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Polish PM vows to tackle public debt in 2nd term

By Vanessa Gera

Associated Press

Published: Friday, Nov. 18 2011 9:41 a.m. MST

Poland's Prime Minister Donald Tusk delivers a speech at the parliament in Warsaw, Poland, Friday, Nov. 18, 2011. Poland's newly re-elected prime minister plans to raise the retirement age to 67, one of several measures aimed at bringing down public debt over the next four years.

Czarek Sokolowski, Associated Press

WARSAW, Poland — Poland's newly re-elected prime minister said Friday that he will raise the retirement age to 67 as he announced a series of far-reaching measures aimed at bringing down public debt.

The measures — described by some commentators as radical — indicate that Donald Tusk finally plans to tackle some of the more painful reforms economists have called for after a first term marked by some privatization but a go-slow approach overall to deep-reaching change.

Tusk acknowledged his plans will require sacrifice on the part of the country's 38 million citizens to ensure the quickly developing economy remains robust amid a gloomy global outlook, he said.

Tusk said, however, that achieving financial discipline in the decades to come is forcing the government to take "unpopular steps that will require sacrifice and understanding from everyone, without exceptions."

Tusk said the measures, dominated by various forms of tax hikes, are needed to ensure that the ex-communist country becomes a key European player. Poland is the sixth largest economy in the 27-member EU and one of the bloc's fastest growing economies. But it doesn't belong to the eurozone, and is often a marginal political player in Brussels.

"Only strong players will survive in the crisis," Tusk said, in his first policy speech to parliament after his pro-market Civic Platform party won re-election last month. "We need to be strong to play a role in Europe."

Tusk's new government, which includes the small conservative Polish Peoples' Party, was sworn in earlier in the day. It faces a confidence vote Saturday but is expected to survive it easily since the coalition enjoys a majority in the lower in parliament.

Tusk vowed to reduce public debt — now at nearly 54 percent of gross domestic product — to 52 percent next year and to 47 percent in 2015. The aim is to show markets and the EU that he will keep debt under control as Europe is gripped by fears the sovereign debt crisis could exacerbate.

The EU warned Poland last week that it could now face sanctions if it doesn't control state spending. Rating agencies have also been warning Poland that it must tackle spending if it wants to avoid a downgrade.

"These proposals will be welcomed by the markets as very good," said Jakub Jaworowski, an economist with Bank BPH in Warsaw. "I think this will be enough to make them (the ratings agencies) happy."

Poland's currency, the zloty, has been battered by the turmoil in Europe lately, even though the country — the largest of the EU's new members — is growing at a strong 4 percent this year. After Tusk's speech, it gained in value against the dollar and euro.

Poland was the only EU country to avoid recession amid the global crisis of 2008-09. But the country's weak point has been its growing public debt.

Tusk said he would cut it through a series of measures that include higher taxes and social security payments by some, including farmers, who have traditionally enjoyed special tax privileges.

He said a rich new source of budget income will come from taxes imposed on Poland's sizable copper and silver deposits, as well as on shale gas, of which exploratory searches are under way.

Tusk also vowed to start gradually raising the retirement age starting in 2013 to 67 years for all Poles. Currently women can retire at 60 and men at 65.

Other measures to lower debt include a loss of tax exemptions for what Tusk called "well-off" families — those with annual income above 85,000 zlotys (€19,000; $26,000).

He also said there will be limitations to retirement rights for the "uniformed" services. Many police, firefighters and others will not be allowed to retire before they turn 55 under the changes.

Monika Scislowska contributed to this report.

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