Poland’s outsider finance minister at risk in Cabinet change

Bloomberg

Finance Minister Pawel Szalamacha’s hold on his post didn’t appear that strong to begin with. So when his boss announced a cabinet reshuffle on Friday, investors focused on whether the lawyer tasked with safeguarding Poland’s budget is heading for an exit.
Adding to the anxiety, state news agency PAP reported late on Friday that Szalamacha may be ousted next week, citing sources at the ruling party it didn’t name. While government spokesman Rafal Bochenek said there are no such plans after a similar report by Fakt newspaper earlier in the day, Premier Beata Szydlo declined to specify which ministers will be sent packing as she revamps her 10-month-old cabinet amid allegations of cronyism.
Szalamacha is central to government efforts to keep the budget deficit below the European Union’s cap set at 3 percent of gross domestic product, even as he has little say over the Law & Justice party’s budget-straining political priorities, such as ramping up social spending and reducing the retirement age. While his initiatives have helped limit value-added tax fraud, his track record is mixed as the European Commission last week forced him to suspend a new levy on retailers and revenue from a tax on banks is falling short of plan.
“The potential ouster of Szalamacha may fuel fears about Poland keeping budget targets next year, including staying on the right side of the 3 percent limit,” Piotr Matys, a London-based strategist at Rabobank, said on Friday. “Should trust in Poland’s fiscal policy deteriorate, it may mean higher yields as investors demand a bigger premium for taking on such risk.”

Election Flop
Henryk Kowalczyk, Szydlo’s economic adviser and minister at the prime minister’s chancellory, may replace Szalamacha as finance minister, PAP news agency reported. Earlier on Friday, Szydlo praised Kowalczyk’s work, along with that of the labor minister.
Among contenders to replace Szalamacha is also the current acting chief executive officer of state-owned BOS SA bank, Stanislaw Kluza, Super Express newspaper reported on Saturday, without saying where it got the information. Kluza was finance minister and the head of Poland’s financial watchdog during Law & Justice’s previous stint in power.
Szalamacha, 47, repeatedly declined to comment on his future at a news conference on Friday, called to announce new type of retail bonds. He failed to be re-elected to parliament in last year’s election, limiting his political clout within Law & Justice. He was also a lawyer at Clifford Chance LLP in Warsaw, where he worked on state-asset sales before adopting views more favorable toward government involvement in the economy. Ruling party leader Jaroslaw Kaczynski, the power behind Szydlo’s cabinet, has criticized the government for moving too slowly with budget overhauls. Szalamacha is also in an uncomfortable position vis-a-vis Deputy Prime Minister Mateusz Morawiecki, a former banker that Kaczynski has said was in charge of the government’s economic policy.
Szalamacha’s tax on retailers first triggered protests from shop owners fearing it would hurt their business, before getting struck down by the EU’s executive arm because of concern that it may breach the bloc’s state-aid rules. His other signature project, a tax on bank assets, has raised revenue of 2.1 billion zloty this year to August, less than half of the 5.5 billion zloty envisaged by the minister for the full year.
Nevertheless, the finance minister said this month that there’s a “positive trend” in tax revenues that will keep this year’s budget deficit below the planned 54.7 billion zloty.