29.3.2007   

EN

Official Journal of the European Union

C 72/13

(1)

On 27 February 2007 the Council examined the updated convergence programme of Poland, which covers the period 2006 to 2009.

(2)

(3)

In the January 2006 convergence programme, the target for the general government balance in 2006 was set at – 2,6 % of GDP, the Commission services' autumn forecast points at – 2,2 % of GDP, while the November 2006 update of the convergence programme estimates the 2006 outturn at – 1,9 % of GDP. The better-than-expected outturn mainly results from an incomplete execution of expenditure plans (especially social transfers and public investment), while revenue increase resulted mainly from stronger-than-expected growth. The above-mentioned deficit figures exclude the pension reform cost, estimated at around 2 % of GDP in 2006, in line with the transition period for implementing the Eurostat decision of 2 March 2004 on the classification of funded pension schemes (2), which expires in spring 2007. The main goal of the budgetary strategy in the November 2006 update is to correct the excessive deficit by 2007 by qualifying for the provision of the reformed Pact which allows a part of the pension reform cost to be deducted. For the following years, the programme plans a gradual reduction of the deficit so that the 3 % of GDP reference value is reached in 2009.

(4)

The deficit is planned to narrow by 0,4 percentage point of GDP annually (0,3 percentage point if the pension reform costs are included), from 1,9 % of GDP in 2006 to 0,6 % of GDP in 2009. The primary surplus is planned to improve from 0,5 % of GDP in 2006 to 1,7 % of GDP in 2009. Including the impact of the above-mentioned Eurostat decision, the deficit in the updated programme would improve from 3,9 % of GDP in 2006 to 2,9 % in 2009. The adjustment is planned to be revenue-based in 2007 (revenue ratio increase by 0,6 percentage point of GDP with a near-constant expenditure ratio) and strongly expenditure-based in 2008-2009 so as to more than offset a large decline in the revenue ratio (average annual expenditure ratio reduction by 1,6 percentage point, especially consumption and social transfers, with the revenue ratio declining by 1,2 percentage point on average mainly reflecting a cut in social contributions, changes in personal income tax system and other changes to the tax system, which are not always fully specified). Compared with the previous programme, the deficit targets have been revised downwards in view of much stronger growth and the better-than-expected outcome in 2006.

(5)

(6)

The budgetary outcomes could be worse than targeted in the programme in particular in the outer years of the programme. There are significant uncertainties about the effective implementation of planned reforms as they are not backed up by precise measures supporting the envisaged expenditure restraint. In addition, there are risks stemming from the rather favourable macroeconomic scenario for the outer years of the programme period. Consequently, the action taken so far is not sufficient and the planned measures should be strengthened to achieve that result.

(7)

In view of this risk assessment, the budgetary stance in the programme does not seem consistent with a correction of the excessive deficit by 2007 as recommended by the Council. The budgetary targets do not provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations throughout the programme period. In the years following the correction of the excessive deficit, the pace of the structural adjustment towards the MTO implied by the programme should be strengthened, taking advantage of good economic times, and should be backed up by measures.

(8)

Government gross debt is estimated to have reached 42,0 % of GDP in 2006, well below the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline by 1,4 percentage point over the programme period. Including the impact of the above-mentioned Eurostat decision, the government gross debt would rise from 48,9 % in 2006 to 50,2 % in 2009.

(9)

The long-term budgetary impact of ageing in Poland is the lowest in the EU, with age-related expenditure projected to fall, partly as a result of the considerable expenditure-reducing impact of the reform of the pension system — assuming that the pension reforms are fully implemented. The initial budgetary position, although improved compared to 2005, still constitutes a risk to sustainable public finances before the long-term budgetary impact of an ageing population is considered and further budgetary consolidation envisaged in the programme would contribute to contain risks to the sustainability of public finances. Overall, Poland appears to be at low risk with regard to the sustainability of public finances.

(10)

The convergence programme contains a qualitative assessment of the overall impact of the reforms listed in the October 2006 implementation report of the national reform programme within the medium-term fiscal strategy. In addition, it provides some information on the direct budgetary costs or savings of the main reforms envisaged in the national reform programme and its budgetary projections seem to take into account the public finance implications of the actions outlined in the national reform programme. The measures in the area of public finances envisaged in the convergence programme seem consistent with those foreseen in the national reform programme. In particular, both programmes envisage some harmonisation of the farmers' social security system with the general national system, the gradual harmonisation of the disability benefits with the reformed pension system and the implementation of the basket of guaranteed medical services.

(11)

The budgetary strategy in the programme is partly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, action taken to correct the excessive deficit does not appear adequate.

(12)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data (3).

(i)

ensure the correction of the excessive deficit by 2007 in line with the new recommendation under Article 104(7).

(ii)

taking advantage of the good economic times, using any extra revenue for deficit reduction, strengthen the pace of adjustment towards the MTO after the planned correction of the excessive deficit, by specifying and implementing the additional measures, especially on the expenditure side, that are necessary to achieve the envisaged adjustment.

(iii)

safeguard the results of the pension reform.