Prime Minister Donald Tusk’s Civic Platform (PO) has emerged from the first round of Poland’s municipal elections with a stronger mandate to rule. Still, the government’s will to push through potentially unpopular fiscal reforms may remain weak.

 

 

Donald Tusk, entering the final year of his term as Poland’s prime minister, is poised to do what no Polish head of government has accomplished since 1990: Win re-election.

 

Poles confirmed their support for the PO in the first round of the country’s municipal elections November 21. The PO’s Warsaw Mayor Hanna Gronkiewicz-Waltz won reelection with nearly 53.3% of the vote, enough to avoid a runoff in the second round on December 5. She trounced her nearest rival, the opposition Law and Justice (PiS) party candidate Czeslaw Bielecki, who finished with 23.3%. 

 

Preliminary data also indicates the PO edged out its opponents in most of Poland’s 16 provinces (województwa). The governing party took 31.4% of total provincial council ballots, compared with 27.2% four years ago. The PiS managed 23.1% compared with 25.1% in 2006. (All data are from the State Election Commission’s most recent release, which is based upon 83.7% of precincts reporting.)

 

The Polish Peasant Party, the PO’s junior coalition partner, took 15.7% of the provincial council vote, improving its 2006 performance by more than 2%.The opposition Democratic Left Alliance (SLD) won 15.3% of the provincial vote, up from 14.3% four years ago.1

 

 

 

Polish Parties’ Performance in Major Cities


 

Urban Poles apparently prefer independent mayors, which were leading in nine of Poland’s 18 major cities. The PO’s mayoral candidates were ahead in six cities, the SLD was on top in two, and the PiS was leading in Lublin.

 

 

 

 

PO: Popularity at a Price


 

Under Tusk’s leadership, Poland was the only country in the European Union that avoided falling into recession during the global financial crisis. GDP was up 1.7% last year and is set to increase 3.5% in 2010 and 4% in 2011, according to projections by the National Bank of Poland. However, Tusk’s governance has been a careful tightrope act: Business-friendly, pro-growth policies on the one side, balanced off by a reluctance to undertake structural reforms that can sustain economic expansion for the long term.

 

Poland may have dodged the recession, but its budget deficit is projected to reach 7.9% of GDP this year, compared to 3% when Tusk took office in 2007, according to Poland’s Central Statistics Office. General government debt hit 50.9% of GDP in 2009 compared to 45% in 2007; it could reach 55% of GDP this year, the legal debt limit enshrined in Poland’s Constitution.2

 

Adopting austerity measures is clearly not Tusk’s style. His government has not fulfilled its 2009 pledge to reduce public-sector employee levels by 10%; in fact, the public administration headcount actually increased 7% over the past year, according to an analysis by former National Bank of Poland Deputy Governor Krzysztof Rybinski.3 The Tusk administration also has not tackled problems in the pension system such as trimming benefits for farmers or raising the retirement age.4

 

Given the less-than-overwhelming scale of the PO’s victory on November 21, the most likely scenario is that Tusk will continue walking his tightrope straight through to the general election due in autumn 2011. Should the PO prevail, the dirty work of overhauling Poland’s public sector can begin.

 

 

Risks:


  • Lower-than expected growth: Poland’s robust economic-growth forecasts partly depend on the recovery process in Poland’s main trading partners. If Western Europe’s economies sputter, Poland’s growth prospects will take a hit, hurting efforts to narrow the budget deficit.
  • Constitution-Mandated Cutbacks: If Poland’s public debt passes the constitutional limit of 55% of GDP this year, the Tusk administration will be forced into spending cuts. The government is anxious to avoid this scenario.
  • New VAT Hikes: In an effort to raise budget revenues, Tusk decided to boost the basic value-added tax rate 1% to 23% starting next year. Voters have taken this in stride, but further VAT hikes would bode badly for the PO in next autumn’s elections.
  • Fundraising Hungarian Style: Tusk has proposed raising money for the 2011 budget by imposing a surtax on banks, as Hungary did earlier this year.5 He has also considered temporarily diverting contributions to private pension funds to state coffers, another Hungarian revenue-raising method, according to an article by Bloomberg News.6
  • An extra duty on banks may help shore up the budget, but may also restrain lending and slow economic growth down. What’s more, Hungary also imposed hefty surtaxes on telecoms, chain stores and energy companies; should Poland follow suit, it may end up stalling expansion in these sectors as well.
  • Privatization Impact: The government appears to be on track to reach its goal of raising PLN 25 billion (€6.4 billion) through state-asset sales this year.7 If it fails to meet this target, it will need to secure other funds for the budget. Furthermore, privatizations may prove unpopular among the general population. 

 

 

PiS Misfires


 

It appeared that the PiS might be on an upward trajectory during last summer’s election to replace President Lech Kaczyński, who was killed in an April 10 plane crash. His twin brother, PiS leader Jarosław Kaczyński, scored 47% in the second round of voting on July 4, coming within striking distance of the PO’s winning candidate, President Bronisław Komorowski.

 

Since then, Kaczyński has resumed the confrontational style that has made him infamous across. He sparred with Komorowski over the location of a cross erected to honor his dead brother, which led to a series of highly charged protests on the streets of Warsaw last August and September. The PiS has also been torn by infighting: It recently expelled several party members who had criticized the leadership’s combative attitude.

 

The local election results suggest that many voters look askance at Kaczyński’s belligerence and the apparent lack of party unity in the PiS.

 


1 The SLD stood in the 2006 local elections as part of a four-party alliance called the Left and Democrats (LiD).

2 Data from the Polish Central Statistics Office (GUS), http://www.stat.gov.pl/gus/5840_1377_ENG_HTML.htm; Reuters, Nov. 19, 2010, http://www.bizpoland.pl/news/index.php?contentid=202575&title=Poland_may_breach_55%25_public_debt_level

3 Krzysztof Rybinski, “Growing into Trouble,” Financial Times, November 16, 2010, http://www.ft.com/cms/s/0/77ca6794-f05e-11df-88db-00144feab49a.html#axzz160ZCbXJ9

4 Gareth Jones, “FACTBOX: Key Political Risks to Watch in Poland,” Reuters, November 1 ,2010, http://www.reuters.com/article/idUSRISKPL20101101

5 http://www.reuters.com/article/idUSRISKPL20101101

6 Katya Andrusz and Monika Rozlal, “Poland Not Ready to Propose Pension Suspension, Minister Says,” Bloomberg Businessweek, November 17, 2010,

http://www.businessweek.com/news/2010-11-17/poland-not-ready-to-propose-pension-suspension-minister-says.html

7 http://www.reuters.com/article/idUSRISKPL20101101