PiS unveils ‘Polish deal’ to boost economy
The Polish nationalist conservative government has laid out plans to increase healthcare spending and cut income taxes, as part of a broad program designed to support the economy in the aftermath of the pandemic.
The so-called Polish deal, which will include support for homebuyers, retirees and families, as well as tax cuts for low and middle incomes, is widely seen as an effort by the ruling party for the law and justice (PiS) to define its dropouts before the legislative elections scheduled for 2023 at the latest.
Like most countries in the EU, Poland has been ravaged by Covid-19, with the pandemic killing more than 70,000 and pushing the economy into recession for the first time in three decades.
Prime Minister Mateusz Morawiecki said the Polish deal – which will be backed by loans and grants from the EU’s stimulus fund – was a chance to fulfill Poles’ dreams of catching up with richer countries in Western Europe , as well as expanding the country’s middle class. .
“We have a huge opportunity ahead of us,” he said. “[In the past] we have always had to worry about freedom from external oppression. But today we can worry about the freedom to decide the rules of social and economic growth in our own Polish sovereign conditions.
As part of the changes announced on Saturday, the PiS and its two smaller allies plan to increase spending on the underfunded healthcare system, parts of which have been overwhelmed by the pandemic, from 5% of GDP in 2020 to more by 7% in 2030.
The tax system will also be reorganized. The non-taxable income allowance will increase to 30,000 zloty and the threshold at which Poles will start paying the highest tax rate of 32% will be reduced from 85,000 to 120,000 zloty per year.
Mortgage rules will also be overhauled and guarantees will be provided to make it easier for young people to buy a property, while the rules on building permits will be relaxed. There will also be other benefits for families with young children and retirees, as well as an investment program that PiS says would create 500,000 new jobs.
Morawiecki and his fellow speakers at the ruling camp’s congress gave few details on funding tax cuts.
Jaroslaw Gowin, Deputy Prime Minister and Head of Accord, one of the two junior coalition partners of the PiS, admitted that the richest Poles should pay more taxes, but he did not enter the details. He also said the state budget would be hit.
Polish Finance Minister Tadeusz Koscinski told the FT that tax cuts would be partly funded by faster growth. However, he added that the budget deficit would also be partially covered by higher social security payments from workers and businesses, resulting from changes that would push more self-employed workers into full employment contracts, and the removal of self-employment contracts. ‘a ceiling on social security payments for the self-employed.
Koscinski said the annual net cost to the state budget of tax cuts would be around Zloty 7 billion. He added that there would be an additional 3 billion zloty in grants to co-finance investments by local governments that have lost income due to the tax changes.
Adam Czerniak, an economist at Polityka Insight, said the government’s assumptions about faster growth helping to cover the cost of the government’s plans were “optimistic, but I think they can happen.”
However, he expressed concern that changes to housing – which include state guarantees on home loans for young borrowers – could cause a booming market to overheat.
“Down payment guarantees are very risky at this point in the economic cycle of the housing market,” he said.