Old school new school

Between Gomulka and Tusk, my guide is being written for how markets might judge the Tusk government moving forward.
Tusk lost a pair of elections in ‘05 having run a campaign on detailed policy promises. The list was topped by the famed slogan “3 times 15” – a call for flat rates for personal, corporate and VAT taxes. Never mind that this wasn’t really the heart and soul of the party’s platform, never mind that math seldom makes for a sexy campaign, this was just easy fodder for an opposition that new to offer little and attack lots.
Tusk won the 2007 vote having shifted to modern tactics. He promised two generalities: a gentler government less prone to conflict and an economic miracle modeled on Ireland. Taxes were avoided like the plague. As was any topic that might favor any group over any other. Throw in a few last minute vows for public sector raises, understandable in the stretch, and Tusk & Co. rang up their long-awaited victory.
Old days and politicians didn’t always get off that easy. Polish public finances were too close to cracking, the external balance too close to the danger mark, Poland was too clearly in the group of developing markets where you slip an inch and the hot money said sell, promise fiscal reform and the hot money rushes back. By nature, every policy move that could benefit one group either came at another group’s cost or put public finances on the brink, at potential cost to everyone. The liberal party made a name, albeit never a respectable election result, by being true their colors and consistently pressing for fiscal reform at the cost of every beneficiary group nationwide.
I like this irony: those feared ‘heartless liberals’ finally come to power only once the bugaboos they had bemoaned started melting away as Poland began to outgrow problems. Poland is less and less treated as an emerging market: today portfolio investors buy treasuries and have the audacity to hold to maturity. Forget the hot money, Poland is increasingly a ‘buy and hold.’
More irony: the prior government - populist and with two populist coalition partners - could not spend money fast enough to even come near its own (admittedly unambitious) budget deficit cap. During an election year! That is the power of economic growth. Or consider the legions of unemployed that Poland shifted onto eye-winking disability benefits at the start of the system transition. Despite hair pulling from budget writers and bean counters, they were never forced back to work. Poland survived and the legions are now on garden-variety retirement.
Undeniably, Poland would be further forward today had it faced those problems head on years back. Perhaps Poland would already be enjoying an Irish miracle. Undeniably, plenty remains for the old school reflexes of Civic Platform to bemoan. But Civic Platform doesn’t have to bemoan it today, once in power.
That Poland in the mean time has outgrown any number of those longer-term fiscal problems isn’t just my opinion. I’m actually only quoting deputy Finance Minister Gomulka. Take for just one example his interview for the daily Gazeta Wyborcza from March 20.
“This is not the situation from 1989 or 1992,” Gomulka told the daily. “today we have a different situation, we don’t need revolution.”
But two columns later, Gomulka goes the other way: to fund tax cuts, Poland will wipe out early retirement privileges for the vast majority of those that can currently start collecting pensions at age 50.
Poland spends PLN 20 bln a year (that’s nearly the 2007 budget gap) to keep 1 mln people in early retirement. Poland would pare that down to 100k - 200k, Gomulka says, by trimming the list of qualifying professions to those that actually suffer those “special” working conditions that early pensions are supposed to help. Mid-term savings are seen at PLN 10 to 12 bln.
Us old-school journalists can breath a sigh of relief. From a liberal government that has already issued pay raises and caved on a vow not to hike health care premiums we have, finally, A NUMBER as a target. A number with a large field of play between current and target levels.
This government can continue to step around any number of localized issues. They can now afford to back down on any number of policy initiatives. But they won’t likely leave the early pensioner count at 1 mln with PLN 20 bln in benefits. Too many easy targets, too much money. But they’ll never press it down to 100k beneficiaries to get their PLN 10 bln savings. Too many people posing too much resistance (don’t talk to me about the efficacy of work re-activation programs). That is my old-school pick for a market-oriented Tusk government litmus test.