Poland’s government has announced a package of tax cuts and other measures worth up to 10 billion zloty (€2.13 billion) to cushion the blow of inflation, which has recently risen to its highest level in two decades.
The programme, dubbed the “anti-inflationary shield”, will include a reduction in the excise tax on fuel, lower VAT on gas and electricity, as well as a special allowance for around five million households. But some economists warn that such measures could stoke inflation further.
The announcement comes after figures showed annual inflation rising in October to 6.8%, the fourth month of consecutive growth and the highest figures in two decades. Over the last two years, Poland’s inflation rate has been consistently among the EU’s highest.
“To create a buffer against the rise in inflation, today we present the first series of measures,” said Prime Minister Mateusz Morawiecki on Thursday.
As its first step, from 20 December the government will cut excise tax on fuel to the EU minimum for five months, as well as slash retail taxes to zero at the start of next year. Retail prices for both petrol and diesel have recently hit their highest level for years in Poland, as oil and gas become more expensive globally.
VAT rates will lowered from 23% to 8% for gas, and to 5% for electricity between January and March. The excise for electricity paid by households will also be temporarily cut to zero at the start of next year.
The government estimates that the change could lower gas bills by 140 zloty (€30) per quarter for households. It is also planning a measure to spread out gas price increases over the next three years to avoid a single hit.
Meanwhile, an allowance of between 400 (€85) and 1,150 zloty (€245) per year – depending on income – will be paid to more than five million households to compensate for higher spending on food and electricity.
Morawiecki said the government would seek to be “flexible” in its ongoing response to inflation. “Some activities are designed for three months, others for five months,” he said. “They are to help during the most difficult winter months when we expect higher inflation.”
He added that he would ask Brussels for additional instruments to cushion price growth, and would “block those actions that may lead to a further increase in electricity”.
The prime minister noted that the EU had not allowed the government to cut VAT on food to zero, as it had hoped to do
#TarczaAntyinflacyjna to łącznie do 10 mld zł oszczędności❗️ pic.twitter.com/0Nl7h8GxWh
— Kancelaria Premiera (@PremierRP) November 25, 2021
Yet some economists have been critical of the new measures, comparing them to “extinguishing a fire with gasoline”. According to Rafał Benecki of ING Bank Slaski, “the problem is that the government wants to fight inflation by stimulating it even more”.
He noted that other government policies, such as raising the minimum wage as well as tax cuts as part of the government’s flagship Polish Deal stimulus programme, would put more pressure on wages and prices.
The Polish Deal is expected to add a fiscal impulse of 21 billion zloty (€4.5 billion), according to estimates by the National Bank of Poland (NBP).
“It’s a vicious cycle that will end up with even higher prices after the ‘shields’ expire,” said Benecki, quoted by financial news service Money.pl.
Despite rising inflation, the NBP until last month remained reluctant to intervene, dismissing accelerating prices as transitory. It also argued that all-time low borrowing costs were needed to bolster economic recovery from the pandemic.
However, as other central banks in the region have tightened the monetary screws, and Polish ministers warned that inflation could reach between 7% and 8% by the end of the year, the NBP raised rates twice in a space of a single month.
The benchmark rate was increased in October for the first time in nine years, from 0.1% to 0.5%, and then again at the start of November to 1.25%.
Main image credit: Kancelaria Prezesa Rady Ministrów
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.
