Professor Stanisław Gomułka: Radical deficit reduction should be Poland's main fiscal policy goal over the next 20 years

Yesterday's mBank-CASE seminar on the Polish tax system (June 22, 2017) started with comments from Professor Gomułka (chief economist of the BCC), on challenges for the Polish economy and the tax system over the next 20 years.

“Since 1991, we have had many changes in the tax system, but one thing has remained unchanged: the public sector deficit has ranged from close to 2% of GDP to slightly above 7% of GDP, averaging about 4%. Such a significant deficit thus became one of the main principles of the state's fiscal policy thus far (….) The negative consequences (of such a policy) after 1991 were relatively moderate in scale, because in the 1990s nominal GDP was growing very quickly, which limited the growth of the relationship of debt to GDP. In the next 20 years we have a fundamentally different situation, because both inflation and real GDP growth already are, and will certainly remain in the next few years, much lower than the average in the previous 20 years.

“In this new situation, the balance of public sector finances should definitely be in a range from a surplus of 2% of GDP during times of growth, to a deficit of 2-3% during recessions. This means a need for a lasting improvement in the average level by about 3 percentage points of GDP, from the level of about 4% to a level of about 1%. Achieving this goal is a necessary as well as a sufficient condition for the stability of public finances. It is also a necessary condition, though perhaps not sufficient, for Poland's entry to the Eurozone and the maintenance of economic development at a rate allowing further reduction of the development gap with respect to Germany and the other countries of the old EU.”

Professor Gomułka's comments were published by the Rzeczpospolita daily (link in Polish).