proposal to increase the tax-free income threshold, levied by PO and the Prime Minister Ewa Kopacz, without an alternative comprehensive solution which would enable helping the lowest earners – at a lower cost.

The author is the co-founder of the Prawdometr Europejski (European Lie Detector) website, which assesses the truthfulness of the statements made by politicians.

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