COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Poland following the adoption of the COUNCIL RECOMMENDATION to Poland of 2 December 2009 with a view to bringing an end to the situation of an excessive government deficit Accompanying the document Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in Poland
Date: 2013-05-29
Institutions: European Commission
Subjects: Poland, budget deficit, budgetary equilibrium, economic statistics, stability pact, tax reform

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 393 final 

COMMISSION STAFF WORKING DOCUMENT 

Analysis by the Commission services of the budgetary situation in Poland following 
the adoption of the COUNCIL RECOMMENDATION to Poland of 2 December 2009 
with a view to bringing an end to the situation of an excessive government deficit 

Accompanying the document 

Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to bringing an end to the situation of an excessive government deficit in 
Poland 

{COM(2013) 393 final}

EN 

   EN 

 
 
 
 
 
  
 
 
1. 

INTRODUCTION  

On  7  July  2009,  the  Council  decided,  in  accordance  with  Article  104(6)  of  the  Treaty 
establishing the European Community (TEC), that an excessive deficit existed in Poland and 
issued a recommendation to correct the excessive deficit by 2012 at the latest1, in accordance 
with Article 104(7) TEC and Article 3 of Council Regulation (EC) No 1467/97 of 7 July 1997 
on speeding up and clarifying the implementation of the excessive deficit procedure2. In order 
to  bring  the  general  government  deficit  below  3%  of  GDP  in  a  credible  and  sustainable 
manner, the Polish authorities were recommended to implement the fiscal stimulus measures 
in 2009 as planned, ensure an average annual structural budgetary adjustment of at least 1¼% 
percentage points of GDP starting in 2010, spell out detailed measures that are necessary to 
bring the deficit below the reference value by 2012 and introduce reforms to contain primary 
current expenditure over the following years. The Council established a deadline of 7 January 
2010 for effective action to be taken. 

On 3 February 2010, the Commission concluded that based on the Commission services' 2009 
autumn  forecast,  Poland  had  taken  necessary  action  in  compliance  with  the  Council 
recommendation  of  7  July  2009  to  bring  its  government  deficit  below  the  3%  of  GDP 
reference value and considered that no additional step in the excessive deficit procedure was 
therefore necessary. On the basis of its 2011 autumn forecast, the Commission considered that 
Poland was not on track and asked for additional measures, which Poland provided. Thus, on 
11  January  2012  the  Commission  confirmed  that  the  Polish  authorities  had  taken  effective 
action towards a timely and sustainable correction of the excessive deficit and no further steps 
in the excessive deficit procedure of Poland were needed at the time3. 

This  document  provides  an  assessment  of  whether  Poland  has  undertaken  effective  action 
towards  the  correction  of  its  excessive  general  government  deficit,  and  suggests  a  new 
adjustment  path  that  would  durably  bring  the  general  government  deficit  below  the  3%  of 
GDP  threshold.  In  particular,  the  document  examines  the  budgetary  developments  since  the 
Commission Communication to the Council on action taken as of 3 February 2010. 

2. 

RECENT  MACRO-ECONOMIC  AND  BUDGETARY  DEVELOPMENTS  AND  OUTLOOK  FOR 
2014 

Poland  has  seen  relatively  resilient  economic  activity  in  2009-2012,  albeit  with  real  GDP 
growth below potential, as a result of the global economic and financial crisis. The real GDP 
increase of 1.6% in 2009 was mainly driven by fiscal and monetary policy easing, inflows of 
EU  funds  financing  infrastructure  investments  and  a  currency  depreciation.  The  pick-up  in 
exports and the rebound of domestic demand led to a recovery in 2010 and 2011, when real 
GDP  grew  by  3.9%  and  4.5%,  respectively.  GDP  growth  in  2010  was  well  above  the  0.8% 
expected  in  the  Commission  services'  2009  spring  forecast  (see  Table  1),  which  was 

1 

2 
3 

All documents related to the excessive deficit procedure of Poland can be found at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/poland_en.htm 
OJ L 209, 2.8.1997, p. 6. 
Communication from the Commission to the Council on assessment of budgetary implementation in the 
context  of  the  ongoing  Excessive  Deficit  Procedures  after  the  Commission  services'  2011  autumn 
forecast - COM(2012) 4 final, 11.1.2012. 

2 

 
 
                                                 
 
underlying  the  EDP  recommendation.  The  Commission  services'  2009  spring  forecast 
expected the closure of the output gap beyond the forecast horizon and implicitly assumed a 
growth rate of the Polish economy around its potential one in outer years.  

In reality, the Polish economy slowed down sharply in 2012 with real GDP growth of 1.9%. 
Investment,  especially  construction,  was  held  back  by  government  consolidation,  subdued 
credit  growth  and  households  refraining  from  real  estate  purchases.  As  a  result  of  only 
moderately  increasing  real  disposable  income  and  faltering  confidence  private  consumption 
grew by 0.8%, the lowest ever, in 2012. A positive contribution to growth from net external 
demand  was  a  result  of  modest  export  growth  by  2.8%,  particularly  services  growing  by 
6.5%, and import falling by -1.8% due to weak domestic demand. 

Table 1: Comparison of macroeconomic developments and forecasts 

2009

2010

2011

2012

outturn outturn

Real GDP (% change)

1.6

3.9

Contrib utions to real GDP growth

COM SF 
2009
0.8

outturn

4.5

COM SF 
2009
n.a

outturn

1.9

COM 
SF 2009
n.a.

COM SF 
2009
n.a.

2013
COM SF 
2013
1.1

CP 2013

1.5

COM SF 
2009
n.a.

2014
COM SF 
2013
2.2

Net exports

Final domestic demand

Changes in inventories

Employment (% change)

n.a
n.a
n.a
n.a
n.a
Output gap
n.a
Potential output growth
n.a
Source: COM SF 2009 - Commission services' 2009 spring forecast; COM SF 2013 - Commission services' 2013 spring forecast; CP 2013 - 2013 update of the Convergence Programme

1.3
-2.4
2.7
0.4
3.7
1.0
3.7

0.3
-0.5
2.1
0.2
2.7
-0.7
3.6

1.6
0.0
0.6
-0.2
1.7
-2.8
2.7

0.2
0.0
0.9
-0.4
1.4
-2.4
2.9

0.8
0.0
0.8
-0.3
1.5
-3.1
3.3

2.6
2.0
-0.7
0.5
1.4
1.1
3.9

0.1
0.0
0.7
-1.4
1.6
-3.8
3.2

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

3.0
0.6
0.9
1.0
3.1
0.8
4.5

GDP deflator (% change)

CP 2013

2.5

2.7
0.5
-0.1
0.0
2.2
-3.7
3.1

The Commission services' 2013 spring forecast projects an increase in real GDP of only 1.1% 
in 2013 and significantly more negative output gap of -2.4%. Private consumption is forecast 
to grow by 0.8% due to falling employment, subdued wage growth and households rebuilding 
their  savings.  The  trend  in  gross  fixed  capital  formation,  particularly  in  infrastructural 
construction,  is  set  to  remain  negative  with  a  decline  of  2.6%,  reflecting  further  fiscal 
consolidation,  weak  external  demand  and  subdued  credit  growth.  Due  to  the  expected  slow 
recovery  of  the  global  economy,  export  volumes  are  forecast  to  increase  by  only  2.6%. 
Meanwhile,  imports  are  expected  to  increase  by  0.6%  in  line  with  final  demand  growth.  In 
total, these trends are projected to result in a limited contribution of net external demand to 
growth, amounting to 0.9 pps. In 2014, some pick up of the economy with real GDP growth 
of 2.2% is expected, although this is subject to risks in both directions depending on the speed 
of global recovery. Moreover, on the upside, a weaker currency would further boost exports 
and  enhance  import  substitution.  On  the  downside,  a  further  deterioration  in  consumer  and 
business  confidence  might  lead  to  an  even  more  risk-adverse  behaviour  of  consumers  and 
companies, delaying the pick-up in investment and consumption. 

The general government deficit had jumped to 7.4% of GDP in 2009 (from 3.7% of GDP in 
2008) due to a sizeable fiscal stimulus and strong, in-built expenditure dynamics predicated 
on high growth. After the excessive deficit procedure was launched, consolidation measures 
in  2010  targeted  the  public  sector  wage  bill,  current  spending  and  increased  excise  duties. 
Despite these consolidation measures of 0.6% of GDP the headline deficit increased to 7.9% 
of  GDP  in  2010,  driven  by  a  sizeable  increase  in  public  investment  (0.4%  of  GDP)  and 
intermediate  consumption  (0.5%  of  GDP).  Since  2011,  the  headline  deficits  have  been 
influenced by continued consolidation effort, including cuts in social contributions transferred 
to open pension funds, increases in VAT rates and revenue-increasing changes in other taxes, 
the introduction of a temporary expenditure rule and cuts in spending on active labour market 
policies. Thus, the headline deficit decreased to 5% of GDP in 2011.  

3 

 
 
 
The general government deficit, as validated by Eurostat, reached 3.9% of GDP in 2012. The 
2012  deficit  outturn  is  higher  than  the  3.5%  of  GDP  publicly  announced  by  the  Polish 
authorities  in  September  2012.  In  particular,  interest  expenditure  and  social  transfers  were 
higher  than  projected.  On  the  revenue  side,  indirect  taxes,  VAT  in  particular,  were 
substantially lower than forecast. An even worse outcome was prevented by lower execution 
of public investments, partly counterbalanced by lower capital transfers received.  

The  Commission  services'  2013  spring  forecast  projects  the  general  government  deficit  at 
3.9% of GDP in 2013 (against Poland's deficit target for 2013 of 3.5% of GDP) and, under a 
no-policy-change  assumption,  at  4.1%  of  GDP  in  2014.  Taking  into  account  additional 
measures  contained  in  the  2013  update  of  the  Polish  Convergence  Programme  (CP),  which 
was published after the cut-off date of the Commission services' 2013 spring forecast hardly 
change the assessment. For 2013 the CP does not incorporate new discretionary measures for 
2013. Although the CP update envisages keeping VAT rates at their current level instead of 
lowering  them,  the  inclusion  of  this  measure  would  according  to  Commission  estimates 
reduce the 2014 deficit to 3.7% of GDP. The baseline scenario (see Table 4) used in this staff 
working document takes this measure into account when discussing the new adjustment path. 

The main downside risk to budgetary targets in 2013 and beyond is – based on past evidence 
– strong procyclicality of indirect and direct tax revenues, below standard revenue elasticities 
used in the forecast. In particular, it was experienced in 2012 when, despite an increase in the 
tax base, indirect tax revenues fell driven by an increase in VAT refunds and VAT arrears.  

Public debt declined to 55.6% of GDP in 2012 from 56.2% of GDP in 2011. The Commission 
services’ 2013 spring forecast projects its increase to 57½% of GDP in 2013 and, based on a 
no-policy-change  assumption,  to  almost  59%  of  GDP  in  2014.  Stock-flow  adjustments 
contributed to the debt decrease in 2012.  

3. 

EFFECTIVE ACTION 

3.1. 

Background information 

The  current  assessment  of  the  effective  action  is  based  on  the  Commission  services'  2013 
spring forecast. It takes into account the economic and budgetary developments since the last 
Council recommendation under Article 104(7) TEC was issued in July 2009. The assessment 
starts  by  comparing  the  recommended  fiscal  effort  in  the  Council  recommendation,  the 
apparent fiscal effort, measured by the change in structural budget balance, and the adjusted 
structural effort. The adjustment of the structural balance takes into account (i) the impact of 
revisions  in  potential  output  growth compared to that underlying  the growth scenario in the 
Council  recommendation,  and  (ii)  the  impact  on  revenue  of  revisions  of  the  tax  content  of 
economic activity (composition of economic growth or of other windfalls/shortfalls) relative 
to  what  is  implied  by  long-term  standard  elasticities.  This  top-down  approach  in  the 
assessment  is  complemented  by  a  careful  analysis,  including  a  bottom-up  assessment  of 
consolidation measures undertaken by the Polish government.  

3.2. 

Assessment of effective action 2010-2012 - overview 

The structural deficit decreased from 8.3% of GDP in 2010 to 5.4% of GDP in 2011 and 3.8% 
of GDP in 2012. The Commission services' 2013 spring forecast projects its decline to 3.3% 

4 

 
 
of  GDP  in  2013.  The  average  annual  apparent  fiscal  effort  over  the  period  2010-2012  is 
estimated  at  1.5%  of  GDP.  When  adjusted  for  the  significant  upward  revision  in  potential 
output  growth  since  the  time  when  the  recommendation  was  issued  (-0.3  pp.)  and  for 
unexpectedly  low  (compared  to  that  implied  by  the  standard  elasticities)  growth  rate  of 
revenues (+0.4 pp.), the average annual adjusted structural effort (1.6% of GDP) exceeds the 
recommended average annual fiscal effort (1¼% of GDP) over 2010-2012 (see Table 2).  

Table  2:  Change  in  the  structural  balance  corrected  for  revisions  in  potential  output  gap 
and revenue windfalls/shortfalls 

Un-corrected average 
effort up (dS)
up until 
2011
1.4

up until 
2012
1.5

-0.1

2010

Corrected average effort 

2010

-0.3

up until 
2011
1.3

up until 
2012
1.6

Required fiscal effort in the latest 
2009 Council recomendation

Deadline for 
correction

2010 - 2012

1 1/4

2012

Source: Commission services’ 2013 spring forecast and Commission services’ calculations

Table 3: Composition of the budgetary adjustment 

2009

outturn

2010

2011

2012

2013

2014

COM SF 
2009

outturn

COM SF 
2009

outturn

COM SF 
2009

outturn

COM SF 
2009

COM SF 
2013

CP 2013

COM SF 
2009

COM SF 
2013

CP 2013

%  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP

Revenue

of which:

- Taxes on production and imports

- Current taxes on imcome, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

      of which:

37.2

39.7

37.5

12.8

7.4

11.3

5.6

44.5

14.5

8.2

11.4

5.5

46.3

13.6

6.9

11.1

5.9

45.4

41.9

43.4

42.7

     - Compensation of employees

     - Intermediate consumption

     - Social payments

     - Subsidies

     - Gross fixed capital formation

     - Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures

(Recalculated) structural balance

Change in structural balance

Real GDP growth

GDP deflator

Nominal GDP

10.3

5.7

16.9

0.5

5.2

3.3

2.6

-7.4

-4.7

0.3

-8.2

1.6

3.7

5.4

10.4

6.1

17.5

0.8

5.5

3.1

2.9

-7.3

-4.4

-0.2

-5.6

0.4

0.8

1.6

2.4

10.2

6.2

17.0

0.5

5.6

3.2

2.7

-7.9

-5.2

0.0

-8.3

-0.1

3.9

1.4

5.4

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

38.4

13.8

7.0

11.4

6.2

43.4

40.7

9.7

0.6

16.2

0.5

5.7

8.0

2.7

-5.0

-2.3

0.0

-5.4

3.0

4.5

3.2

7.9

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

38.4

12.9

7.2

12.3

6.0

42.3

39.5

9.7

5.6

16.4

0.4

4.6

2.9

2.8

-3.9

-1.1

0.1

-3.8

1.6

1.9

2.5

4.4

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

37.6

12.7

6.9

12.2

5.8

41.6

38.9

9.6

5.5

16.7

0.4

3.8

2.9

2.7

-3.9

-1.3

0.2

-3.3

0.5

1.1

1.4

2..5

37.8

12.8

6.9

12.2

5.9

41.3

38.6

9.7

5.5

16.4

0.3

3.8

2.9

2.7

-3.5

-0.8

0.1

-2.7

1.0

1.5

1.5

3.0

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

36.9

37.2

12.2

7.1

12.1

5.5

41.0

12.8

6.9

12.0

5.5

40.5

38.4

38.1

9.5

5.5

16.7

0.4

3.6

2.8

2.5

-4.1

-1.5

0.0

-2.9

0.4

2.2

1.7

3.9

9.5

5.3

16.2

0.4

3.5

3.2

2.4

-3.3

-0.9

0.0

-2.2

0.5

2.5

2.2

4.8

Source:  COM SF 2009 - Commission services' 2009 spring forecast; COM SF 2013 - Commission services' 2013 spring forecast; CP2013 - Convergence Programme 2013

The cumulative size of discretionary consolidation measures over 2010-2012 is estimated at 
some  4.3%  of  GDP  using  the  bottom-up  approach  (see  Box  1  for  the  list  of  the  main 
measures). These measures have targeted in particular indirect taxes, disability contributions, 
contributions to open pension funds, public sector (excluding local government) wage bill and 
intermediate consumption (see Table 4). 

5 

 
 
 
 
 
 
3.3. 

Budgetary implementation in 2010  

Despite  the  launch  of  the  excessive  deficit  procedure,  the  general  government  deficit 
continued to increase in 2010, which was due to a sizeable stimulus package conducted within 
the  European  Economic  Recovery  Plan  (EERP)  to  counteract  the  financial  and  economic 
crisis  consequences.  As  a  result,  the  general  government  deficit  deteriorated  from  7.4%  of 
GDP  in  2009  to  7.9%  of  GDP  in  2010,  which  was  also  reinforced  by  the  fact  that  the 
authorities  planned  to  back-load  the  consolidation  to  the  following  years.  Overall,  the 
structural consolidation measures applied were rather limited and amounted to roughly 0.6% 
of  GDP  in  2010.  At  the  same  time,  the  structural  deficit  increased  by  0.1%  of  GDP. 
Accounting for the upward revision of potential output growth since the time of the Council 
recommendation would decrease the annual apparent fiscal effort in 2010 by around 0.3 pp. 
On the other hand, the revenue grew at a lower rate than what would have been implied by the 
GDP increase based on standard elasticity for Poland (in particular due to lower than expected 
corporate income tax revenues) which increased the annual apparent fiscal effort in 2010 by 
around 0.1 pp. Accordingly, the annual adjusted structural effort amounted to -0.3% of GDP 
in 2010. 

3.4. 

Budgetary implementation in 2011 

In 2011 the general government deficit fell sharply to 5.0% of GDP as a result of continued 
economic growth and ambitious consolidation efforts by the government. On the revenue side 
a number of measures were introduced that led to a noticeable increase in revenues expressed 
as a share of GDP (from 37.5% to 38.4%). These included: a change to the pension system 
consisting  of  the  retention  of  part  of  the  pension  contribution  previously  earmarked  to  the 
private  schemes  in  the  first  public  pillar,  a  temporary  (for  three  years)  increase  in  the  VAT 
rate  (of  1  pp.)  and  in  excise  duty  on  tobacco,  the  abolition  of  some  VAT  and  excise  duty 
exemptions and a freeze in Personal Income Tax (PIT) thresholds. On the expenditure side the 
structural measures included: introducing a temporary expenditure rule limiting growth in all 
newly enacted and existing discretionary expenditure items to 1 pp. over the inflation rate, a 
further freeze in the wage fund of public sector employees, introducing the rule obliging the 
local  governments  to  balance  the  current  spending  and  some  minor  cuts  in  social  spending. 
These measures have been complemented by a decrease in complementary direct payments to 
farmers in the framework of the Common Agricultural Policy. Overall, the total discretionary 
measures introduced in 2011 amounted to 2.1% of GDP.  

At the same time, the structural deficit decreased by 2.9% of GDP in 2011. Accounting for the 
upward  revision  of  potential  output  growth  since  the  time  of  the  Council  recommendation 
would decrease the annual apparent fiscal effort in 2011 by around 0.3 pp. On the other hand, 
the  revenue  grew  at  a  lower  rate  than  what  would  have  been  implied  by  the  GDP  increase 
based  on  standard  elasticity  for  Poland  which  increased  the  annual  apparent  fiscal  effort  in 
2011 by around 0.3 pp. The effect of these two corrections cancelled out, and thus the annual 
adjusted structural effort amounted to 2.9% of GDP in 2011. 

6 

 
 
 
Revenue 

Expenditure

Box 1. Main budgetary measures 

Changes in excise duties (+0.18%) 

Freeze of public wages (-0.4%) 

2010 

2011 

Amendment of the pension reform (+0.6 %) 

Expenditure  rule  (including  nominal  freeze  in  wage 

Increase in VAT rates by 1 pp (+0.4 %) 

fund, except for teachers) (-0.5 %) 

Cuts  in  spending  on  active  labour  market  policies  (-

Nominal freeze of PIT thresholds (+0.1 %) 

0.3 %) 

Abolition  of  VAT  reimbursement  for  company  cars 

and fuel (+0.1 %) 

Changes in excise duty regulations (+0.1 %) 

2012 

Amendment of the pension reform (+0.5 %) 

Expenditure  rule  (including  nominal  freeze  in  wage 

Changes in excise duty regulations (+0.15 %) 

fund) (-0.1 %) 

Decrease  in  complementary  payments  to  farmers  (-

Increase in disability contribution rate (+0.5%) 

0.1 %) 

Tax on copper and silver extraction (+0.13 %) 

Increase in dividends from state-owned companies due 
to exceptionally high profits (+0.1 %) (one-off) 

Note: A positive sign implies that revenue / expenditure increases as a consequence of this measure. Annual budgetary impacts are estimated 

by the Commission services and expressed as a % of GDP. Measures with a budget impact of at least 0.1% of GDP are listed. 

3.5. 

Budgetary implementation in 2012 

According  to  the  actual  data  reported  in  the  EDP  notification  of  April  2013,  the  general 
government deficit for 2012 amounted to 3.9% of GDP in nominal terms.  

On the revenue side, the main consolidation measures enacted in 2011 continued to remain in 
force  in  2012,  i.e.  retention  of  additional  part  of  the  pension  contribution  previously 
earmarked  to  the  private  schemes  in  the  first  public  pillar,  a  further  raise  in  excise  duty  on 
tobacco, the full year effect of the abolition of some VAT and excise duty exemptions in the 
course of 2011 and a further freeze in PIT thresholds. In addition, the 2012 budget included 
new measures, namely a 2 pp. increase in the disability contribution rate, an introduction of a 
tax on copper and silver extraction and further changes in excise duty regulations. Moreover, 
the government received one-off revenues from dividends of state-owned companies. On the 
expenditure side, structural measures which have  remained  in  force  from  2011  included:  an 

7 

 
 
 
expenditure rule limiting growth in all newly enacted and existing discretionary expenditure 
items  to  1  pp.  over  the  inflation  rate,  a  further  freeze  in  the  wage  fund  of  public  sector 
employees and some minor cuts in social spending. These measures were complemented by a 
decrease  in  complementary  direct  payments  to  farmers  in  the  framework  of  the  Common 
Agricultural Policy. Moreover, after the peak in first quarter of 2012, the government sharply 
cut  public  investment  expenditure.  Overall,  total  discretionary  measures  of  some  1.6%  of 
GDP were taken, most of them (almost 1.4% of GDP) on the revenue side.  

The  structural  balance  also  improved  by  1.6%  of  GDP  in  2012.  Accounting  for  the  upward 
revision  of  potential  output  growth  since  the  time  of  the  Council  recommendation  would 
decrease the annual apparent fiscal effort in 2012 by almost 0.3 pp.. On the other hand, the 
revenue grew at a lower rate than what would have been implied by the GDP increase based 
on standard elasticity for Poland. This was largely due to indirect taxes. This revenue shortfall 
increased the annual apparent fiscal effort in 2012 by almost 0.7 pp.. Accordingly, the annual 
adjusted structural effort amounted to 2% of GDP in 2012. 

4. 

PROPOSED NEW ADJUSTMENT PATH 

Based  on  the  final  2012  data  confirmed  by  Eurostat,  Poland  did  not  correct  its  excessive 
deficit  by  the  2012  deadline  established  in  the  Council  Recommendation  of  7  July  2009. 
However, the average annual adjusted structural effort (1.6% of GDP) taking account of the 
impact  of  revisions  in  potential  output  growth  and  of  revisions  of  the  revenue  content  of 
economic activity relative to what is implied by the standard long-term elasticities was above 
the level recommended by the Council (1¼ % of GDP). It therefore appears justified to issue 
a  revised  EDP  recommendation  and  to  extend  the  deadline  for  correction  of  the  excessive 
deficit. 

In  order  to  reduce  the  deficit  below  the  3%  of  GDP  threshold  by  2013,  thus  extending  the 
deadline  by  one  year,  the  required  structural  effort  would  amount  to  at  least  1.4%  of  GDP. 
Such a yearly effort would be higher than requested in the Council Recommendation of 7 July 
2009  (1¼  %  of  GDP),  despite  the  fact  that  fiscal  risk  has  fallen  since  2009  as  the  headline 
deficit is at a much lower level and debt remains below the 60% threshold. As a consequence, 
a more gradual pace of consolidation is affordable as it would also reduce output costs, which 
would  be  sizeable  if  a  correction  had  to  be  done  in  2013.  Finally,  the  introduction  of 
additional measurers of about 1% of GDP in the second half of 2013 would practically not be 
feasible  due  to  the  required  legislative  process.  In  view  of  the  above  and  in  line  with  the 
flexibility foreseen in the Stability and Growth Pact, an extension of the deadline to correct 
the excessive deficit by two years is warranted.  

Correcting the excessive deficit by 2014 would be commensurate with intermediate headline 
deficit targets of 3.6% of GDP for 2013 and 3% of GDP for 2014 (see Table 4 and Table 5).  

Improvements in the structural budget balance implied by these targets are at 0.8% of GDP in 
2013 and 1.3% of GDP in 2014, resulting in 1.1% of GDP on average. Although the required 
average annual fiscal effort is slightly lower than the one specified for the period 2010-2012 
in  the  last  Council  recommendation,  it  takes  into  account  that  Poland  has  only  limited  time 
left in 2013 to adopt and implement required measures.  

8 

 
 
The baseline scenario (see Table 4) is an updated version of the Commission services’ 2013 
spring forecast taking into account measures publically announced in the Polish convergence 
programme after its cut-off date, in particular keeping the VAT rate at its current level in 2014 
instead  of  lowering  it.  A  strict  implementation  of  adopted  savings  measures  (including  the 
nominal freeze in the wage fund), adoption and implementation of announced and budgeted 
savings measures, as well as additional measures of about 0.4% of GDP in 2013 and 0.4% of 
GDP in 2014 are needed to cut the excessive deficit by 2014.  

At  the  current  juncture  of  the  economic  cycle  with  growth  significantly  decreasing,  it  is 
important  to  minimise  negative  impact  of  consolidation  measures  on  growth.  Moreover, 
uncertainty  surrounding  the  impact  of  the  measures  taken  requires  close  monitoring  and 
further  corrective  action.  Furthermore,  (i)  improving  the  quality  of  public  finances,  in 
particular  through  minimising  cuts  in  growth-enhancing  investments,  a  careful  review  of 
expenditures and their efficiency; (ii) better tax compliance and an increase in the efficiency 
of  tax  administration  and  (iii)  making  the  framework  of  public  finances  more  binding  and 
transparent,  including  through  a  permanent  expenditure  rule  (consistent  with  ESA)  on  the 
general government budget could underpin the consolidation efforts further. 

Table  4  –  Forecast  of  key  macroeconomic  and  budgetary  variables  under  the  baseline 
scenario 

% of GDP
Revenues 
Current revenues

Discretionary measures with impact on current revenue*

2012
38.4
37.0

1.4

2013
37.6
36.3

0.2

2014
37.3
36.2

-0.2

Expenditure
Real GDP growth (%) 
Nominal GDP growth (%) 
Potential GDP growth (%) 
Structural balance
General government balance
General government debt
p.m CAB methodology revenue elasticity
p.m Apparent revenue elasticity
p.m Output gap (% of potential output)
*Measures clearly specified and committed to by governments ahead of the recommendation

41.6
1.1
2.5
2.8
-3.3
-3.9
57.5
0.8
0.3
-2.3

42.3
1.9
4.4
3.6
-3.8
-3.9
55.6
0.8
1.2
-0.7

41.0
1.8
3.8
2.8
-2.4
-3.7
58.5
0.8
0.5
-3.2

Table 5 - Forecast of key macroeconomic and budgetary variables under the EDP scenario 

% of GDP
Real GDP growth (%)
Potential GDP growth (%)
Structural balance
General government balance
General government debt
p.m Output gap (% of pot. output)

2012
1.9
3.6
-3.8
-3.9
55.6
-0.7

2013
0.8
2.7
-3.0
-3.6
57.2
-2.3

2014
1.6
2.6
-1.7
-3.0
57.5
-3.3

9 

 
 
 
 
5. 

CONCLUSIONS 

Poland did not manage to sustainably correct her excessive deficit by 2012 as recommended 
by the Council. In 2012 the deficit was, at 3.9% of GDP, well above the 3% benchmark of the 
Treaty.  For  2013,  the  Polish  authorities  have  adopted  the  2013  budget  which  contains 
additional  measures,  but  these  are  –  according  to  the  Commission  services'  2013  spring 
forecast  –  only  sufficient  to  keep  the  general  government  deficit  constant  at  3.9%  of  GDP. 
Absent  a  budget  for  2014,  the  2013  spring  forecast  projects,  under  a  no-policy-change 
assumption,  a  slight  increase  in  the  nominal  deficit  to  4.1%  of  GDP  in  2014.  Taking  into 
account of the measures contained in the CP would lower the deficit to 3.7% of GDP in 2014.  

However, during the period 2010-2012, the average annual fiscal effort after correction for the 
effects  of  revised  potential  output  growth  and  revenue  developments  amounted  to  1.6%  of 
GDP, above the annual average fiscal effort of 1¼% of GDP, recommended by the Council. 
The  bottom-up  approach  estimates  the  cumulative  size  of  consolidation  measures  at  some 
4.3%  of  GDP  over  2010-2012  compared  to  4.5%  improvement  in  structural  balance 
(uncorrected for the effects of revised potential output growth and revenue developments). It 
therefore appears justified to issue a revised EDP recommendation and to extend the deadline 
for correction of the excessive deficit. 

Granting two more years for the correction of the excessive deficit implies the headline deficit 
targets of 3.6% of GDP for 2013 and 3% of GDP for 2014. The underlying improvements in 
the structural budget balance implied by these targets are 0.8% of GDP in 2013 and 1.3% of 
GDP in 2014. This implies a need of additional measures of 0.4% of GDP in 2013 and 0.4% 
of GDP in 2014, on top of those already included in the spring forecast and in the update of 
the Convergence Programme. 

10 

 
 
Table 6: Comparison of key macroeconomic and budgetary projections 

Real GDP

(% change)

Output gap1
(% of potential GDP)

COM SF 13

COM SF 09

CP 13

COM SF 13

COM SF 09

CP 13

COM SF 13

General government balance

COM SF 09

(% of GDP)

Primary balance

(% of GDP)

Cyclically-adjusted balance1
(% of GDP)

Structural balance2
(% of GDP)

CP 13

COM SF 13

COM SF 09

CP 13

COM SF 13

COM SF 09

CP 13

COM SF 13

COM SF 09

CP 13

COM SF 13

Government gross debt

COM SF 09

(% of GDP)

CP 13

2009

1.6

-1.4

-1.1

-1.5

-7.4

-6.6

-4.8

-3.7

-4.8

-7.9

-6.0

-8.2

-6.0

50.9

53.9

2010

3.9

0.8

-1.1

-3.8

-7.9

-7.4

-5.2

-4.4

-5.2

-8.3

-5.8

-8.3

-5.6

54.8

60.0

2011

4.5

2012

1.9

2013

1.1

2014

2.2

-1.1

-0.7

-5.0

-3.9

-2.3

-2.3

-5.4

-1.1

-1.1

-3.7

-5.4

-3.8

56.2

55.6

1.5

-3.1

-2.2

-3.9

-3.5

-1.3

-0.8

-3.0

-2.6

-3.3

-2.7

57.5

2.5

-3.7

-2.7

-4.1

-3.3

-1.5

-0.9

-2.9

-2.2

-2.9

-2.2

58.9

55.8

55.7

Note:
1 Output gaps and cyclically-adjusted balances according to the  programmes as recalculated by Commission 
services on the bass of the information in the programmes.
2 Cyclically-adjusted balance excluding one-off and other temporary meaures
Source: Commission services' 2013 spring forecast,  Commission services' 2009 spring forecast, 2013 update of 
the Convergence Programme

11 

 
 
 
Annex 
Table A1: Adjustment of apparent structural effort for the revision in potential growth 
– details of calculation  
Average potential growth 
assumptions underlying 
July 2009 Council 
recommendation (%)

Structural 
expenditure (% of 
potential GDP) (COM 
2013 SF)

Average potential 
growth (COM 2013 SF) 
(%)

Correction coefficient α (% of 
nominal potential GDP)

Forecast error (%)

(1)

2.7

(2)

3.3

(3) = (1) - (2)

-0.6

(4)

45.8

(5) = (3) * (4) / 100

-0.3

Table A2: Adjustment of apparent structural effort for the revenue shortfalls/windfalls 
as compared to standard elasticities – details of calculation  

CAB methodology 
revenue elasticity 
(ε* = 0.78)

Change in current 
revenues (yoy) 
(PLN mln)

Discretionary 
current revenue 
measures (PLN 
mln)

Nominal 
growth 
assumptions 
(%)

Current revenues 
in t-1 (PLN mln)

Revenues gap 
(PLN bn)

Correction 
coefficient β

2013 SF
2010
2011
2012
Average

(1)
21 333
46 285
34 581

(2)
2 500
20 100
22 000

(3)
5.4
7.9
4.4

(4)
492 357
513 690
559 975

(5) = (1) - (2)-
ε*x(3)x(4)

-1.7
-5.2
-10.6

(5) in % of 
nominal 
potential GDP
-0.1
-0.3
-0.7
-0.4

12