Monday, February 14, 2011

PO's 'feet' trouble

Civic Platform (PO) and government members have been doing a very good job sticking their proverbial 'feet' in their mouths of late. That is, when they are not offending critics of their glorious reign. It appears they are also adept at shooting themselves in their "feet."

Prof Jerzy Hausner, a former economy minister and current central banker, noted Monday the government itself was to blame for changing public finance law in a way that made it more painful to cross a lower level of public debt. Thus, any reform now required to avoid public debt passing the threshold is in more ways than one the government's fault.

The issue centres on Poland's public-finance law, which sets out limits for public debt and then lays out mandatory actions should those levels be crossed. Three levels exist at 50% of GDP, 55% and 60%. Surpassing 50% does not do anything much. But exceeding 55% -- debt is now near this level -- does as it would force the government to slash spending and jack up taxes in search of a balanced budget. Public sector wage increases are precluded, among other actions. In short, the fit hits the shan.

The funny thing, as Hausner rightly remembers, is that the PO-led government changed the public finance law in 2008-2009 to make it tougher. In an amendment that went into effect in 2010, the key change was to make crossing the 55% level painful, not 60% as previously.

The government thus made it easier to trigger the mandatory pain at precisely a time when public debt was growing fast. This does not seem like the best of ideas. The situation is even worse since it is actively reversing a previous reform and just hiked the VAT to avoid crossing a debt level it made harsher itself just a year or so ago.

I suppose the question is the following: with one foot in its mouth and the other shot off how is the PO going to take any steps forward?

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