Cee money risking popularity, polish pm targets pension age

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Adored by voters for avoiding painful reforms during his first four years in power, Polish Prime Minister Donald Tusk is now learning what the economic crisis has already taught his European Union peers: tough policy decisions hurt. After winning re-election last year, he is departing from a take-it-slowly approach to austerity that helped Poland become an EU growth leader with a plan to hike the retirement age to 67. Although he says it is vital to put Poland's public finances on a sustainable footing in the long term, the scheme has ignited public ire and slapped his Civic Platform (PO) party's popularity to its lowest level since it first won power in 2007. Surveys show some 85 percent of Poles oppose the plan, which would raise the pension age from 65 for men and 60 for women."My father has worked for so many years, he is tired and wants to have some rest finally. But even uder the current rules he is not entitled to retire yet, so how will we be able to bear even more years at work?," said Anna Gach, smoking a cigarette outside a Warsaw snack bar where she works."I'm in my early twenties, so for me it's even hard to imagine such a distant future right now, but when I look at my dad, I know the same will happen to me, so I'm against," she added. Public anger, as well as criticism from opposition parties and from within his own ruling coalition, have raised fears that Tusk may be forced to dilute or even abandon the plan. But as he must also calm investors spooked by the euro zone crisis, Tusk seems determined to push ahead even at the cost of a further slide in support."We have to raise retirement age if we are to avoid financial chaos or landing on the margins of poverty. This is a painful but an indispensable decision," he said last month.

FALLING SUPPORT While the neighbouring Czechs and Slovaks have tried to tackle structural issues that pose long-term budget risks, some economists were worried by Tusk's reluctance to do the same during his first tenure as prime minister. He even surprised voters and investors last year by partially unravelling a landmark pension reform from 1999 by diverting some of the contributions workers make to private pension accounts into the state budget to help cut the deficit. That approach, which analysts said was a step backward in reforms, has still been fruitful on the growth front .

Poland was the only country to avert recession at the height of the economic crisis three years ago and last year's growth - 4.3 percent - was exceeded in the EU only by rebounding Latvia and Lithuania. Now Tusk is eliminating privileged pensions for certain groups, cutting tax loopholes, raising disability contributions and taxing some commodity production. That will likely cause growth to slow somewhat while also helping Tusk bring the budget deficit below the EU's prescribed ceiling of 3 percent of annual output. But it will not address the longer term problem of Poland's ageing population. Without the reform, Warsaw expects the pension system deficit to more than double to 106 billion zlotys ($34.25 billion), or 2.7 percent of last year's economic output, by 2030, from just 41 billion seen in 2013 now. Overall, the ratio of working age Poles to pensioners would fall from 4.1 to 1 now to 2 to 1 in 2040 and 1.4 to 1 in 2060.

"The later you do it, the higher the target age must be and the more painful it gets," said Neil Shearing, Chief Emerging Markets economist at Capital Economics. "These are always unpopular measures ... but the big question is if not Civic Platform then who? And if not now, when?"Women workers aged 38 today would be the first to retire at 67 years in 2040, a scheme that surpasses anything done by any of Poland's major regional peers apart from the Czech Republic and puts retirement age on a par with euro zone powerhouse Germany. REFORM FIGHT The proposal has already contributed to the decline in Tusk's Civic Platform support, which has fallen to 28 percent from the 39 percent it won in an October election. One objection from voters and the opposition is that by raising the retirement age, it will put more pressure on an already difficult employment situation in a country where a fifth of Poles aged 18-25 are out of work."Pensions are really about your own savings. There is no point in counting on the state, even if they raise the retirement age. But if they do, they should ensure enough jobs, both for the elderly and the young," said a Warsaw photo shop manager Magdalena Kaczmarek. Tusk's junior coalition partner, the rural Peasants' Party (PSL), has also come up with ideas to dilute the reform in a push to appeal to voters but political pundits say that is unlikely to derail the plan or trigger a government collapse. Tusk is fully aware of the cost to his political future, but he also has until late 2015 to rebuild flagging support."It's not the greatest achievement to commit political suicide, but equally it's not the greatest achievement to win an election and not to what needs to be done," Tusk said.