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PUBLIC FINANCE REFORM – POLISH EXPERIENCE

Ministry of Finance Poland

Paper completed: December 2005

1. Introduction

Decentralization of the State that happened since 1989 besides having a political impact also has an
economic impact, because it is connected with changes in public finance sector and offers best chances
for public spending. The situation of the Polish economy at the beginning of the 21st century is delicate.
On the one hand, the economic transformation is still under way, which calls for the application of
economic instruments adequate to the problems of the transitional phase between central planning and
the market. On the other hand, Poland has joined the European Union, which is a group of institutionally
mature market economies. It follows that the instruments of fiscal policy should be compatible with the
market-economy standard. This also requires Poland to have a medium-term strategy for determining and
achieving priorities in the composition of total public expenditure.

Membership in the European Union poses a challenge to Polish economic policy-makers – in particular,
those responsible for fiscal policy. The Minister of Finance remains the main policy-maker in Poland
responsible for fiscal policy. His decisions concerning this area are discussed amongst others at the
Council of Ministers.

As Poland acceded to the EU, its’ public finances are subject to further restrictions. As an EU member
Poland have to fulfil obligations, for example the so called Millennium Developments Goals and first of
all increase R&D expenditures according to the Lisbon Strategy.

Another factor that we have to take into account while planning the challenges for Polish fiscal policy
ahead is the much looked forward to next step of Poland’s integration with the European Union –
accession to the Euro zone. The Ministry of Finance in Poland considers the fulfilment of the Maastricht
criteria in the next few years (as to ensure that Poland can join the economy & monetary union) as the
most important reform of the budget and public finances. The last prognosis prepared by polish Ministry
of Finance the deficit of public finance sector in 2007 will achieve reference value amounting to 3% of
GDP.

Fiscal sector is regularly changing. Let’s have a look at this process, starting from the nineties, when
fiscal sector was significantly transformed.

First of all, revenues of fiscal sector measured versus GDP increased from 38.4% in 2003 to 40.0% in
2006, at the same time expenditures were reduced from 44.6% GDP in 2003 to 43.8% in 2006. In
accordance with prognosis in the years 2007-2010 sector revenues will decrease from 39.9% GDP in
2007 to 38.3% GDP in 2010. Expenditures decreased from 42.9% GDP in 2006 to 40.8% GDP in 2010.

Second of all, budget share in revenues and expenditures of public finances sector decreased
successively. In 2001 adequate shares were 48.0% of revenues and 24.3% expenditures and in 2006
shares were 46.4% of revenues and 25.0% expenditures. Simultaneously budget supplies other sector