Poland's new government set to stimulate polish GDP growth

Poland's social-conservative opposition party Law & Justice (PiS) won general elections. A shift in economic policy is expected after parliamentary election. However, A "radical" decision of the PiS is not expected. The new government has limited room to immediately increase expenditure and the budget deficit. The previous government's 2016 budget bill was based on optimistic macroeconomic assumptions. In general, the new government should be quite cautious. They plan to keep general government deficit close to 3% (this year was around 2.8% of GDP).

"We think that the new government will start from implementation of the new taxes. It will be a tax either on banking assets (0.39%, revenues of PLN5.0bn) or on all financial transactions (0.14%, revenues of PLN1.7bn), and a 2% retail sales tax on large retailers with over 250sqm of floor space (PLN3.4-3.5bn in annual budget receipts). They will also introduce measures to increase net receipts mainly by improving tax collection and preventing money transfers to tax havens", says Societe Generale.

The new government will probably focus on the low income families and credit growth in the SMEs and infrastructure investment. It may impact GDP growth. However the total impact of quasi fiscal stimulus on demand side could be limited in 2016.

"We think that PiS will start from introduction of a monthly allowance of PLN500 per child (estimated cost: PLN22bn), increase the standardised personal income tax deduction to PLN8,000 (estimated cost: PLN7bn). They may also reverse the retirement age reform, reinstating the age of 65 for men and 60 for women (estimated cost: PLN40bn, including PLN30bn for the budget in years 2016-2019), lower the tax rate for small enterprises to 15% from 19%, raising the national minimum wage to at least 12PLN an hour. The rest of costly measures will be implemented step-by-step "added Societe Generale.