Polish government approves budget with record defence and health spending – and record deficit

Poland’s government has approved a draft budget for 2025. The plans – which include raising defence spending to 4.7% of GDP, increasing healthcare expenditure by 16%, and funding new social programmes – will create the country’s highest-ever deficit, of 289 billion zloty (€67.3 billion).

It is the first time that the coalition government which took power in December has been able to present a budget completely of its own, having inherited most of 2024’s spending plans from the former Law and Justice (PiS) administration.

📰 KOMUNIKAT | Rekordowe wydatki na obronność oraz zdrowie, świadczenia dla obywateli, ożywienie gospodarcze, wzrost PKB o 3,9% i spadek bezrobocia – to główne kierunki polityki fiskalnej w przyszłym roku.https://t.co/JOc9AH0dwd pic.twitter.com/eQ2VDOARBc

— Centrum Informacyjne Rządu (@KPRM_CIR) August 28, 2024

“The budget for 2025 is being created in the context of a clearly accelerating Polish economy,” said finance minister Andrzej Domański, announcing the plans alongside Prime Minister Donald Tusk.

The government forecasts that the economy will grow 3.1% this year, up from just 0.2% in 2023. It predicts that growth will then further accelerate to 3.9% in 2025.

The finance ministry notes that the unlocking of billions of euros in EU post-pandemic recovery funds – which had been frozen by Brussels under the PiS government over rule-of-law concerns – is one of the factors now stimulating growth.

This has allowed us to “combine the good condition of the Polish economy with the material and financial security of people, especially those most in need”, said Domański.

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The budget includes a planned outlay of almost 222 billion zloty on healthcare in 2025, up 16% on this year, as well as money for new government policies: 8.4 billion zloty for its “Active Parent” programme and at least 3.2 billion zloty for “widow’s pensions”.

Meanwhile, Poland’s defence spending – which this year is already the highest in NATO in relative terms, at an estimated 4.1% of GDP – will rise further next year, to reach 187 billion zloty, equivalent to 4.7% of estimated GDP.

The minister for funds and regional policy, Katarzyna Pełczyńska-Nałęcz, also tweeted to celebrate that the budget allocates 4.3 billion zloty for housing, which is 50% more than this year.

🏥 W 2025 roku rząd przeznaczy 6,5% PKB, czyli 220 mld zł w opiekę zdrowotną – to najwyższy poziom w historii. Zdrowie będzie priorytetem! ⤵️ pic.twitter.com/pMy7rjm5mu

— Kancelaria Premiera (@PremierRP) August 28, 2024

The total state deficit will rise to a record 289 billion zloty, equivalent to 7.3% of GDP (up from 5.1% in 2024), and the general government deficit will be 5.5%.

“This high deficit is conditioned by the actions we have taken in previous months, but also by the postponement and repayment of bonds of the debt incurred by our predecessors due to COVID-19,” said Domański, quoted by Business Insider Polska.

Former PiS Prime Minister Mateusz Morawiecki, however, accused the new government of hypocrisy, noting that Tusk had, while in opposition, criticised the deficit while now presenting a budget with a record deficit.

Niepotrzebne wytnij pic.twitter.com/RglRLyb4Ro

— Mateusz Morawiecki (@MorawieckiM) August 28, 2024

Meanwhile, general government debt will reach 59.8% of GDP – up from 54.6% in 2024 and only narrowly below the EU’s limit of 60%. Last month, the EU launched its excessive deficit procedure against Poland and six other member states due to concerns over their public finances.

That procedure means that 2025 will see the “last such generous budget”, Piotr Kuczyński, chief analyst at investment firm Xelion, told the Gazeta.pl news website. Kuczyński also raised doubts about the accuracy of the government’s figures, pointing to apparent disparities in its announced calculations.

Deputy prime minister Krzysztof Gawkowski, however, claimed that it was “the mess in public finances left by our predecessors” that is responsible for Poland being put under the excessive deficit procedure. The new government is now “cleaning up the mess”, he added.

The draft budget will be subject to further consultation before being submitted to parliament by the end of September. Kuczyński suggests that the document could undergo significant changes before then.

The EU has launched its excessive deficit procedure against Poland and six other member states, which must now prepare plans to get their finances back on track.

The other six countries are Belgium, France, Italy, Hungary, Malta and Slovakia https://t.co/Qkv2b57sa7

— Notes from Poland 🇵🇱 (@notesfrompoland) July 26, 2024

Main image credit: Kancelaria Premiera/Flickr (under CC BY-NC-ND 2.0)

 

Daniel Tilles is editor-in-chief of Notes from Poland. He has written on Polish affairs for a wide range of publications, including Foreign Policy, POLITICO Europe, EUobserver and Dziennik Gazeta Prawna.