The government has no space for a significant increase in spending ambitions in the budget for next year – says the economist of Bank Pekao Karol Pogorzelski. As long as the height of the Polish GDP is solid and gives a chance to grow out of debt, a temporary, high deficit should not cause great anxiety among investors and rating agencies.
“The government has space for a significant increase in the budget in the budget for 2026. We will start with approximately 6 % sector deficit in relation to GDP this year and There is simply no space for a significant increase in spending ambitions next year. There may be some shifts or sectoral taxes, but we do not see the space to, for example, rapidly increased the amount of PIT tax, “Biznes Pogorzelski told PAP.
“Perhaps there will be an announcement that it will be increased gradually, i.e. the cost of this solution will be distributed to years and may be financed by freezing higher tax thresholds – the so -called second threshold will be maintained at 120,000, which with an increase in salaries and inflation will give a bit of fiscal space. However, in 2026 we do not assume any large fiscal programs when it comes to expenses.” He added.
Bank Pekao forecasts that the public finance sector deficit in 2025 will amount to 6.3 percent. GDP.
“Our forecast assumes that the deficit of the public finance sector this year will amount to over 6 percent of GDP. A higher deficit will result from several reasons. We currently have an investment hill – public investments are in a growing phase, and although they are financed primarily from EU funds, the domestic contribution also plays an important role. We also have increased reinforcements. It consists of a deficit planned by the Ministry of Finance, “Biznes Pogorzelski told PAP.
“Last year we were surprised in minus – the deficit was higher than the assumptions – and it seems that the plan of the Ministry of Finance is too optimistic. We assume that this year the deficit will reach 6.3 percent of GDP. Financial markets must get used to the thought that positive news, when it comes to the condition of public finances, will not be” – he added.
In the opinion of the economist Banu Pekao, the sector deficit next year may be even higher than in this.
“We assume that also next year the public finance sector deficit will remain above 6 % of GDP. There is no fiscal consolidation plan. At the current, effective tax rates we have and with expenses in which there are no plans for cutting, I see no chance that the deficit decreases. Next year we even expect that the deficit of the public finance sector year ” – said the economist.
Recently, Bank Pekao has revised its fiscal forecasts. According to the bank's latest estimates, the deficit of the entire public finance sector will amount to 6.8 percent. GDP in 2026 and 5.7 percent GDP in 2027
In the medium-term budget and structural plan, the government founded the sector deficit in the years 2025-2027 at the level of 5.5 percent, respectively. GDP, 4.5 percent GDP. and 3.7 percent GDP.
According to the data of the Central Statistical Office, in 2024 the public finance sector deficit amounted to 6.6 percent. GDP.
Pogorzelski from Pekao predicts that defense expenses next year can reach 4.5 percent. GDP.
“Defensive expenses are currently on a kind of autopilot – decisions about them have been made in previous years and they are constantly implemented. Nevertheless, the current geopolitical situation is specific and justifies increased defense expenses. NATO agreed to increase military expenditure, the EU also looks at them with a more favorable eye and Poland will not reduce them. They will reach about 4.5 percent of GDP, i.e. a historically high level ” – said the economist.
“However, there was no defense tax or tax increase at all taxes or at all, for example, for example, there are signals that there is no chance for tax increases, but we are talking about reducing them, but he was talking about their reduction,” he added.
In the budget act for 2025, the government planned a deficit of PLN 288.77 billion. The data of the Ministry of Finance published last week shows that after June the budget deficit amounted to PLN 119.7 billion.
In the opinion of Karol Pogorzelski from Pekao, there is no chance for a better budget result this year than planned in the Act, although the government should do without the need for amendment.
“The budget situation does not look very good, tax revenues are growing poorly. The planned goal of the total income with VAT for this year is quite high and it seems that it will not be achieved – it may not be missing – up to PLN 10 billion. CIT revenues are also very poor. When it comes to PIT, the image is a bit unclear, due to the expenditure reform regarding JST. 56 percent have already been implemented for this year in the case of subsidies for local governments.
“There is therefore a chance that budget expenditure will be lower, which will compensate for lower revenues, primarily from intermediate taxes, i.e. from VAT, excise duty, but also from cit. It seems that this year's deficit of almost PLN 2,88.8 billion is available for a kind of creative tax accounting, which appears especially at the turn of the year – then some acceleration or delays in VAT refunds. Thus, assuming that the government will not accelerate the phrases at the end of the year, there is a chance to implement the planned deficit.
Markets should not even react to the lack of consolidation yet
According to the economist of Bank Pekao, as long as the growth of Polish GDP is solid and gives a chance to grow out of debt, this temporary, high deficit should not arouse big anxiety among investors.
“Markets should not react exaggerate to the lack of fiscal consolidation in Poland. The interest rates are falling, which will give some breath when it comes to debt service costs. There will probably be some signals regarding fears about the shape of fiscal policy, while Poland has a relatively low participation To withdraw from Poland, “Biznes Pogorzelski told PAP.
“They are not massively present in Polish debt, so there will be no mass withdrawal. They are also geographically diversified investors. There would have to be a signal about a large slowdown in economic growth, or other significant problems. As long as the GDP growth is high – above 3 percent – and gives a chance to grow out of public debt, it will not cause great anxiety. among investors ” – he added.
Pogorzelski indicates that although rating agencies will signal concern about the lack of fiscal consolidation, they should not follow this action regarding Poland's rating. However, movements cannot be ruled out relative to rating prospects.
“The situation is similar when it comes to rating agencies, solid economic growth raises a large loan of trust in fiscal policy. Agencies will indicate that the lack of consolidation is not a path of balanced fiscal policy, but they will not follow the reduction of ratings. However, it cannot be ruled out.
Pressure for fiscal consolidation may appear on the part of the European Commission, but it should not be significant. As the economist of Pekao indicates, the EU is at such a moment of its history in which fiscal discipline is a priority.
“It seems that some pressure on fiscal consolidation will appear from the European Commission, but it will not be intense and it was never really. There were moments that the EU, for example, has behaved quite assertively and forced to cut expenses, but also had much stronger arguments in the form of aid funds. Poland is not in such a situation as Greece and the EU there are not many impressions. It is not at such a moment of its history in which fiscal discipline is a priority, “said Pogorzelski.
“I expect therefore that there will be meetings, recommendations from the EC, but formulated softly, without sanctions, and the Polish government will try to delay consolidation, which sooner or later will have to take place, if only to prevent the increase in public debt costs” – he added.
Patrycja Sikora (PAP Biznes)
pat/ ry//
