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President approves new spending rule, conditional VAT rises


President Bronislaw Komorowski has approved an amendment to the Public Finance Act designed to bring under greater control rising public spending and debt. The government expects that it will produce multibillion-zloty savings for the state budget.

At the heart of the amendment is a new spending rule that caps increases in discretionary spending, and any new forms of non-discretionary spending, at one percentage point above inflation. The law also authorises up to two emergency one-point increases in VAT in case the country’s public debt-to GDP ratio exceeded 55% in the coming years. The rises would apply in mid-2012, mid-2013 and/or mid-2014, and would be reversed after three years.

Furthermore, the law introduces changes to the management of public sector debt and liquidity, which are also expected to bring substantial savings.

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