POLAND - The Polish government plans to introduce changes to the pension system aimed at reducing the budget shortfall in April, said Michal Boni, senior adviser to Prime Minister Donald Tusk.
The plan to cut transfers to private pension funds to 2.3% of employees' salaries from 7.3% was sent to trade unions and employer groups, which have a month to make comments and objections, Boni told reporters in Warsaw today, adding that the government is "still optimistic" changes can take effect from April 1. The bill must then be approved by the government before going to parliament for debate.
The European Union's eastern states are squeezed by measures taken more than a decade ago to limit long-term liabilities by shifting workers into private funds. The move stripped governments of contributions to pay current pensions, swelling debt and deficit levels at a time when the EU is demanding increased fiscal discipline. Hungary is funnelling private-pension funds to the state to plug the shortfall.
"We aren't destroying the reform of 1999," Boni said. "We appreciate its advantages, but we see it needs amending. The changes will be a rational correction to the current system."
Poland will have difficulty in narrowing its general government deficit to the EU limit of 3% of gross domestic product limit even if the 27-nation bloc allows the country to take the pension overhaul into account when evaluating deficits and public debt, according to Bank of America Merrill Lynch economist Raffaella Tenconi.
"I'm expecting Poland to post a deficit of 7.5% this year," she said in an interview in Warsaw on January. 21. "To be fair, it is difficult to get such a huge deficit down. But when I look at the government, I just can't see a credible plan yet."
The pension changes would cut the deficit by 0.8 percentage points of GDP this year, according to government estimates. Further measures, including an increase in the value-added tax rate, would take the total savings to 3 percentage points, Boni said.
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