Since the election, the broadest index of the Warsaw Stock Exchange has fallen by almost 16 percent | Leszek Szymanski/EPA Opinion Poland’s looming economic storm Europe should pay attention to the PiS-controlled government’s ill-advised economic policies.

Poland’s Law and Justice Party (PiS) has chutzpah. In spite of vocal domestic and international opposition, the PiS-controlled government has continued to pursue its controversial reforms of the Constitutional Tribunal and takeover of the public media. While the government’s political moves have attracted the attention of the international media, its plans for Poland’s economy have largely gone under the radar.

But PiS’s economic policies deserve more scrutiny. Finance Minister, Paweł Szałamacha, for example, promises that if all goes well, the Polish złoty (PLN) could one day become one of the world’s reserve currencies, like the U.S. dollar or the Chinese yuan.

With the złoty hitting its 4-year low relative to the euro, it remains unclear how PiS plans to get there. One of PiS’s key deliverables is “500 PLN for each child.” The new program, which was at core of the party’s campaign, will hand each family, irrespective of its income, a subsidy of roughly $125 a month for their second child and every additional child — until they all reach the age of 18. The party also promised to more than double the tax-exempt share of household income. The annual cost of these programs has been estimated at around $11 billion.

Around a fifth of the cost of these programs will be paid for by a new tax on bank assets. Annually, the tax will amount to 0.44 percent of the value of assets held by banks, other than government securities. The tax targets banks because “financial institutions [impose] on Polish citizens the highest banking costs in Europe,” Prime Minister Beata Szydło said.

The government hasn’t explained how the levy will help bring those costs down. In fact, banks have already raised interest rates on mortgages and the Polish Banking Association warned that the bank tax “will simply kill economic growth.” Szydło, meanwhile, downplayed the risks, arguing that “most European countries have a bank tax.”

Banks have already raised interest rates on mortgages and warn that the bank tax “will simply kill economic growth.”

But in other countries the proceeds from similar bank levies are used toward a bank stabilization fund to increase the safety and resilience of banking systems, not to pay for new entitlement programs. EU countries, such as Germany, Sweden, and the U.K. typically tax bank liabilities, not assets. While a tax on liabilities encourages banks to raise capital, a tax on assets incentivizes banks to reduce their lending.

Investors and the private sector are already responding. Stock prices of banks listed on the Warsaw Stock Exchange have fallen on average by 20.8 percent since the end of October, in spite of the sound management, strong capital adequacy ratios, and praise from such international financial institutions as the IMF for having helped Poland weather the global financial crisis. Some banks have taken even heavier hits. Alior Bank, once one of Poland’s most dynamic and entrepreneurial financial institutions, saw its stocks plummet by 32.5 percent over the same period. The governor of Poland’s central bank, Marek Belka, believes that these may be well signs of a coming banking crisis.

The looming troubles go beyond the banking sector. And, since the election, the WIG (the broadest index of the Warsaw Stock Exchange) has fallen by almost 16 percent, wiping out $38 billion of shareholders’ wealth. Non-Polish companies listed in Warsaw performed much better than the Polish ones. The WIG-CEE index, which tracks the value of Warsaw-listed companies from other Central European countries (including the Czech utility ČEZ and the Hungarian energy company MOL), is down by only 4.8 percent, suggesting that markets are distinctly more pessimistic about the growth prospects of Poland’s economy than about those of its neighbors.

The bond markets offer little consolation. The yield on 10-year Polish government Eurobonds has risen by 80 basis points over the last 3 months, to 3.23 percent, bringing Poland closer to the range of 10-year bonds issued by Hungary and Romania (3.40 percent and 3.57 percent, respectively.) In contrast, 10-year bonds issued by the Czech Republic, are yielding just 0.65 percent, less than the bonds issued by certain eurozone countries, such as Austria or Finland.

Investors’ concern about the government’s ability to honor its debt obligations is also reflected in the recent downgrade of Polish sovereign debt by Standard and Poor’s into the BBB+ category, with negative outlook. The downgrade is bound to increase the government’s borrowing costs further and can easily make the burden of public debt spiral out of control.

Worries about Poland’s public finances are fully justified. The tax on financial assets aside, how new entitlement programs will be funded is still largely unclear, notwithstanding Szałamacha’s assurances that “everything is under control.”

Audacious as ever, the finance minister predicts a 3.8-percent growth rate for 2016, which he later expects to rise to between 5 and 5.5 percent, like in the “good old days” of 2006-2007 when PiS’s leader Jarosław Kaczyński served as prime minister.

If the markets’ reaction to the new government is any indication of future economic trends, the finance minister and his colleagues may soon learn the hard way that economic success requires more than just chutzpah.

Martin Miszerak is the founder and CEO of Miszerak & Associates and a former privatization adviser to the Polish government. Dalibor Rohac is a research fellow at the American Enterprise Institute.