Polish Ploy Backfires as Tusk Push for Growth Angers Voters

Donald Tusk has lost Iga Magda’s vote.

Poland’s prime minister is seeking to prop up his sagging popularity and rev up a slowing economy. The method he chose, canceling government debt held by private pension funds to create fiscal space, is only making things worse for Magda, 33, a mother of one, who voted for Tusk’s Civic Platform in 2011.

“It’s nothing more than a money grab,” said Magda, who studies labor-market trends at the Institute for Structural Research in Warsaw. “For voters like me, Tusk’s decision leads to the loss of trust and will make it more difficult to vote for his party, which advertised itself as liberal.”

That sentiment is eroding Tusk’s support among urban professionals and helped the opposition keep its first opinion-poll lead in six years. With the ruling coalition clinging to a two-seat majority in parliament, the shifts in the political scene are threatening the stability created by Poland’s first post-communist premier to win re-election.

Snap elections before the scheduled 2015 ballot are possible, according to Tusk. Such upheaval risks ending Poland’s status as a safe haven in eastern Europe, which helped push bond yields to record lows, said Abbas Ameli-Renani, an emerging-market analyst at Royal Bank of Scotland Group Plc. in London.

“The political uncertainty adds to concern that Poland is arguably no longer as safe a pair of hands as it once was,” Ameli-Renani said by phone. “The risk is that the ruling coalition decides to use the increased fiscal leg-room to loosen fiscal policy and improve their polling.”

Bond Yields

The yield on Poland’s 10-year government bonds rose to 4.86 percent on Sept. 5, an almost one-year high, after reaching a record-low 3.07 percent in May, according to data compiled by Bloomberg. It stood at 4.40 percent at 9:06 a.m. in Warsaw.

Tusk was able to lure investors to Polish debt by making the country the only European Union member to avoid recession in 2009 and by providing political stability. Entering his seventh year in power, he is the country’s longest-serving premier since the fall of communism 24 years ago. His 2007 election win ended a period of four prime ministers in six years.

That run is now under threat as Civic Platform trails former Prime Minister Jaroslaw Kaczynski’s Law and Justice party 30 percent to 24 percent in Homo Homini’s poll of 1,100 adults on Sept. 20-21.

‘Not Enough’

“Tusk can still count on his core electorate as people who understand the economy see that the government was under pressure from worsening budget conditions,” Henryk Domanski, a sociology professor at the Polish Academy of Sciences, said by phone from Warsaw. “The problem is that it won’t be enough to win elections. Swing voters are key and they are drifting towards the Law and Justice.”

Tusk’s slide began as the government narrowed the budget gap by more than half since 2010 to 3.9 percent of economic output last year. That exacerbated a slowdown sparked by the recession in the euro area, Poland’s biggest export market, and forced Tusk to raise this year’s deficit target by 40 percent and suspend a cap on public debt.

Seeking to loosen the spending reins and stimulate the economy without a further blow to the budget, the government will take over 51.5 percent of the $91.5 billion in assets managed by private pension funds.

Parliamentary Arithmetics

So far, that’s only made life more difficult for Tusk. Ex-Justice Minister Jaroslaw Gowin, Tusk’s main rival in the party, left the coalition along with other two deputies. Civic Platform and its allied Polish Peasants’ Party now control 232 votes in the 460-seat Sejm. It also at times relies on independent lawmakers and members of the opposition Palikot Movement to push through legislation.

Voters have also yet to embrace the pension plan, even if it will free up room for more state spending to stimulate the economy, which is forecast to grow at its weakest pace since at least 1997.

A survey by the CBOS research institute on Sept. 5-12 showed 70 percent of Poles disapproved of the government’s economic policy, with the worst showing among younger voters aged 24 and less. According to a September poll from Homo Homini, 49 percent of working Poles disapprove of the government’s decision that will cancel bonds held by the funds and reduce public debt by 8 percent, while 17.3 percent back the overhaul.

Still, Tusk probably has enough support in parliament to hold on through the end of his term, said Raffaella Tenconi, an economist at Bank of America Merrill Lynch in London.

‘More Complex’

“The political backdrop has become more complex, but in our view Tusk will remain in power until 2015 as the opposition does not have yet a clear victory at hand,” Tenconi said by e-mail. “The gradual rise of the opposition party in the opinion polls is not an imminent risk.”

Kaczynski is looking to capitalize on the weakness of a rival who’s defeated him in two elections. In a Sept. 4 speech, the opposition leader laid out a plan to raise taxes for high earners and charge for transactions on the Warsaw Stock Exchange for the next five years to help plug the budget gap. He also pledged to increase the minimum wage from the current 1,600 zloty ($518) a month and introduce tax breaks for companies that invest and employ people.

‘Boosting Demand’

“Crisis is a time for investment,” Kaczynski, who was the prime minister in 2006-2007, told an economic forum in Krynica, southern Poland, last month. “Boosting demand and creating a mechanism that would bring about technological progress is our way to growth.”

His push is forcing Tusk to pull out all the stops even with two years before the next election and is counting on a rebounding economy to win back his voters. Growth accelerated to 0.8 percent in the second quarter and may reach 2.5 percent next year, according to a median estimate in a Bloomberg survey of 43 economists.

He’ll need to do more to win back Magda’s vote.

“It’s a pity that instead of reforming the economy the Tusk cabinet is opting for the easiest measures to improve the public finances,” she said. “There’s too much hypocrisy here.”

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