Page 17 - Poland Outlook 2020

5.0​ Fiscal policy outlook
The PiS government is delivering the first no-deficit budget in three decades in
2020. The budget bill has been criticised, however, for being overly optimistic.
Budget revenues and expenditure are both planned to come in at PLN435.3bn (€102.5bn) in 2020. Revenues will thus expand as much as 12.3%% versus 2019 while expenditure will increase 4.6%.
The balanced budget comes despite the government’s deciding against hiking of pension contribution for top earners (which was met with outrage), lowering of personal income tax (PIT) rate from 18% to 17%, and exempting people under 26 years of age form paying PIT altogether. Whatever revenue will go missing because of those moves, the government says will be made up for by further tightening of VAT collection.
The government also counts on one-off revenues, which analysts say is reasonable although unsustainable by definition.
“[There will be] revenues from the transformation of the OFE pension fund as well as sales of 5G frequencies and a sale of CO2 allowances. The government expects to receive PLN 18bn from that source. This assumption is reasonable and our main worry is that these are one-off revenues, so budget balancing is temporary,” ING wrote.
The draft of the 2020 budget bill also seems over-optimistic when it comes to tax tightening, according to ING.
“The low hanging fruits of such policy have already been gathered and the GDP slowdown won’t help to harvest more. Still, the government assumes that the VAT revenues will grow by PLN 21bn (or PLN 14.5bn if we assume expected over-performance of 2019 VAT), which is a lot without raising VAT rates (2020 nominal VAT growth should almost double what will be achieved in 2019). The expectations for CIT (Corporate Income Tax) of PLN 7bn additional revenues are more reasonable because they already surprise on the upside,” according to ING.
8.0​ Markets outlook
• PLN
The strong recovery of the PLN over the last few months can be attributed to idiosyncratic, as well as systematic factors. Currently, the EUR/PLN exchange rate is trading close to 4.27 at the end of December. August and September were quite volatile months for the zloty as global risks from the trade war and global growth slowdown, as well as idiosyncratic risk led to a sell-off. With respect to the latter, the release of the ECJ verdict on the CHF loans topic triggered the start of the recovery of the PLN in October 2019. In addition, the
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