Expenditure and Institutional Review (World Bank, 2003) and the Labor Market Study (World Bank, 2001), have explored the agenda and the prospects for policy reforms in these areas. Their recommendations are still applicable.

Price stability is an essential component of a poverty reduction policy. Inflation predominantly hurts the poor, who have little opportunity to protect their assets. For this reason, Poland’s low inflation in general, and particularly its low food price inflation should be perceived as a genuine achievement of recent years. In addition, the decline in nominal and real interest rates brought about by the monetary easing should work to the advantage of the poor by increasing their capacity to smooth consumption.

Fiscal policy works best if it is pro-poor. Since the poor have a higher propensity to spend, leaving more resources with them during hard times provides an effective tool against cyclical downturns of the economy, contributes to the well-being of the vulnerable, and feeds back positively to overall macroeconomic stability.

The tax component of fiscal policy appears to perform its anticipated stabilization role. Any changes in the system to improve its pro-poor impact should be considered carefully, so that they do not further increase the distortions that taxes bring to the economy, and especially to ensure that they do not increase the overall tax burden. The elimination of exemptions (tax expenditures are directed mainly toward the rich) complemented by an overall reduction in payroll taxes in at least a budget neutral way is a plausible recommendation.

Although Poland’s system of social transfers plays an important role in poverty reduction it is more than costly and inefficient. Over half of the resources used is not going to the most needy. If these funds were targeted properly, rather than being spread more or less uniformly over the entire consumption distribution, they could more than eradicate poverty. Therefore, improving the targeting of social transfers is an immediate necessity. Poor targeting not only leaves many of the vulnerable without the help of the state; it also skews incentives to work and poses a significant burden on government finances.

As has been demonstrated, Polish society is still changing. The Polish economy is growing but at the same time becoming more polarized. Therefore, there is a strong case for good poverty/social monitoring that involves going beyond aggregations and applying more complex analytical tools, such as various decompositions, growth incidence, benefit incidence, etc. Such monitoring can provide both the public and policymakers with a better knowledge of whether and how society is changing, and the ability to identify the sources of such changes. It can also make it possible to assess winners and losers, and, in particular, it can become a basis for judging whether current and future inequalities are acceptable. Moreover, an ex ante assessment of the impact of social programs on income distribution and poverty could become a valuable policy tool.

Despite a very modestly positive GDP growth of about 1 percent in 2001 and 2002, poverty has been increasing. In 2003, Poland stands at the threshold of EU accession with all its related challenges and opportunities, while at the same time economic recovery is accelerating. Therefore, actions are required to improve the pro-poor impact of economic growth and to make this growth work for Polish society in general and for its poor in particular.

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