The Polish finance ministry said it expected the European Commission to initiate a so-called excessive deficit procedure (EDP) against the country.
According to Poland’s Central Statistical Office calculations, the Polish general government deficit reached 5.1 per cent of GDP in 2023, compared to 3.5 per cent in 2022.
The EC may activate an EDP if a European Union Member State breaches the deficit threshold of 3 per cent of GDP in the public finance sector, known as the general government deficit in the EU’s terminology.
The EDP is designed to encourage EU countries to correct excessive deficit and/or debt levels.
Due to the Covid pandemic, the EC has not been applying the procedure as it was recognised all governments faced extraordinary circumstances meaning they probably could not keep to the EC recommended limits.
The war in Ukraine added to the problems facing EU nations’ budgets but earlier this year the EC returned to its fiscal policy guidelines that were frozen from 2020 to 2023.
In its briefing to the Polish Press Agency (PAP) on April 9, the Polish finance ministry warned that Poland was facing an EDP.
“According to the EC’s latest forecasts published this spring, the EC may place 13 EU countries, including Poland, under the excessive deficit procedure,” said the ministry, adding that a similar situation occurred in 2009-2010 in the wake of the financial crisis.
The ministry stressed that Poland would be pushing for the EC to factor in the high demands the Ukraine conflict had placed on the country, resulting in debt that exceeded the limit.
“According to the Ministry of Finance, Poland’s high deficit is the result of the war in Ukraine and Poland’s massive spending on modernising the army, reducing the impact of the energy crisis and helping refugees from Ukraine,” stated the ministry.
It has also acknowledged that the EU was reforming its economic governance framework, including fiscal rules. The new provisions are set to extend the period for correcting any excessive deficit from four to seven years and will be more lenient for countries that have increased defence spending.
Poland has over the past three years ramped up its defence spending from 2.1 per cent of GDP to 3.9 per cent in the wake of the Russian invasion of Ukraine.
The Donald Tusk-led Polish Government, which came into office in late 2023 replacing the Conservatives (PiS) that had ruled for eight years, has decided to honour some social spending and all defence spending commitments of its predecessor. That has increased the budget deficit for 2023 by approximately €5 billion.
As a result of the growing deficit, the Government has put on hold the implementation of election promises such as doubling the income-tax threshold, reducing capital gains tax and making concessions for business and the self-employed with regard to social security contributions.
It is also reviewing large capital spending projects such as on the central airport and transport hub, has reintroduced the 5 per cent VAT rating on food and is to reduce energy price subsidies.
