Double indexation of pensions. Did Tusk leave something unsaid?
On Tuesday, the government did not support the proposal that was included in the Civic Platform’s election program. There will be no double indexation of pensions because inflation will be low, so there is no need for it, politicians argue. However, there may be a hidden meaning to the matter.
In the election campaign, the Civic Platform promised a double indexation of pensions and retirement benefits. This would be a construction similar to raising the minimum wage twice in one calendar year: if inflation exceeded 5% in the first half of the year, senior benefits would be indexed again in the fall to help them get through the period of higher prices.
Why did the government not support double indexation of pensions?
Tusk repeated the promise in his exposé in December last year. It was therefore possible to conclude that the government seriously wanted to introduce this previously unknown solution to the Polish system. Imagine the surprise when, at Tuesday’s session, the government did not adopt the draft law introducing double indexation of pensions and retirement benefits. The reason: the government does not expect high inflation in the near future, so such a regulation would be pointless.
However, ministers left the door open to revisit the idea if circumstances change in the future.
“The Council of Ministers will return to the bill’s proceedings if there is a risk of inflation exceeding 5 percent. For now, however, the Ministry of Finance does not anticipate such an increase. The mechanism for additional indexation has been developed, and further proceedings of the bill may be undertaken at any time, if necessary,” we read in a statement after the Council of Ministers meeting.
Is it true that inflation above 5% is not looming on the horizon? The NBP sees it differently, predicting that inflation could rise above that level at the turn of 2024 and 2025. According to some economists, it could even reach 6%.
In order not to irritate voters
The money.pl website writes that Tuesday’s decision may have a second meaning, which is the desire to avoid spreading panic. “The adoption of the act could be perceived as an announcement that inflation will be high – to boost inflation expectations,” we read. At the same time, it could strengthen Poles’ expectations that additional indexation will actually be carried out next year. “In the current economic situation, its introduction could cause unnecessary confusion,” said a government source.
Another factor could be at play: year-on-year inflation will be well above 5% by the end of 2024. This level is expected to continue into the first quarter of 2025, and then begin to decline.
The government could have feared that the announcements from the beginning of the year about year-on-year inflation above 5% would cause some pensioners to wait for the payment of a higher pension after the second indexation, we read. However, this would be a flawed reasoning, because the statutory criteria would still not be met. Despite this, some pensioners could feel disappointed and say that “Tusk cheated them”, and the government does not want to allow for such dissatisfaction. Hence the withdrawal of its own promise.
