The government was startled by the crisis

Boguslaw Kowalski

When a few months ago, in the middle of September 2008, Lehman Brothers, a big bank, declared bankruptcy it triggered an avalanche of events. The stock exchange in New York broke down and consequently, the same happened to other stock exchanges in the world, including Poland. The shares issued by companies, regardless of their financial conditions, began falling at stock exchanges, which meant that their owners became poorer; sometimes they lost even several per cent. Suddenly it turned out that many financial institutions: insurance companies, investment funds, banks and groups combining various forms of activities, faced bankruptcy.

Saving America and Europe

The American government directed by President George Bush, scared by the scale of the uncontrolled phenomena in economy, accepted a rescue plan immediately. It assumed a gigantic help of the government in the amount of 800 billion dollars for the endangered institutions. But it was not sufficient. As we know, the candidate of the Republican Party, which was also the party of President Bush and his team, experienced an ignominious loss in the election and the crisis has affected the whole world. The negative phenomena began going from the financial sphere onto real economy, i.e. services and industrial production. Ordinary people, scared by the news, began buying less. Another reason for that was also banks that stopped giving personal loans to a considerable extent. Single customers, having no money, stopped buying new automobiles and new houses. These two branches: automobile and building industry, were the first of the so-called real economy to experience decrease in sales. Therefore, they began limiting their production and reducing employment. The crisis, like a snowball, began growing and gaining momentum. Because the economic life in the USA is strictly connected with Europe the scale of the negative phenomena affected this continent. Similarly to the situation in America, there appeared visions of bankruptcy of the banks that had had an unimpeachable fame, e.g. HSBC in Great Britain, Hypo Bank in Germany, Paribas in France, UniCredito in Italy or Fortis in the Netherlands. Consequently, the governments of these countries had to follow the plan of Bush’s team and immediately accepted rescue schemes, assigning many hundred billion euros to save the European financial sector. Although none of these banks bankrupted it was not sufficient to stop decrease in production and building industry. Like in a mirror image, only with a delay of several weeks, what happened in the United States affected the European Union. The eurozone countries have experienced a recession.

Our government did not react

In spite of this alarming news coming from distant and neighbouring countries, our government unflinchingly assured us that there was no crisis in Poland and that there could be no crisis at all. The government supported that conviction by the economic factors, informing about the solid foundations of our economy. This optimism was confirmed by a prognosis of increase in the gross domestic product in 2009, which was to be 3.7% in the budget project, and this was a corrected prognosis because originally, it was to be as high as 4.8%. This prognosis is very important because the whole construction of the budget, and of all public finances, was based on it. This indicator is taken to estimate the tax income, which constitutes the basis of state revenue. All units of the local governments, i.e. the governments of voivoidships, districts, municipalities and communes, plan their revenues on the basis of this indicator. A serious error in planning an increase (or decrease) of the domestic gross product for a given year causes far-reaching consequences for the whole public sphere, and then for the whole economy. Therefore, it is not a minor problem, which we can freely juggle with, depending on the political needs. At least one cannot do it with impunity. At first, it seemed that the assurance of the government was to soothe the public mood, that the government meant to balance the ominous news from outside in order to prevent the negative phenomena of panic; that the government knew perfectly well about all threats and controlled all things; that it needed only some time to work out an emergency plan in the seclusion of the offices.
However, it turns out that the government itself believed in its assurances that were of propaganda character. Since in spite of the decrease in the corporate income tax (CIT), levied on companies, which one could notice in September 2008; in spite of the fall of the Polish currency against all Western currencies; in spite of the fact that banks stopped giving personal loans, which must have caused poor demand; in spite of a ca. 8 billion zloty decrease in export in November and a ca. 10% decrease in production – in spite of all these negative phenomena the government has done nothing!

Budget shortages

We were convinced that the budget had shortages when in the second half of January the public opinion began learning that particular ministries had no money to meet their financial obligations and stopped paying on time. At first, the news that the police lacked half a billion zloty came through. Afterwards we learned that the Ministry of National Defence owed 1.8 billion zloty, a trifle really, to its contractors. Other ministries began shyly and unofficially dropping a hint about their debts. It was obvious that something was wrong here. The anxious MPs began asking the Ministry of Finance about the state revenues. Deputy Finance Minister Elzbieta Suchocka-Rogucka, being pressed by the MPs, admitted in the Parliament that 27.8 billion zloty did not come to the state budget in 2008. The revenues lacked that sum as compared to the figure planned. Out of that sum Poland received 20 billion less from the European Union and 7.8 billion zloty less from VAT and excise revenues than it was planned. The scandalous thing is that the government, realising about the rapidly approaching problems, did not care about acceleration and it was not even able to achieve the first plan to spend the EU money. Our annual contribution to Brussels is about 10 billion zloty. We regained the money with interest through various European funds and investment programmes, which are paid from the EU sources. The fact that we did not receive 20 billion zloty from this source probably means that in the year we were the so-called net payer, i.e. instead of gaining we paid extra money to the EU. Undoubtedly, it weakened our currency and the condition of the whole economy. It is also known that both VAT and excise are turnover taxes. If goods are sold the state budget receives duty on this account. Poles began buying less and there was a decrease in VAT and excise. It is a simple evidence that we have a crisis in our economy.

Time for decision

On the basis of the above-mentioned information every student of economy would foresee a decrease in state revenue. Every student but not the Minister of Finance. During the same speech in the Parliament the vice-minister refuted the accusation of the lack of the ministerial reaction. She claimed that one could not react because the information about the small revenues from taxes came after Christmas. Surely, when milk was spilt what could be done? The only thing was to hide this fact before the public opinion as long as possible. But the MPs did not want to hear about such reactions. The Polish economy faces problems but this is only the beginning. The government of Donald Tusk must give up its propaganda of success. It must cast off apathy and bravely face the approaching challenges. No makeshift, which the governmental politicians have used to involve the public opinion, will save the situation and the chattered reality is going to make itself felt. And the Prime Minister, who has already changed his Minister of Justice, should think seriously about changing the Minister of Finance. The crisis will strike with redoubled strength soon and will affect directly ordinary citizens. It is time to act!

Boguslaw Kowalski
A journalist and politician, deputy of the editor-in-chief of Radio Niepokalanow (1996-98), editor-in-chief of the weekly ‘Mysl Polska’ (1992-97), the vice-governor of the Voivoidship of Mazowsze, responsible for infrastructure and development of rural areas (2002-2005), president of the parliamentary commission about infrastructure (2005-2006), secretary of state in the Ministry of Transport (2006-2007), currently an MP, member of the commission about infrastructure and foreign affairs. He is writing his doctorate at the Faculty of Economics of Gdansk University.

"Niedziela" 6/2009

Editor: Tygodnik Katolicki "Niedziela", ul. 3 Maja 12, 42-200 Czestochowa, Polska
Editor-in-chief: Lidia Dudkiewicz • E-mail: redakcja@niedziela.pl