Monday, April 22, 2013

Austerity schemerity?

I will pay thousands of zloty more tax this year because of a fiscal reform measure put in place last year that in the end sharply increases the tax on journalists, actors, musicians, professors and others deemed to have copyright. I understand the need for fiscal consolidation. I just have to do my bit, right? We all just have to do our bit. 
Despite lots of bit doing, Poland's government missed its general government deficit target by a full percentage point in 2012, according to a Monday announcement from the European Union's statistics office. The Finance Ministry originally expected a deficit equal to 2.9% of gross domestic product, or economic output. It actually hit 3.9%. 
In my books, that's a pretty big miss. Finance Minister Jacek Rostowski blamed the overshoot on the slowdown in the wider EU and weak external demand, which has a knock-on effect on the Polish economy. He also blamed the Monetary Policy Council as if Polish interest rate cuts have some massive impact on economic growth (but that's the subject of another post). 
Rostowski said more fiscal austerity would be put in place in 2013 in order to cut the deficit to levels allowing Poland to be removed from the excessive deficit procedure (EDP), the EU's club for fiscal bad boys. Right now 20 of the EU's 27 countries are part of the club, making it not the most exclusive of clubs. 
Cue European Commission President Jose Manuel Barroso, who said Monday that EU-wide austerity is reaching the limit, both in terms of effectiveness and public support. Barroso's viewpoint is not the exception. More and more EU officials have in fact said or signaled that the focus on austerity has been overdone and attention must be paid to growth.
But then why should I pay more tax? Why should anyone? Why should the common person suffer austerity if it is overdone, no one supports it and it does not seem to be working? 
My point is not that hunting for prudent public finances is bad. I believe the opposite in fact. Rather, I reckon it is hard to ask people to bear pain if they constantly hear their leaders second-guessing the very effectiveness of that pain. Moreover, why would global markets believe Europe has turned some corner if it seems everyone doubts the road taken so far and the way ahead as well.

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