(Updates with Rehn quotes starting in third paragraph.)
Jan. 11 (Bloomberg) -- Poland has taken adequate steps to correct its budget deficit and narrow the shortfall to within the European Union’s 3 percent of gross domestic product limit this year, the European Commission said.
The Polish government has taken “effective action” after a warning by the commission on Nov. 10 that the country was at risk of not meeting its obligation to reduce the shortfall to within the bloc’s ceiling, the commission, the EU’s executive arm in Brussels, said today.
“Our assessment is that Poland does not have an excessive deficit in 2012,” Rehn told reporters.
The government of the EU’s largest eastern economy has struggled since 2008 to control public finances, with the budget deficit ballooning to 7.8 percent of GDP in 2010 and public debt hovering near a 55 percent of GDP legal threshold that would prompt mandatory austerity measures. The commission gave Poland until 2012 to exit its excessive-deficit procedure by cutting its shortfall to the required threshold.
Prime Minister Donald Tusk, who won a second term in October, will reduce tax incentives, raise employers’ social- security contributions and increase levies on metals extraction to narrow 2012 budget gap to 2.9 percent of GDP this year. The government is also pushing for more revenue from state-owned companies and asset sales to compensate for slowing growth.
The government estimates economic growth may slow to 2.5 percent this year as euro-region economies, which buy 54 percent of Polish exports, struggle with a debt crisis.
Poland was the only member of the 27-nation EU to avoid a recession in 2009 as its larger internal market offset waning external demand. The economy expanded 4.2 percent from a year ago in the third quarter.
Poland risked sanctions from the EU, which warned it would reduce the country’s eligibility for the bloc’s funding that helped generate growth in 2009, should the government fail to meet its deficit reduction obligations.
The government’s plan to narrow the budget deficit by 2.7 percentage points this year may fail as the global economic outlook sours and the government relies too much on raising revenue, the Narodowy Bank Polski said on Dec. 22. The central bank-led Monetary Policy Council estimates the 2012 shortfall will fall to 3.9 percent of GDP.
Tusk’s government also plans to trim general government debt to 56 percent of GDP this year from 56.7 percent last year and then gradually reduce it to 50.2 percent in 2015.
--Editors: Alan Crosby, James Gomez
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