Poland Social Sector and Public Wages Public Expenditure Review From Maastricht to Vision 2030 Overview Warsaw, Poland May 17, 2010
From Maastricht to Vision 2030 Poland spends fairly well Recent reforms lowered spending High efficiency and good equity Cheque is in the mail But there is need for change Poland 2030 Crisis 2009 Directions of reform Fiscal Structural
Poland Spends Fairly Well
SK BG CY LV RO LT EE ES LU CZ MT PL IE NL HU SI GR UK PT DE EU27 IT EU15 BE AT FI FR SE DK Poland lowered social spending recently EU general government expenditures on social sectors, percent of GDP 40 2003 2008 EU27 Average in 2008 35 30 25 20 15 Source: Eurostat, World Bank staff calculations
Poland net social spending is less than thought EU net and gross social protection benefits in 2005, percent of GDP Source: Eurostat, World Bank staff calculations
Source: Verhoeven et al. 2007. Efficiency in Education
Source: Verhoeven et al. 2007. Efficiency in Health
Equity across Gminas Fiscal Equalization in Gminas by Own Revenue Per Capita Quartiles in 2006 (PLN Per Capita) 2600 2400 2200 2000 1800 1600 1400 1200 Total Revenues 2600 2400 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Own Revenues Bottom 2 3 Top 1000 800 600 400 200 0 Source: World Bank staff calculations
Equity in Education Access to Schooling by Household Per Capita Consumption Quintile in 2007 100 90 No School Private School 80 70 60 50 40 30 Public School 20 10 0 Bottom 2 3 4 Top Source: HBS, World Bank staff calculations
Equity in Health Access to General Practitioner by Household Income Per Capita Quintile in 2007 Source: PORCS, World Bank staff calculations
Poland spends (& taxes) fairly well Cheque is in the mail Fiscal Costs of Structural Reform (% of GDP) 4.0 4.0 3.5 Pension reform 3.5 3.0 3.0 2.5 Tax wedge reduction 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 2007 2008 2009 2010 2011 0.0 Source: Eurostat, Central statistical Office, World Bank Staff Calculations
CY IE MT LU UK PT ES BG SK GR PL09 EE FI PL08 DK LV CZ LT SI EU15 EU27 NL RO SE PLL06 IT AT FR HU DE BE Poland spends (& taxes) fairly well Cheque is in the mail Tax wedge on Labor Cost in 2008 for an Employed Person with Low Earnings 60 50 40 EU27 Average 30 20 10 0 Source: Eurostat, World Bank staff calculations
Poland spends (& taxes) fairly well Cheque is in the mail Employment Rate (Persons in employment divided by the total population of the same age group) Source: Eurostat, World Bank staff calculations
LV EE PL BG SK LT EU10 RO CZ UK HU IE CY DK IT EU27 PT ES DE MT AT SE NL FI FR BE SI GR LU Poland spends fairly well Cheque is in the mail Age-Related General Government Spending in 2007 and 2060 (% of GDP) 40 35 30 EU27 2060 Average 25 20 15 10 5 0 Source: Eurostat, Central statistical Office, World Bank Staff Calculations
Need for Change
Poland 2030
Social Expenditures as % of GDP Poland s social sector is large relative to its income level Social Sector Expenditures as Percent of GDP Relative to GDP per capita in PPS (EU27=100 in 2008) 40 DK 35 FR FI 30 25 PL LT HU EE AT LU CZ EU15 IT EU27 SI GR ES PT BE DE SE NL MT IE 20 BG RO LV SK CY 15 20 40 60 80 100 120 140 PPS per capita Source: Eurostat, Central statistical Office, World Bank Staff Calculations
Global Financial Crisis 2009 Gradual Unwinding to meet Maastricht 3% Projected general government deficit, percent of GDP 0 2009 2010 2011 2012-1 -2-3 -4-5 -6-7 -7.2-7.1-7.3-7.0-5.9-6.9-7.2-7.5-6.9-2.9-5.8 Gov. CP EC IMF -8 Source: Convergence and Stability Program Updates from January/February 2010, EC Spring Forecast 2010, WEO April 2010, World Bank staff calculations
and public debt targets Projected general government debt, percent of GDP 62 60 58 56 54 55 56.3 58.3 55.8 60.5 Gov. CP 52 53.1 59.3 EC 50 48 46 50.7 51 51 53.9 IMF 44 2009 2010 2011 2012 Source: Convergence and Stability Program Updates from January/February 2010, WEO April 2010, World Bank staff calculations.
Fiscal Development and Consolidation Strategy By 2012: fiscal deficit of 2.9% of GDP Discretionary Expenditures Non-Discretionary Expenditures Revenues Beyond 2012: 1% structural fiscal deficit and 40% government expenditures Fiscal Rule
Growth 6 Average 2003-2008 2009 2010 2011 2012 5 5.1 5.1 5.1 4 4.5 4.2 3.9 3 2 3.0 3.2 3.3 2.7 2.7 1 1.7 1.7 1.7 0 Gov. CP IMF EC Source: Convergence and Stability Program Updates from January/February 2010, EC Spring Forecast 2010, IMF Article IV, World Bank staff calculations
Revenue 41 Average 2003-2008 2009 2010 2011 2012 40 40.3 40.3 40.2 39 38 39.6 39.7 39.4 39.1 39.1 39.1 38.7 39.3 37 37.4 37.4 37.4 36 35 Gov. CP IMF EC Source: Convergence and Stability Program Updates from January/February 2010, EC Spring Forecast 2010, IMF Article IV, World Bank staff calculations
Expenditures 48 Average 2003-2008 2009 2010 2011 2012 47 46 45 46.5 46.2 46.8 46.6 45.9 46.0 46.2 44 43 44.6 44.6 44.5 43.3 43.3 43.3 43.3 42 41 Gov. CP IMF EC Source: Convergence and Stability Program Updates from January/February 2010, EC Spring Forecast 2010, IMF Article IV, World Bank staff calculations
Expenditure and revenue-based consolidation Composition of fiscal deficit reduction from 2009 to 2012, percent of GDP Expenditures Revenues Fiscal deficit 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 EU15 EU10 PL Source: Convergence and Stability Program Updates from January/February 2010, World Bank staff calculations
including of social benefits and public wages Composition of general government expenditure reduction from 2009 to 2012, percent of GDP Source: Convergence and Stability Program Update 2010, World Bank staff calculations
and structural adjustment Composition of primary deficit reduction from 2009 to 2012, percent of GDP Cyclical component Structural primary balance Primary balance 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 EU10 PL Source: Convergence and Stability Program Updates from January/February 2010, World Bank staff calculations
as actual output remains below potential output Output Gap, actual output as percent of potential output, 2008-12 Source: World Bank staff based on CP updates
Fiscal consolidation measures in 2010 Visegrad Countries Pensions Public wages Revenues PL No Minor Minor CZ Minor Minor Major HU Yes Yes Major SK No Yes Minor Source: World Bank staff based on CP updates
Directions of Reform
Reform Directions - Sectors Public Wages Pension Education Health Social Assistance Labor Public Financial Management
Reform Directions Public Wages Adjust employment limits in the budget to reflect actual utilization Allow adjusted wage bill to grow with CPI over medium term Increase transparency of public wage bill Nominal Growth Rates of Wages and Wage Bill (2004 to 2009) Budget Execution of Employment Limits and Wage Expenditures (2003 to 2008) 100 99 98 97 96 95 94 93 92 91 90 Filled Posts Wage Expenditures 2003 2004 2005 2006 2007 2008 Source: World Bank staff calculations Source: World Bank staff calculations
Retired Selfemployed Employee Inactive & Student Unemployed Reform Directions Pensions Raise retirement age, especially for women Align disability benefits with pension benefits Integrate special schemes, phase out pensions priviledges Shift to full CPI indexation Strengthen 2 nd pillar through reduction in management fees and adoption of multiple portfolios Shares and Expenditure Levels of Households by Household Head (2008 HBS) State Budget Subsidy Per Beneficiary (PLN) 60 50 40 30 20 10 0 Population Share, (LHS) Share below Income Threshold PLN504, (LHS) Per Capita Expenditure (PLN), (RHS) 1000 900 800 700 600 500 400 300 200 100 0 Source: World Bank Staff calculations based on HBS 2008 Source: World Bank Staff calculations
Reform Directions Pensions in Fiscal Consolidation Strategy Increase of retirement age, especially for women Alignment of disability benefits with pension benefits Integration of special schemes Strengthening of 2 nd pillar Pensions Initiate gradual increase and equalization of the retirement age for women and men which would not include people over 55 Introduce uniform principles of calculation of disability benefits and retirement benefits in the pension system Integrate uniformed services (soldiers, policemen, firemen, and others) into public pension, disability and health care systems from January 1, 2012 onwards Consider equalizing retirement age for newcomers from January 1, 2012 onwards Initiate gradual reform of the farmers retirement and disability pension system while maintaining KRUS as stand-alone entity Consider reforms to increase the effectiveness of pension pillars through external benchmark for OPF investments; life-cycle approach; and phasing out OFE investment limits. Introduce ban on promotion and advertising activities of OFE and further reduce administration fees Resolve the problem of rising accounting public debts generated due to different classification of pension contributions collected in OFE and on individual pension account in ZUS. Source: Government Convergence Program Update 2010
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Reform Directions Education Increase coverage of preschool education Determine per-student allocation of education subvention based on standard class sizes etc Enhance equitable and fiscally sustainable financing of higher education 7.0 Education Subvention and Primary and Secondary Students (2000/01 to 2007/08) Pupils (mn), (LHS) Education Subvention (PLN bn, constant prices), (RHS) 24 6.5 6.0 5.5 5.0 23 22 21 20 19 Source: World Bank Staff calculations
Reform Directions Health Large increases in health spending over the recent years allow for savings in NHF subsidy Use hospital corporatization, DRGs, accreditation to improve spending efficiency Public and Private Health Spending as % of GDP 8 7 6 5 4 3 2 1 Private Public 0 2005 2006 2007 2008 Source: OECD, World Bank Staff calculations
Reform Directions Social Assistance Enhance outreach to vulnerable groups to limit coverage gaps Step up central monitoring and supervision to ensure consistent application of standards Enhance cross-checking of databases to limit leakage Fund increased family benefit entitlements
Reform Directions Labor Market Programs Ensure adequate financing of unemployment benefits Introduce system for monitoring and evaluation of labor market programs Develop activation policies Labor Fund Balance as % of Revenues, 2009-2011 Projection (Sc1: 8.7%; Sc2: 11.2%) Distribution of Expenditures on Unemployment Benefit by Consumption Decile 2005 and 2007 35 Scenario 1 Scenario 2 16 2005 2007 30 25 20 15 14 12 10 10 5 0-5 8 6 4-10 2-15 2005 2006 2007 2008 2009 2010 2011 0 D1 D2 D3 D4 D5 D6 D7 D8 D9 D10 Source: World Bank Staff calculations Source: World Bank Staff calculations
Reform Directions Public Financial Management Implement roadmap for performance-based and medium-term budgeting
Indicative Composition of Public Expenditure Savings
Summary Achieving medium-term fiscal consolidation targets depends on Demographic dividend Moderate wage growth Strong revenue growth High economic growth Achieving long-term structural targets requires additional entitlement and fiscal reforms
THANKS krichter@worldbank.org
Indicative Medium-term Public Expenditure Savings