Poland Struggles to Afford Its Generosity �Dorota Bartyzel and Wojciech Moskwa

Public Policy ▶ The new government wants to heavily subsidize families ▶ “People come to City Hall almost every day to ask about the money” It Pays to Be a Parent in Poland

In April the Polish government will start paying families 500 zloty ($127) a month for every child born after their first. The Polish handouts, meant to narrow the inequality gap and reverse an alarming drop in the birthrate, will lift an average family of five’s income 25 percent. Norway pays a similar amount, but average incomes there are five times higher—almost $5,000 a month.

The family subsidy is one of the first actions taken by Poland’s ruling Law and Justice Party, which in October won the first parliamentary majority by any party since communism ended in 1989. Founded by former Premier Jaroslaw Kaczynski and his late twin, Lech, a former president, Law and Justice won by pledging to stand up for ordinary Poles and redefine the nation’s role within the European Union. Although Beata Szydlo is the prime minister, Kaczynski, as chairman and the most powerful member of the party, is crafting a regime that mixes Scandinavian levels of social welfare with an authoritarian style of government.

Buoyed by expected economic growth of 3.5 percent this year and next, Law and Justice plans to increase hourly pay for part-time workers, raise the amount of income that isn’t taxed, and lower the retirement age by five years for men and two years for women. In February the government announced plans to invest 1 trillion zloty, almost half of gross domestic product, in manufacturing and innovation to help the country of 39 million people catch up with wealthier EU members. Plans include the construction of industry hubs for shipbuilding, pharmaceuticals, and aviation.

At the same time, the party, which last ran the government from 2005 to 2007, has tightened its grip on the constitutional court and state media. It’s also given the secret services freer rein; they no longer need court approval to put citizens under surveillance. The changes have prompted EU authorities to investigate whether the rule of law is in jeopardy in Poland. Ryszard Petru, leader of the pro-market Nowoczesna party, is urging people to take to the streets in Warsaw on March 12 to pressure Law and Justice to “respect Poland’s constitution.” On Feb. 27-28, 100,000 Poles attended antigovernment rallies in the capital and in Gdansk.

Critics call the family subsidy a ploy to distract voters from an authoritarian agenda. It’ll cost almost half as much as the defense budget. “People come to City Hall almost every day to ask about the money that Law and Justice has promised,” says Robert Biedron, the independent mayor of Slupsk in northwest Poland. “They appear to be willing to sell some of their freedoms for more financial comfort.”

In January, Standard & Poor’s cut Poland’s debt rating for the first time, citing a dangerous weakening of checks and balances. The zloty has weakened 3.2 percent against the euro since Law and Justice took over, the most of any currency in Eastern Europe after the ruble. Warsawlisted stocks have dropped 13 percent since the election, compared with an 8.4 percent decline in the MSCI emergingmarkets index.

Almost half the sum the government has promised to invest in manufacturing and innovation is projected to come from the EU, with the rest from state companies, borrowing, and higher taxes on banks and retailers and, possibly, the general public. The European Commission has said the newchild payouts alone will help push Poland’s budget deficit to 3.4 percent of GDP next year, from an estimated 2.8 percent this year. This would breach the EU’S 3 percent cap and jeopardize billions of euros in funding from the 28-member bloc.

None of that will stop Law and Justice’s efforts to chart a new path for the country through the power of the purse, says Andrzej Rychard, a sociologist at the Polish Academy of Sciences: “Neither the opposition nor the European Union, itself plagued with a sluggish economy and the [Arab] immigration crisis, can outbid the offer that Law and Justice has put on the table for Polish voters.”

Mariusz Kosowski, 31, says the 2,500 zloty he brings home every month from his job at a warehouse 60 miles southwest of Warsaw isn’t enough to provide for his wife and three young boys, so his wife has to work part time for the extra 1,000 zloty they need to scrape by.

For the Kosowskis, the child-subsidy program will mean an income boost of about a third, making the difference between having a small financial cushion and none at all. “This is going to be a serious financial injection for my family,” Kosowski says, praising Law and Justice for being the first party “to force people on the top” to think about the plight of the less fortunate. “The inequality in this country is so painful, how did the other parties not see it?”

Child-related subsidies as a percentage of monthly average wage

Poland* Norway “Neither the opposition nor the European Union ... can outbid the offer that Law and Justice has put on the table for Polish voters.” ——Andrzej Rychard, Polish Academy of Sciences The bottom line An expensive child subsidy is one of many moves by the Law and Justice Party to raise incomes and strengthen its grip on power.

Edited by Christopher Power Bloomberg.com