PiS unveils ‘Polish Deal’ to lift economy

Poland’s conservative-nationalist government has set out plans to boost health spending and cut income tax, as part of a sweeping programme designed to bolster the economy in the wake of the pandemic.

The so-called Polish Deal, which will include support for housebuyers, pensioners and families, as well as tax cuts for low and middle-earners, is widely regarded as an effort by the ruling Law and Justice party (PiS) to set out its stall ahead of parliamentary elections due at the latest in 2023.

Like most countries in the EU, Poland has been ravaged by Covid-19, with the pandemic claiming more than 70,000 lives and tipping the economy into recession for the first time in three decades.

Prime minister Mateusz Morawiecki said the Polish Deal — which will be buttressed by loans and grants from the EU’s recovery fund — was a chance to fulfil Poles’ dreams of catching up with richer countries in western Europe, as well as to expand the country’s middle class.

“We have a huge opportunity in front of us,” he said. “[In the past] we always had to worry about freedom from external oppression. But today, we can care about the freedom to decide about the rules of social and economic growth on our own sovereign Polish conditions.”

As part of the changes announced on Saturday, PiS and its two smaller allies plan to boost spending on the underfunded health system, parts of which have been overwhelmed by the pandemic, from 5 per cent of GDP in 2020 to more than 7 per cent in 2030.

The tax system will also be rejigged. The income-tax-free allowance will rise to 30,000 zloty, and the threshold at which Poles start paying the higher 32 per cent rate of tax will rise from 85,000 to 120,000 zloty per year.

Mortgage rules will also be revamped and guarantees will be provided to make it easier for the young to buy property, while the rules around building permits will be relaxed. There will also be further benefits for families with young children, and pensioners, as well as a programme of investments that PiS claimed would create 500,000 new jobs.

Morawiecki and his fellow speakers at the congress of the ruling camp gave few details on financing for the tax cuts.

Jaroslaw Gowin, deputy prime minister and head of Agreement, one of PiS’s two junior coalition partners, conceded richer Poles would have to pay more taxes, but did not go into detail. He also said the state budget would be hit.

Poland’s finance minister Tadeusz Koscinski told the FT that the tax cuts would partly be funded by faster growth. However, he added that the fiscal shortfall would also be partly covered by higher social security payments from workers and business, resulting from changes that would push more workers from self-employment to full employment contracts, and from the removal of a cap on social security payments for the self-employed.

Koscinski said the annual net cost to the state budget of the tax cuts would be about 7bn zloty. He added that there would be a further 3bn zloty in subsidies to co-finance investments by local governments that had lost revenue as a result of 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 the changes around housing — which include state guarantees on home loans for young borrowers — could cause a booming market to overheat.

“Guarantees on down payments are very risky at this point in the business cycle in the housing market,” he said.

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