WARSAW: Poland will raise the lowest state pensions and boost tax benefits for families, but it plans to defer an increase in defence spending until 2016, the prime minister said, in a move aimed at boosting the government's support before elections.
Prime Minister Donald Tusk told parliament on Wednesday he will propose raising the lowest state pension by at least 36 zlotys ($11.3 US dollar) per month from 2015 and allow the poorest families to fully use a tax break for having children by giving them cash.
However, defence spending will be raised to 2 percent of Poland's $515 billion economy from the current 1.95 percent only from 2016, Tusk said.
In June, President Bronislaw Komorowski called on the government to spend more on defence, in response to the conflict between Russia and neighbouring Ukraine. Poland's current defence spending is already some of the highest in Europe.
"If there is anything to divide, then one must think of the two great tasks, that is social solidarity ... and helping all those who bring up children and thus invest in the future of Poland," Tusk said.
Tusk's ruling Civic Platform (PO) party will compete for votes in regional elections in November this year. Parliamentary and presidential elections are both scheduled for next year.
Civic Platform has been trailing the largest opposition party, Law and Justice (PiS), in opinion polls, after the release of recordings embarrassing to the government in June.
Two polls conducted in July gave PiS a 12-percentage-point lead over PO, casting doubt on the ruling party's chances of winning the November elections.
Finance Minister Mateusz Szczurek said in parliament that the total cost of the new pension and tax measures will reach 2.5 billion zlotys, about 0.2 percent of GDP.
Child-related tax breaks for families with more than two children will be raised by 20 percent from 2015, Tusk also said.
Poland's budget deficit reached 4.3 percent of gross domestic product last year. Budget execution - revenue collected and money spent - was running 8.4 billion zlotys ahead of schedule in the first half of 2014 as the economy grew more than expected, giving the government room to raise social spending.
The government now expects a surplus of 5.8 percent of GDP this year. The budget deficit will not exceed 3 percent of GDP next year, Szczurek said on Wednesday. The government has been aiming for a 2.5 percent deficit ratio in 2015, so Szczurek's comments may reflect some loosening of fiscal policy.
Michal Dybula, an economist at BNP Paribas, said in a comment entitled "Poland: Pre-election pork barrel" that the increases in pensions and child benefits should translate into higher consumption, because of the low savings rate of pensioners and low-income earners.
Despite economic growth of about 3 percent, consumer prices fell in annual terms for the first time in decades in July, meaning that many retirees would see their pension practically unchanged in the coming quarters.
The finance minister also said that the government will assume economic growth of 3.4 percent in next year's budget, less than the 3.8 percent envisaged earlier.
Poland's economy is expected to slow in the second half of the year because of a slump in its biggest trading partner Germany and the effect of the Russia-Ukraine crisis.
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