206 Billion PLN – Real Budget Deficit at the End of 2023

Marinus van Reymerswaele: The moneychanger and his wife // Public domain
Marinus van Reymerswaele: The moneychanger and his wife // Public domain

The true budget deficit at the end of 2023 will amount to over 206 billion PLN. The budget debate taking place in Sejm is based on the draft budget, which does not show the full picture of state’s expenditures and revenues.

Pursuant to the Public Finance Act, the management of public funds is open and transparent. Additionally, the act explicitly states that it is the state budget or the financial plan of the public finance sector’s units that determines what (purpose) and how much (amount) public expenditure can be allocated.

Meanwhile, for several years, the transparency of public finances has been gradually decreasing, and the expenditures are carried out outside the State Budget Act. The principle of universality states that a proper budget should be complete, specifying all income and expenses in full amounts, not combined with each other. This enables budget control and makes it impossible to conceal expenses by compensation.

Recent years, and in particular the current draft budget for 2023, grossly violate the abovementioned principles, frameworks and boundaries that public authorities should take into account when planning, passing and implementing the budget.

In 2023, as in the previous year, draft assumes that various responsibilities of the state will be financed through the use of instruments outside the public finance sector as defined in the Public Finance Act. This gives a false picture of both the deficit and the public debt.

What is more, money spent this way is completely out of Parliament’s control. This applies in particular to expenditure carried out by funds placed within Bank Gospodarstwa Krajowego. Particularly remarkable are the expenses implemented under the COVID-19 Countermeasure Fund, which is also used to fund tasks that are generally financed from the state budget or from subsidies from the state budget.

In the state budget draft for 2023, expenditures from the state budget are planned in the amount of 672.7 billion PLN. The amount of these expenses has been significantly underestimated in relation to the actual financing of various tasks of the state from public funds, which are generally financed from the state budget, predicted for 2023.

This is a result of the government’s planned extra-budgetary mechanisms for financing a number of expenses in 2023, similarly to the previous years. As a result of using various instruments of off-budget financing, in the draft budget for 2023 we deal with:

  • violation of Art. 109 of the Public Finance Act;
  • limiting the transparency of public finances;
  • underestimating the state budget’s deficit planned for 2023.

Such a solution makes it possible not only to reduce the budget deficit, but also to evade the Stabilizing Expenditure Rule. This applies in particular to the financing of various expenses in the form of treasury securities, which are not included in the state budget deficit, not included in the calculation of the SER, and are not included in debt at the time of their issue.

Introducing the necessary changes to make income estimates more realistic and to restore/increase transparency in the state budget draft would change the picture of the basic budget figures:

  • state budget revenues would amount to 557,463,201 k PLN;
  • state budget expenditure would amount to 763,690,746 k PLN;
  • state budget deficit would amount to 206,227,545 k PLN.

Attached we present an analysis by former employees of the Ministry of Finance: Sławomir Dudek (FOR’s chief economist), Ludwik Kotecki (Monetary Policy Council member) and Hanna Majszczyk (former deputy finance minister). The document aims to increase transparency in the budget act’s draft for 2023 by restoring the relevant meaning and shape to this document.

This can be done through four categories of changes:

  • updating and making the macroeconomic scenario more realistic: macroeconomic assumptions used for budget planning cannot be optimistic, especially in a situation of such high uncertainty as we are currently dealing with;
  • updating the state budget revenues in accordance with the real macroeconomic scenario;
  • transferring expenditures that were gradually transferred in 2016-2023 out of it and finally in the project for 2023 (for various reasons), back to the state budget;
  • inclusion in expenditure and revenues of the state budget of expenses/revenues which have not been taken into account for unclear reasons, and which have already been declared and/or are very likely to be implemented next year.

Written by: Sławomir Dudek, Ludwik Kotecki, Hanna Majszczyk

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