PO vs PiS economic policy

The Financial Times

Leading Polish parties differ over reform plans

The two centre-right parties likely to win Poland's parliamentary election on Sunday are promising renewed economic reforms, but the prospective coalition partners differ starkly over what those reforms should be.

Recent opinion polls show the two trading the lead, each with the support of about a third of voters. The winner gets to choose the prime minister and will have the edge in pushing through economic policies.

Civic Platform (PO) is the more classically liberal of the two, both of which have their roots in the Solidarity movement that overthrew communism.

A key part of PO's economic programme is introducing a flat 15 per cent rate for personal, corporate and VAT taxes, to come into effect by 2007. The goal was to make Poland one of the most competitive economies in Europe, said Rafal Antczak, an architect of the PO platform.

A second element is reforming government by slashing the number of ministries and putting more power in the hands of the prime minister. The party also wants to rationalise Poland's system of social payments and to introduce means testing.

Poland's top income tax rate is 40 per cent, so the party has been attacked for catering to the rich. However, it insists the flat tax will not hurt poorer and middle income taxpayers - many of whom take advantage of write-offs and pay a rate closer to 13 per cent.

PO wants Poland to adopt the euro as early as possible, but only when public finances have stabilised.

Law and Justice (PiS), the other likely winner in Sunday's election, has been critical of what its leaders call PO's "risky" liberal experiment.

PiS wants to retain two tax rates - 18 and 32 per cent (eventually lowered to 28 per cent) - as well as tax write-offs, including measures that favour larger families. A key target is halving unemployment - now at 17.8 per cent - within four years by giving businesses a monthly 1,000 zlotys (£173, €257, $314) tax write-off for two years for every job created.

"We want to give as much support as possible to businesses that are creating employment," said Cezary Mech, who helped put the PiS programme together.

PiS also wants the budget deficit to stay fixed at 30bn zlotys, a figure it hopes will fall in significance as GDP grows. The economy should grow 7 per cent a year under its policies, the party says.

PiS would also aim for lower interest rates and elimination of the monetary policy council that helps set rates. It would give the central bank president a mandate to ensure economic growth while controling inflation.

The party feels Poland should eventually adopt the euro, but not at the cost of social spending. The two parties both agree on the need to cut red tape and to make it easier to open a business.

PiS's suspicion of flat taxes and its calls to cut income inequality have made PO the favourite party of business.