Poland’s government has approved a tax reform package that it says will help “build the Polish middle class”. The reforms are part of the flagship Polish Deal programme announced by the ruling coalition earlier this year.
The changes unveiled yesterday will introduce a more progressive system by cutting taxes on low-earners but making health contributions non-deductible and introducing a minimum tax rate for large companies.
The tax-free income allowance will increase to 30,000 zloty (€6,640), almost ten times higher than the current 3,091 zloty (€684). The threshold for entering the bracket for the highest income tax rate of 32% will also be raised to 120,000 zloty (€26,600).
The prime minister, Mateusz Morawiecki, hailed the tax package as “historic” and said that 90% of Poles will either benefit or not be affected, reports PAP. He estimated that 16.5 billion zloty (€3.6 billion) more will “remain in the pockets of Poles”.
The government also estimates that 18 million people (from Poland’s population of around 38 million) will benefit from the changes, while 9 million will stop filing out tax forms altogether, as many – mostly pensioners – will no longer pass the threshold.
Morawiecki also said that the increase of the second tax bracket of 32% to 120,000 zloty is an “essential instrument for building the Polish middle class,” reports the Polish Press Agency (PAP).
At the same time, however, the government plans to balance the tax cuts by increasing social and health contributions. It has announced that it will make health contributions non-deductible from tax for those paying flat tax (which includes many self-employed) at 4.9%. The rate is, however, lower than that of 9% which was initially announced in May.
When first announcing the tax reforms in May, Morawiecki said the country’s current tax system was “unfair” because “the rich use our roads, pavements, schools, health services…and often they do not contribute to it appropriately to their earnings”.
Business leaders have argued that plans to make health contributions non-tax-deductible will hurt the middle class. Jarosław Gowin, a former deputy prime minister, criticised the reforms, which he said will “hit millions of hard-working Poles”. His party – a junior partner in the ruling coalition – recently left the government amid the dispute.
Morawiecki argued on Wednesday that the United Kingdom had also decided to raise its health insurance premium after the COVID pandemic. Poland wants to increase health spending from the current 4.5% of GDP – one of the lowest levels in Europe – to 6% in two years and 7% in six years.
Also on Wednesday, the government announced that it would introduce a minimum tax on large companies, both Polish and international, which pay low corporate income tax. Morawiecki argued that this would increase the competitiveness of smaller players.
The tax would amount to 0.4% of company revenues, plus 10% of expenses used for tax optimisation purposes, said Morawiecki. Following the changes, the government expects to collect an additional 2 billion zloty (€441 million) in state revenue for large companies, reports PAP.
Other changes approved by the government on Wednesday include simplifying formalities for the construction of houses up to 70 square metres in size. “This is a new chapter in the history of Polish construction, written in the spirit of freedom, ownership and privacy,” said Morawiecki.
Moreover, the government will grant guarantees of up to 20% of the housing loans, with an upper limit of 100,000 zloty for a minimum period of 15 years.
The state will also offer one-off repayments of some of the housing debt when families have children: 20,000 zloty on the birth of the second child and 60,000 zloty on the birth of the third. Finally, the government has pledged support for local governments with 8 billion zloty of additional funds until the end of the year.
🏡 Do zgłoszenia budowy domu w ramach #DomBezFormalności trzeba będzie dołączyć ⤵️
✅ projekt zagospodarowania działki
✅ projekt
✅oświadczenie o budowie dla własnych potrzeb mieszkaniowych
✅ oświadczenie, że przyjmuje się odpowiedzialność za kierowanie budową#PolskiŁad pic.twitter.com/RJDOvbrdvi— Kancelaria Premiera (@PremierRP) September 8, 2021
Main image credit: Krystian Maj/KPRM (under CC BY-NC-ND 2.0)
Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.
