Polish Ruling Party Pledges Benefits Boost in Election Push

(Bloomberg) -- Poland’s ruling party promised to raise flagship benefit payouts for families with children by 60% next year in the first major announcement of its campaign to win an unprecedented third term in power.

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The plan, unveiled by Law & Justice Chairman Jaroslaw Kaczynski on Sunday, marks a return to the playbook of boosting social spending that helped his party win the last two elections. Government bonds sold off as the initiative may lead to wider budget deficit and is likely to fan inflation.

The ruling party aims to increase the monthly child allowance to 800 zloty ($192) from 500 zloty if it wins a parliamentary election expected in October. The payout, known as 500+, was a key vote-winner for Law & Justice when it first took power in 2015. But the party may struggle to stay in office for another four years as the current race remains tight.

The move sparked a response from the opposition. Civic Platform party leader Donald Tusk told a rally in southern Poland Monday that he’ll seek a vote in parliament to increase the payment in June, four months before the contest is scheduled for October.

The total cost of the pledges, which also include free medication for children and seniors as well as scrapping highway tolls for passenger cars, would amount to between 0.7% and 0.9% of economic output, according to estimates from economists at PKO Bank Polski SA.

The yields on 10-year notes rose 16 basis points to 5.9% at 6:05 p.m. in Warsaw, while the zloty gained 0.3% to 4.5080 per euro. Investors in derivatives markets pared expectations for a rate cut in the next six months.

Just the Beginning

Kaczynski, Poland’s most powerful politician, didn’t specify the costs of the new proposals or how they would be funded. Prime Minister Mateusz Morawiecki said the government will discuss the proposals at this week’s meeting. The budget deficit is set to increase to 4.9% of gross domestic product this year from 3.7% in 2022, according to a Bloomberg survey of analysts.

It’s not the first round of spending measures announced by the government. For the third year running, retirees will receive two bonus pension payouts in 2023. The government is also likely to keep a VAT charge on food at zero until the end of 2023 or longer in an attempt to lower inflation, which spiked to a quarter-century high.

“This is just the beginning,” said Marcin Mazurek, chief economist at MBank SA in Warsaw. “What we are probably going to see going forward is looser fiscal policy, meaning faster growth and higher inflation.”

Poland’s opposition has criticized the government over a cost-of-living crisis, allegations of graft, and a conflict with the European Union. Poland can’t access €35 billion ($37.9 billion) in post-pandemic aid due to EU concerns over an erosion of its democracy.

Tusk told a rally in Krakow that the child allowance proposal corresponds roughly to what Poles lost due to inflation.

“I dare Kaczynski to vote on this decision to increase 500+ as soon as possible, that we do it before the election,” he said.

--With assistance from Natalia Ojewska and Piotr Skolimowski.

(Updates with the opposition in fourth, last paragraphs.)

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