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Horała: “all debt ratios are in the budget, they are public.” Experts: They are not

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Deputy Minister Marcin Horała argues that the government does not hide the true state of Poland’s finances and debt, because “all debt ratios are in the budget, they are public”. Economists explain why this is not true, what the “budget gray area” is and what the “budget lie” is all about.

During a discussion in the “Kawa na Ława” program on TVN24 on June 11, host Konrad Piasecki drew attention to the issue of transparency of public finances and Poland’s debt. “This week, information came to light that South Korea is lending us PLN 76 billion for the purchase of armaments, which means that…” – Deputy Minister of Funds and Regional Policy Marcin Horała from Law and Justice intervened: “… that we buy weapons.

The host reacted to this: “… that we are buying armaments [to] great, but you have to do it, but it’s worth doing it firstly transparently, and secondly, talking about it openly, and we don’t find out about it from Korean journalists.” Then Deputy Minister Horała objected: “But sorry, all debt ratios are in the budget, they are public“.

He further explained: “What’s more: the level of Poland’s debt in total, aggregated, calculated by Eurostat, with all those – in your opinion hidden, which are simply in a different category, for example in the National Road Fund and so on – and are also open and unhiddenThe deputy minister also explained that the level of debt does not exceed 50 percent of GDP and this is one of the best results among the European Union countries.

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Recently, PiS politicians at election meetings and in the media often boast about the good condition of public finances. The opposition and economists respond that the government is hiding the true picture of Poland’s finances and debt. However, Deputy Minister Horała claims that “all debt ratios are public”. So who is right?

What is written in the budget act

The economists consulted by Konkret24 first pay attention to the formal foundations of the state budget. The economist and president of the Institute of Public Finance, Dr. Sławomir Dudek points to Art. 219 sec. 1 of the Constitution of the Republic of Poland: “The Sejm adopts the state budget for the financial year in the form of a budget act” and Art. 109 of the Public Finance Act: “The Budget Act is the basis for the state’s financial management in a given budget year.”

In the bill passed by the Sejm on December 15, 2022 (opposition was against) the budget act for 2023 budgeted revenues will be PLN 604,543,808,000, and expenses PLN 672,543,808,000. That is, the state budget deficit will amount to PLN 68 billion. This is the basic debt ratio.

IN budget amendmentwhich the government sent to the Sejm on June 9, budget revenues were reduced to PLN 601,376,393,000a expenses increased to 693 376 393 000 zloty increasing the deficit by PLN 24 billion, to PLN 92 billion.

So much for the content of the law itself. The appendices thereto include income and expenditure plans of individual ministries, central institutions, voivodship offices, courts, etc., as well as extra-budgetary units (executive agencies, special-purpose funds, etc.). Liabilities of all these institutions (securities issued, credits and loans taken or deposits accepted) are included in the state public debt (PDP). Its amount is not specified in the Budget Act, but in its justification. But it is not legally binding. PDP height publishes quarterly Ministry of Finance – at the end of the first quarter of 2023, PDP amounted to PLN 1,209,798 millionwhich accounted for 38 percent. gross domestic product (GDP).

What is not in the budget act, i.e. “budget lie”

Marcin Zieliński, chief economist of the Forum Obywatelskiego Rozwoju (FOR) Foundation, in his commentary for Konkret24, points out that the budget act does not include the expenditure of several funds operated by Bank Gospodarstwa Krajowego (BGK). These include COVID-19 Counteracting Fund, Government Road Development Fund, Armed Forces Support Fund. These funds are not included in the public finance sector, although – as emphasized by the FOR economist – they perform public tasks, and the bonds issued by BGK are guaranteed by the State Treasury.

“The expenditures made by the funds in BGK are not included in the budget act, the parliament has no control over them” – stresses Marcin Zieliński. How we explained in Konkret24The Polish Economic Institute (government institution, supervised by the Prime Minister) estimated that “the total public expenditure implemented through extra-budgetary funds in 2022 reached PLN 324 billion” (original spelling). The FOR economist explains:

Due to the fact that expenditures are pushed to funds in BGK, the state public debt, for which constitutional limits apply, can be kept at an appropriately low level, and at the same time the state can be indebted regardless of constitutional limitations.

Article 216 para. 5 of the constitution states: “It is forbidden to take loans or grant financial guarantees and sureties as a result of which the state public debt will exceed 3/5 of the value of the annual gross domestic product”. Marcin Zieliński adds that – in addition to funds in BGK – also by “using other tricks, the government is able to show any result in the state budget, which is regularly pointed out by the Supreme Audit Office in its audits”.

Thus, formally – as Dr. Dudek admits – due to the lack of data on the expenditure of off-budget funds in the act (he calls them a “parallel budget” or “the prime minister’s spending paradise”), the Polish parliament “gets information about a fragment of real debt”. To better illustrate this issue, Dr. Dudek refers to government reports on the implementation of the Budget Act for 2022. “In the report, the government formally boast of a state budget deficit of about PLN 12 billion, while based on trace information obtained from funds at Bank Gospodarstwa Krajowego or information on the issue of bonds, it can be calculated that the real state budget deficit is over PLN 100 billion” – he writes in reply to Konkret24. This means “that the parliament was given 12 percent of the real state budget deficit to assess.” “88 percent is the gray area of ​​the budget, it’s a budget lie” – says the president of the Institute of Public Finance.

So – contrary to Deputy Minister Horała’s claims – not all data on debt “are in the budget”.

“Sometimes I feel like an investigative economist”

Deputy Minister Horała is also not entirely right that all data on the debt are public. “Sometimes I feel like an investigative economist, because in order to calculate the true picture of public finances, you have to look for information in the mode of access to public information, in BGK funds, you have to rummage in Eurostat data, and recently you have to look for data in South Korea, because there Minister Błaszczak most likely indebted Poland in foreign currencies for over PLN 80 billion” – writes Dr. Sławomir Dudek.

Both he and Marcin Zieliński from FOR point out that data on Poland’s debt – including the expenditure of these extra-budgetary funds – are reported to the European Commission. At the same time, as Dr. Dudek writes, they are very generally aggregated and we learn about them with a delay. The information provided to Brussels is used to calculate the general government debt (EDP) according to the EU methodology. How we explained in Konkret24, this is a more comprehensive method of debt calculation, because it takes into account the additional adjustment of the statutory public debt by the debts incurred by some entities of the public finance sector not listed in the Polish Public Finance Act. Our law does not include bonds issued by BGK or the Polish Development Fund (PFR). So these liabilities are not included in the calculation of our statutory PDP, but are included in the EDP calculation. According to the Ministry of Finance, EDP’s debt at the end of the first quarter of 2023 amounted to PLN 1,531,780.5 million and accounted for 48.3 percent. GDP.

It was this level of debt that Deputy Minister Horała mentioned, saying that it is calculated by Eurostat. However, also here Dr. Dudek points out one thing: “The fact that something appears in the descriptive part of the budget act or is sent to Eurostat or can be found on websites does not change the fact that the formal budget is faulty, incomplete, and many transactions finance is beyond the control of Parliament.

On March 6, Prime Minister Mateusz Morawiecki announced that the Ministry of Finance would draft a bill to consolidate public finances. The main objective is to liquidate off-budget funds created in recent years, the very ones whose expenses – according to economists and NIK – falsify the level of budget deficit and public debt in Poland.

In “Coffee on the Bench”, Deputy Minister Horała also said that “the level of public debt (in Poland – ed.) is below 50 percent of GDP, which is one of the lowest ratios of this kind in the European Union.” According to Eurostat data in 2022 Poland’s public debt (general government gross debt) amounted to 49.1 percent. GDP. However, it was not “one of the lowest in the EU”, because the ratio of this debt was lower than Poland in 10 EU countries (in six, public debt was below 40 percent of GDP).

Main photo source: Bartosz Jankowski/PAP

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