A grandmother and child in a Warsaw park © AP

In the small town of Sierakowice, in Poland’s rural north, expectant mothers gathered at the town hall just a few days after last October’s general election with dollar signs in their eyes.

The victorious party had promised voters it would give families 500zl (€114) a month for every second and subsequent child, and voters were wondering where they could pick up their cash.

Facing one of Europe’s worst looming demographic crises, and keen to reward its core electorate of more traditional, working-class voters, the conservative Law and Justice party made the tax-free monthly handout its flagship election pledge, in a €5bn populist gamble that economists have warned questions Poland’s fiscal stability

Written into law this week, payments will start in July, unlocking a windfall that could provide larger families with the equivalent of another salary and, Warsaw hopes, boost the government’s popularity and increase fertility rates from one of the EU’s lowest levels.

“We should not be surprised that they have been coming [to ask about the payments],” said Zbigniew Fularczyk, deputy mayor of the Sierakowice district. “All they hear about in the media is this programme. The hope is fuelled all the time. I have this impression that we talk about nothing else in this country than the programme. I hope we will have enough money to pay all these people.” 

The cost of the new policy is a widespread concern, given 2.7m families and 3.7m children will be entitled to the payment and that it is a huge increase from a current situation where only families earning less than 675zl a month get a handout of 118zl per child.

Law and Justice, a conservative party influenced by the country’s powerful Catholic church, has long argued that the fruits of Poland’s economic boom over the past decade have been felt only by the country’s more liberal and urban middle classes. Rewarding working-class people, who typically have larger families and live in rural areas, mainly in the country’s poorer eastern regions, was a key part of the party’s election manifesto.

“This is a big move towards fixing Poland . . . real support from the Polish state for those who are the most important in our country: families with children,” said President Andrzej Duda. “I do not want a Poland where I hear all the time, ‘It cannot be done’.”

Banks, economists and ministers expect the handout, which applies to all second and subsequent children below the age of 18, including those already born, will cost the exchequer about €3bn this year, rising to €5bn in 2017 when it is applied across 12 months. 

That will be partially paid for by new taxes on mainly foreign-owned banks and supermarkets, and a one-off €2.1bn windfall from selling telecom licences. But how Warsaw will fill that funding hole next year is vexing many.

Devised and pushed by the party’s political thinkers, and not its financial experts, the cost of the handout has raised concern in the finance ministry. Poland brought its fiscal deficit down from 8 per cent in 2010 to 3 per cent last year, but fears over looser spending have seen yields on Poland’s 10-year debt to rise 78 basis points over the past year. Warsaw has raised over €6.5bn in bond sales this year to account for increased spending. 

Fitch, the rating agency, warned last month that Poland’s ‘A’ sovereign rating was based on keeping its deficit below 3 per cent, a level the EU considers acceptable.

“If we get a signal that the deficit will be higher, that will be a negative rating trigger,” said Arnaud Louis, Fitch’s chief analyst for Poland.

Mateusz Morawiecki, deputy prime minister, described the handout as “huge money” but said rising economic growth should help cover the costs. He conceded it was unclear what effect it would have on fertility levels.

“It is a crude measure . . . We don’t know exactly what kind of impact it will have,” he said. “After 12, 24 months we will be able to assess the impact and perhaps make it more flexible,” he added, without providing details.

According to his own calculations, Poland will see its working-age population fall by 5.3m people, or 22 per cent, over the next 35 years, crippling its growth prospects as pension and healthcare costs for a bulging elderly population soar.

“This is not an encouragement to have another child and no one should see it that way,” said Paulina Bromek-Paprocka, a mother with one child who will not receive any money under the programme. “I am not decided about whether I will have another child, but 500 zloty will not affect that.”

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