By Gareth Jones
WARSAW, Oct 1 (Reuters) - Poland's centre-right ruling partyCivic Platform (PO) is trying to avoid painful economic reformsin the countdown to next autumn's parliamentary election when ithopes to increase its majority.
Opinion polls suggest Prime Minister Donald Tusk's party iswell placed to become the first in Poland since the fall ofcommunism in 1989 to win a second consecutive four-year term.
However, a bulging budget deficit and rising public debthave forced Tusk to announce a hike in the value-added tax (VAT)by one percentage point and to trim state spending, measuresthat could cut into PO support and bolster its rivals.
PO's Bronislaw Komorowski won this summer's presidentialelection but his main rival Jaroslaw Kaczynski, leader of theright-wing main opposition party Law and Justice (PiS), didbetter than expected, raising the political price of reforms.
Following are the key political risks facing Poland.
REINING IN DEFICIT, DEBT
Poland's public debt remains well below western Europeanlevels, but the government is anxious to prevent it topping 55percent of gross domestic product (GDP) as this would by lawtrigger painful spending cuts likely to hurt support for PO.
The government has approved a long-term financing plan thatincludes a cap on discretionary spending and more privatisationsto help plug the hole in public finances. The planned rise inVAT from 2011 -- to 23 percent for many items -- is meant to betemporary but opposition parties have vowed to fight the move.
Following Hungary's example and partly in response toopposition suggestions, the government has also proposed a banktax to raise cash but has not yet said how much it might be.
Tusk has ruled out "radical" measures to slash spending orraise other taxes. Liberal critics accuse the government oftimidity, noting the plan does not tackle such issues asgenerous pension rules for farmers or hiking the retirement age.
Tusk hopes economic growth -- seen at 3.0-3.5 percent thisyear, up from 1.7 percent in 2009 when Poland was the onlycountry in the 27-strong EU to avoid recession -- will helpnarrow a general government deficit now expected to top 7 percent of GDP this year.
But the scale of the recovery will hinge on still-uncertaingrowth prospects for the euro zone, Poland's main trade partner.
What to watch:
-- Will financial markets start to demand that Poland tackleits deficit more aggressively? They appear relaxed for now butPoland may begin to stand out in the region as other countriestighten their belts.
-- Can the government reach its ambitious target of 25billion zlotys ($8.47 billion) in revenues from privatisationsthis year? It has raised about 13 billion so far. Markets wouldwelcome success as it would help curb the deficit.
-- Social tensions. Teachers and others are demanding salaryhikes and may stage protests. Other groups have already stagedprotests gathering several thousand people. Poland also faces EUpressure to start phasing out subsidies to coal mines, which maytrigger miners' protests. Poland still relies on heavilypolluting coal for more than 90 percent of its electricity.
COUNTDOWN TO PARLIAMENTARY POLL
President Komorowski is expected to work smoothly with thegovernment and not to veto its laws, unlike his predecessor LechKaczynski, who died, along with scores of other top officials,in a plane crash in Smolensk, western Russia, on April 10.
PiS leader Jaroslaw Kaczynski, twin brother of the latepresident, won more votes than expected in the election aftertoning down his nationalist rhetoric, but he has tilted back tothe right since Komorowski's victory.
Latest opinion polls show PO retaining its strong lead, withup to 52 percent of the vote, against around 25 to 35 percentfor PiS. The Democratic Left Alliance (SLD), whose candidatealso outperformed expectations in the presidential election, hasaround 9 percent support.
The polls show Tusk's junior coalition partner, thePeasant's Party (PSL), failing to breach the 5 percent thresholdrequired to enter parliament in next year's election.
What to watch:
-- Local elections set for Nov. 21 and Dec. 5. A good resultfor opposition parties could further temper Tusk's appetite forreforms.
-- A cautious rapprochement between PO and the oppositionleftists. Tusk said in a recent interview he could imagineforming a coalition with the SLD after the 2011 election if PSLfails to get into parliament.
-- Rising political tensions. Kaczynski has sharplycriticised PO and President Komorowski over what he says istheir lack of respect for his late brother. He has pledged tohave no contact with Komorowski. Some analysts speculate thatKaczynski's hardline rhetoric and brusque treatment of partymembers he suspects of disloyalty could presage a breakup ofPiS, a scenario that would bolster PO's domination of Poland'spolitical scene.
Poland's fiscal challenges and the euro zone's woes havepushed back Tusk's membership drive at least until 2015.
Though joining the euro zone remains an official strategicobjective for Warsaw, some in Poland have cooled to the idea asthe free-floating zloty's sharp fall during the financial crisisplayed a key role in helping Poland to escape recession.
The lack of political consensus in parliament is also anobstacle. PO needs to win, alone or with allies, a two-thirdsmajority in the new parliament in order to amend theconstitution to pave the way for eventual euro adoption.
PiS, which is sceptical on the euro, has been blocking anyamendment in this parliament. A strong PO win next year would bewelcomed by markets as a signal for fresh reforms and forclearing the way to eventual euro adoption.
What to watch:
-- Will Tusk's government revive preparing plans to put thezloty for entry into the pre-euro ERM-2 mechanism?
THE BEAR NEXT DOOR
Warsaw and its communist-era overlord Moscow have said theApril crash in Russia should serve as a catalyst for animprovement in long-frosty relations.
However, Moscow has criticised Poland's decision to go aheadwith the temporary deployment of a U.S. Patriot missile batterynear to the Russian exclave of Kaliningrad, saying it harmsregional trust. Warsaw says the deployment, designed to upgradeits air defences, poses no possible threat to Russia.
What to watch:
-- Will Poland and Russia finally agree a new long-term dealon gas supplies? Last-minute EU objections scuppered apreliminary accord that had envisaged Poland importing Russiangas totalling 10 billion cubic metres per year until 2037.
-- Will Warsaw accept a request from Moscow to extraditeexiled Chechen leader Akhmed Zakayev, wanted by Russia onmurder, kidnap and terrorism charges? A court briefly orderedZakayev's detention when he visited Poland in September but thenfreed him. Zakayev, who has since returned to Britain where hehas political asylum, has said he will return to Poland ifneeded to attend court hearings in his case. Few expect Polandto extradite Zakayev to Moscow in the end.
-- Will Russia's handling of the investigation into theSmolensk crash further upset Poland? Polish officials haverecently said Warsaw is not entirely satisfied with the inquiry. (Editing by Sonya Hepinstall)