Publicìonomics and Finanse praca


Introductions 2

  1. Fiscal and Budgetary Policy 3

    1. The Concept and Functions. 3

    2. The Objectives, Types and Main Instruments. 5

    3. Main Instruments of Fiscal Policy. 5

    4. The Budget 7

  2. The Fiscal Policy in Poland 8

    1. The Main Objectives. 8

    2. The Polish Budget (structure) 9

    3. Deficit and Public Dept. 9

    4. The Future - Poland in 2012. 10

Conclusions. 11

Bibliography 13

Introduction

This paper presents characteristics, functions and goals fiscal policy in Poland.

Since 1998 monetary and fiscal policies in Poland have been formulated by distinct and independent monetary and fiscal authorities. The history of cooperation between them allows an appreciation of the relevance of the policy mix for the composition of final demand and output, and for interactions between monetary and fiscal policies.

Fiscal policy is one of the chief economic policy instruments at the disposal of the state. Fiscal policy in a broad sense of the term, as activities undertaken to control the amount and structure of the state's revenues and expenditures. Fiscal policy has a manifold impact on the national economy, and the use of specific fiscal instruments triggers changes in its various areas.

The space to man oeuvre in Polish fiscal policy is very narrow. The most important constraint is not the formal one (Polish Constitution, budget law, European Stabilization and Growth Pact) but the economic one. Huge budget deficit and growing borrowing needs of public sector can destabilize economy and hamper economic growth. Fiscal adjustment is needed but one has to distinguish between means and ends of economic policy. The most important goal of economic policy is always a long-term economic development.

1.Fiscal and budgetary policy

1.1. The concept and functions

Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation's economy. It is the sister strategy to monetary policy with which a central bank influences a nation's money supply. These two policies are used in various combinations in an effort to direct a country's economic goals.

Before the Great Depression in the United States, the government's approach to the economy was laissez faire. But following the Second World War, it was determined that the government had to take a proactive role in the economy to regulate unemployment, business cycles, inflation and the cost of money. By using a mixture of both monetary and fiscal policies (depending on the political orientations and the philosophies of those in power at a particular time, one policy may dominate over another), governments are able to control economic phenomena.

Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation (generally considered to be healthy when at a level between 2-3%), increases employment and maintains a healthy value of money.

Fiscal policy has three very important functions because of the use of taxes, spending  budgetary  and achieve social and economic goals:

a) Allocative function

b) Convergence function

c) Stabilization function

Allocative function

There are two ways of management of public goods by the state. The first is that just invests in roads, railways and self-manages, and distributes the final product usually charge between the citizens and businesses. However, it is critically evaluated, because it causes high social costs. The second relates to the management of the State to buy goods from companies and then splitting them between citizens. However, this method causes the consumer propensity to waste.

Convergence function

Aligning the differences achieved through fiscal policy has lead to the easing of income and wealth vary between citizens. For this purpose, the progression of the tax and shall transfer, or transmit any amounts collected in taxes from the citizens of one another.

Stabilization function

Stabilizing the economy through these policies has lead to balance expenditures and revenues. This is a matter entirely, however, wider, ie, the impact of fiscal policy on the balance of the overall economy, including eliminating or at least inhibition of inflation. State revenues come mainly from direct and indirect taxes.

The former are imposed in connection with the value of goods, which are the administrators of businesses and assets owned or inherited. The basis is, however, income tax, which is usually progressive. Tax progression is usually justified by the desire to reduce the income disparities of society. The effectiveness is often questionable due to the use of the relief, but this method reduces the tendency to develop economic activity or encourages people to take undeclared activities.

Indirect taxes paid by entrepreneurs speak on behalf of farm households, because these taxes are causing higher prices. Examples here might be a VAT or excise duties.

In practice, strict compliance of budget revenue and expenditure is a very rare phenomenon. This is particularly important when the budget deficit, or excess of expenditure over receipts. Please note the desired size of the budget deficit is given annually. While public debt is the cumulative size of the debts contracted by a number of years to cover the subsequent deficits.

Alleviate both of these is fiscal policy. To reduce the deficit or even a surplus, which could be used for debt reduction, you cut expenses and (or) raise taxes .. Of course both of these forms are negatively perceived by citizens. However, the increase in taxes reduces the propensity to undertake economic activity, which in turn leads to the underground economy. Therefore, fiscal policy must be carried out very reasonably.

1.2. The objectives, types and main instruments.

Fiscal policy can be used in various different ways. It may be used to try to boost the level of economic activity when the economy is flagging a little. In this case it is called reflationary policy . Alternatively the economy may be doing a little too well and in need of slowing down. In this case deflationary policy is called for. The final use for fiscal policy is as a tool of supply-side policy .

Fiscal policy objectives are:

-To achieve desirable price level:

The stability of general prices is necessary for economic stability. The maintenance of a desirable price level has good effects on production, employment and national income. Fiscal policy should be used to remove; fluctuations in price level so that ideal level is maintained.

-To Achieve desirable consumption level:

A desirable consumption level is important for political, social and economic consideration. Consumption can be affected by expenditure and tax policies of the government. Fiscal policy should be used to increase welfare of the economy through consumption level.

-To Achieve desirable employment level:

The efficient employment level is most important in determining the living standard of the people. It is necessary for political stability and for maximization of production. Fiscal policy should achieve this level.

-To achieve desirable income distribution:

The distribution of income determines the type of economic activities the amount of savings. In this way, it is related to prices, consumption and employment. Income distribution should be equal to the most possible degree. Fiscal policy can achieve equality in distribution of income.

-Increase in capital formation:

In under-developed countries deficiency of capital is the main reason for under-development. Large amounts are required for industry and economic development. Fiscal policy can divert resources and increase capital.

-Degree of inflation:

In under-developed countries, a degree of inflation is required for economic development. After a limit, inflationary be used to get rid of this situation.

1.3. Main instruments of fiscal policy:

Since no single number is an adequate summary of all of the important dimensions of fiscal policy, it is important to remain aware of the special characteristics of the commonly used instruments of fiscal policy. These instruments are presented in table below.

Instruments of reflationary policy:

Instruments of deflationary policy (automatic stabilizers):

  • Increase or reduce budgetary spending

  • Change in tax rates and rules

  • Changing the rules of subsidizing businesses

  • Taxes on income population

  • Taxes on businesses

  • Indirect taxes

  • Allowance for the unemployed and other performance

  • Subsidies, guarantees for agriculture

Types of fiscal policy:

Reflationary Fiscal Policy

Governments may choose to use reflationary fiscal policy in times of recession or a general downturn in economic activity. In this situation they will use their fiscal policy to give a boost to the economy. They may do this by lowering taxes in some form or by increasing the level of government expenditure. This will encourage people to spend more. If they lower indirect taxes then this will lower the prices of the taxed goods and encourage more demand. Alternatively they could lower direct taxes . This will raise people's disposable income (their take-home pay) and therefore encourage them to spend more. Either way the level of demand in the economy should rise and help encourage economic growth.

Reflationary fiscal policies could therefore include:

Deflationary Fiscal Policy

Deflationary fiscal policy is likely to be most appropriate in times of economic boom. If the economy is growing at above its capacity this is likely to cause inflation and balance of payments problems. To try to slow the economy down the government could either raise taxes in some form or perhaps reduce government expenditure. Either of these will reduce the level of demand in the economy and therefore the level of economic growth. It may increase indirect taxes which will raise prices and deter people from spending so much, or it may increase direct taxes, which will leave people with less money in their pockets and so stop them from spending so much.

Deflationary fiscal policies could therefore include:

Fiscal Policy as a Supply-side Tool

Supply-side policies are policies that aim to increase the capacity of the economy to produce. Fiscal policy usually acts on the level of demand in the economy and the deflationary and reflationary policies on pages 2 & 3 are often known as demand-side policies . However, it is also possible for fiscal policy to act on the level of supply as well.

Income tax will always have an effect on people's incentives to work. This will be true at most income levels. If income tax at low income levels is too high, people may choose not to work but to remain on benefits instead. If income tax on high levels of income is too high, people may choose not to work so hard and take risks. Ultimately they may even choose to leave the country if taxes elsewhere are much lower (a "brain drain").

Supply-side fiscal policies could therefore include:

1.4. The budget

The state budget can be defined as the revenue and expenditure and revenue expenditure and the state in a certain period - the most important financial plan of the state. Requires authorization by parliament and the political representative bodies of local government. The basis for creating the budget is adopted by the Parliament Act, which empowers the government to carry out specified in the revenue and expenditure.

The budget includes revenues and expenditures of the following institutions:

  1. government administration,

  2. courts and tribunals.

The concept of the state budget can be understood in three aspects:

  1. Economy - a fund of funds,

  2. Law - a statute,

  3. Technical (technical design) - all activities related to the collection and spending of budget resources.

The aim is to rationalize the preparation of the budget expenditure. The budget is the financial basis for the planning of projects and provides important information needed to control the business.

The state budget is adopted in a budget bill for a year called the financial year, which in Poland coincide with the calendar year. Then the budget is announced in the Official Gazette as the Budget and then becomes a legal instrument that allows enforcement authorities to implement it.

Interaction with the budget deficit (or surplus), which is associated with deficit financing of government expenditure properly shaped. The impact of taxes, considered the most effective tool in budgetary policies. Tax instruments can stimulate economic growth in periods of depression. These measures include reduction of value added tax by the amount attributable to investment, counting the cost of investment on income of individuals and companies subject to tax. Also, tax credits associated with exports that could contribute to economic recovery, stimulating the development of export industries.

The budget deficit - the state budget revenue shortfall relative to its expenditure (or - the excess of expenditure over income).

Sources of financing the budget deficit:

  1. Taking out loans by state banks or units of the sphere of financial and in kind,

  2.  Borrowing of foreign loans by the state: in other countries, financial institutions (World Bank, European Bank).

  3. You try to increase budget revenues by: improving tax collection, tax rate increase, the increase in the number of taxpayers,

  4. Reducing the budget spending - reducing subsidies, grants, benefits and welfare assistance to the population. It is extremely difficult,

  5. Issuance of additional cash needs over the economic cycle(the so-called printing. 'Empty money' - not having coverage in the mass commodity. The way this risk of complications in the form of the emergence of inflation in the economy (the second after the economic scourge of unemployment),

  6. Issue of securities (bonds, notes, treasury bills).

The budget deficit, with its small size, can have a positive impact on the economy, especially during a recession (state intervention). Exceeding its "safe" limit (5% of GDP) may cause serious disturbances in the economy.

2. The fiscal policy in Poland

2.1. The main objectives

Notwithstanding the adoption of understanding of the concept of fiscal policy, its fundamental purpose is to formulate the purpose of tax collection and the methods their collection, which means the state budget ensuring the revenue needed to finance all budgetary activities. It guarantees the flow of cash necessary to maintain countries and perform its tasks. The basis of this policy is institutionalized, that is how the use of existing legislation. It is not a stand-alone, independent, as it simultaneously realizes the objectives of fiscal and non-tax, resulting from the overall policy objectives of economic and financial state, however, is an important instrument of macroeconomic policy. Vital to the smooth functioning of the economy and the effectiveness and efficiency of fiscal policy is to harmonize the structure of the tax system.

2.2. The polish budget (structure).

 

2009 (in mln PLN)

% of REV/EXP

2010 (in mln PLN)

% of REV/EXP

Dynamics rate

REVENUE of which:

250 302,40

100,00%

273 144,40

100,00%

9,13%

a)        Income Tax

222 552,10

88,91%

142 670,00

52,23%

-35,89%

-       Indirect taxes

165 189,40

66,00%

179 670,00

65,78%

8,77%

(including the excise duty)

55 684,50

22,25%

58 700,00

21,49%

5,42%

-       Corporate income tax

21 765,90

8,70%

24 800,00

9,08%

13,94%

-       Income tax from individuals

35 592,80

14,22%

38 200,00

13,99%

7,33%

b)        Non-tax revenue

24 501,70

9,79%

28 049,40

10,27%

14,48%

(including: - the proceeds of duties)

1 663,70

0,66%

1 831,00

0,67%

10,06%

c)        Measures from the EU and other sources of non-refundable

3 248,60

1,30%

2 425,00

0,89%

-25,35%

-       Common Agricultural Policy and Fisheries

45,20

0,02%

98,10

0,04%

117,04%

-       Structural Funds and other

3 203,40

1,28%

2 326,90

0,85%

-27,36%

 

 

 

 

 

 

EXPENDITURE of which:

301 220,80

100,00%

313 344,40

100,00%

4,02%

a)      Servicing of domestic debt

27 248,10

9,05%

29 621,70

9,45%

8,71%

b)      Servicing the foreign debt

7 620,40

2,53%

8 812,80

2,81%

15,65%

c)      Settlement of the general budget of the EU to own funds

14 333,00

4,76%

15 656,40

5,00%

9,23%

d)     Subsidies to the Pension Fund

14 935,80

4,96%

15 120,00

4,83%

1,23%

e)       Subsidies to Social Insurance Fund

38 111,70

12,65%

37 134,40

11,85%

-2,56%

f)       General subsidies for local government units

47 185,00

15,66%

48 357,70

15,43%

2,49%

Source: Ministry of Finance

Revenues for the Polish budget increased in 2010 compared to 2009 by nearly 10%, which is due to increase in all except revenue Income Tax Measures as well as from the European Union and other sources of non-refundable, which have fallen. When it comes to expenses are those for 2010 were higher than in the previous year by more than 4%. This increase consisted of all budget spending is beyond Subsidies to Social Insurance Fund, which recorded a decrease in the amount of PLN 1 million.

2.3 Deficit and public dept.

The budget deficit - occurs when expenditures in the budget of the institution (usually the state) are higher than its income.

Distinguish three types of deficits:

  1. Actual deficits (by definition) - which is the actual difference between expenditure and revenue in the period,

  2. Structural deficits - which are hypothetical values​​, arising in circumstances where the income and expenditure are realized by fully utilizing the production capacity of the economy,

  3. Cyclical deficits - as a result of the impact of the business cycle(recession or revive) of income and expenditure budget in the conditions when the economy is not functioning at full use of factors of production. As a rule, are the result the use of automatic stabilizers.

It happens that during the economic crisis, a policy of interventionist state, which could mean a significant increase in the budget deficit. For example, the United States in combating the financial crisis since 2007, the 2009 planned budget deficit of 12.9% GDP (1.84 trillion U.S. dollars) in 2010 a deficit of 10.6% GDP (1.56 trillion U.S. dollars).

In 2011 the European Commission Decision of the European Union Member States were required to report the size of public debt and deficit according to the standardized method of calculation, which was to reduce the fiscal impact of various treatments applied to the hide  According to this method of Polish public debt in 2010 amounted to 54.9% of GDP and the deficit -7.8% of GDP.

Public debt includes the nominal debt of the entities sector of public finance, Public debt includes the nominal debt of the public finance sector entities, determined after the elimination of financial flows between entities belonging to this sector (consolidated gross debt) contracted from the following titles:

  1. securities amounting only to cash benefits (excluding shares),

  2. loans (including securities whose negotiability is limited),

  3. credits,

  4. accepted deposits,

  5. payables (ie, obligations falling due over, and which are not expired or redeemed).

In Poland, to enter into commitments to finance the state's financial needs, repayment of these obligations and to conduct other financial transactions related to debt management is entitled to the Minister of Finance.

Public debt in Poland is at present over 810 billion PLN, which in per capita gives the amount of 22 000 PLN.

2.4. The future - Poland in 2012.

According to forecasts by the International Monetary Fund, next year's GDP growth in Poland is to be formed at 2.5 percent.GDP, which is consistent with the assumptions of the Polish government. Economic slowdown is to be the result mentioned earlier escalation of the crisis in Europe, but in the opinion of the IMF can be for us, less noticeable than in other parts of the continent. The main factors for this situation is a small share of exports in the Polish GDP and far less problems in the banking sector, which will not require its recapitalization and for the borrowing country. The IMF has also reduce the level of public sector deficit next year to 3.25 percent. with a projected 5.5 percent. GDP in the current year.

On the proposal of the government on the draft budget for 2012 also terminated the rating agency Moody's, which concluded that the proposed belt-tightening in fiscal policy will positively affect the creditworthiness of the country, but due to the external environment is at risk of turbulence in its implementation. In turn, another American institution Fitch, in his statement said that the prospect of Polish as the ratings is stable and there is now strong evidence that could adversely affect the change that assessment. The Agency welcomed the fact of adoption by the Council of Ministers for the next year a more realistic budget projections, although bringing the public finance deficit to the level of 3.0 percent. GDP at slowing down of economic activity both at home and abroad will be very difficult to achieve. Optimistically declared on the issue of trias raise the retirement age, but the lack of strong signals, and steps for structural reforms in the long term can lead to turbulence in fiscal policy, which is the largest of the Polish economy's ills.

Conclusions

Public finances, we can roughly be called the opposite of those finances, which we call private finance. Public finances are generally finances, which are primarily institutions such as City Hall, Municipal Office, the Board of County or Regional Assembly. It is above all such institutions to decide how public money will be spent - whether they will be invested in public utility, or may remain unspent in your account. The budgets of municipalities and counties to issue rules provide for a certain amount of the annual limit, which is why contests are often writes grants for various institutions, which provide for their budgets determined for a given year, or are funding they receive from the European Union. Public finances are controlled by a number of different institutions, of which none has the right to decide how they will be issued. Public finance should serve our common good and for such purposes should be utilized.

Country's policy on financial investment and should be extremely cautious and balanced. As we have seen recently, quite recently the example of Iceland, Greece and Spain - pretty easy to put the country into a state of bankruptcy. We should warn the example of those countries and lead to a rethinking of how we plan and whether the state budget reserve, which is left to the Treasury are sufficient in an emergency. In addition, financial policy should also deal with inflation and interest rates of investments of state - they should not be so high interest rates as loans for ordinary citizens. Banks should be more willing to lend loans to the Treasury. In addition, the Treasury must ensure that the hole is still growing with no budget has obscured the rest of the expenses, so that it eventually turned out that we reach the money in his pocket, which is at the bottom of a large hole, through which all escapes into space. Budget hole must be patched.

Bibliography:

M. Strugała, P. Zduńczyk, J. Matus 12



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