The Polish Deal: how a landmark tax reform has turned into a PR disaster for the government

By Marcin Makowski

The “Polish Deal” – the government’s flagship economic programme – was supposed to breathe new life into the ruling coalition and carry them into the next elections. Instead, it has so far been characterised by the botched rollout of a complex new tax system that has turned into a PR disaster for the prime minister, Mateusz Morawiecki. How did this happen, and what will it mean for the government?

In the vision of the finance ministry and prime minister’s office, January was supposed to be marked by a policy offensive of the United Right ruling coalition, which would enter the year ahead of scheduled parliamentary elections with another instalment of its popular social policies.

Since proposing the “500 plus” child benefit in 2015, it has been this element of the United Right’s rule that, in particular, formed the basis of a series of victories that led the coalition to a second term.

But instead, the introduction this month of a new, more progressive tax system that the government promised would see 80% of Poles either benefit or remain unaffected has turned into a nightmare.

At the start of January, some public sector employees saw their salaries fall. While the government has pledged to fix that problem, the issue that it stems from will be harder to rectify.

While the beauty and appeal of “500 plus” was its simplicity, the complexity of the Polish Deal has left not only the public struggling to understand it, but also accountants and tax officials.

The “simplified” version of the tax package on the websites of ministries runs to 132 pages, including infographics. The full version – which will now be modified further – is almost 1,000 pages of solid print. Even many United Right MPs who voted through the changes have been stumped when asked by journalists to explain them.

While there were clearly good intentions behind the package – reducing the tax wedge, higher earnings for people on the minimum wage, increased pensions – an absurdly difficult model was created. Many – including reportedly inside the ruling camp – see the outcome as typical of Morawiecki, a former banker with a penchant for Power Point-style presentations.

Despite claims that the vast majority of the public would either benefit from or not be impacted by the Polish Deal, one polls shows that 60% of people think it will cause them to lose out.

The reaction to the emerging problems has also not helped. After many teachers reported seeing their January salaries shrink, the education minister, Przemysław Czarnek, initially denounced claims that the issue was related to the Polish Deal as “misinformation”. But soon after he and the government admitted their error and promised to fix it.

Then Morawiecki again went on the attack, adopting one of the worst strategies to respond to the wave of criticism that fell on the government. In his weekly podcast, he declared that the tax changes were mainly being criticised by a “detached elite”, i.e. “politicians, journalists and celebrities” who do not show sufficient solidarity towards the group of lowest earners.

Instead of empathy, we once again heard a narrative hitting out against the “elites”. Yet in the case of the Polish Deal, the impact is felt by the self-employed earning just 3,000 zloty (€662) gross per month.

Likewise, when choosing the new tax scale promoted by the government, an entrepreneur earning 7,800 zloty (€1,720) gross per month will lose out. This is what supporting the middle class – one of the declared aims of the programme – is supposed to look like in practice?

The scale of the failure of the Polish Deal is also evidenced by the need to constantly patch the project. From the moment of its implementation, barely a day passes without information about the latest round of “amendments”.

President Andrzej Duda recently drew attention to the fact that retirees exempt from taxes are now not able to donate 1% of their tax to public benefit organisations, which for many NGOs is often the main form of financing.

There was further farce on Friday, when – after the government had repeated like a mantra the fact that people earning up to 12,800 zloty gross under an employment contract will not lose out – the prime minister announced that such people “will be able to settle their taxes in 2022 according to the rules from 2021 if it is more favourable for them”. Why introduce a new system if some taxpayers will be able to settle their taxes as if it did not exist?

Yesterday, the government’s spokesman confirmed reports that a new deputy finance minister, Artur Soboń, was being appointed with special responsibility for implementing the Polish Deal. Yet the fact that a dedicated minister needs to be tasked with overseeing the programme, weeks after it was introduced, simply points to its complexity and the failings of its rollout.

I have the impression that people with an understanding of the Polish Deal can be counted on the fingers of one hand today, and I’m not even sure if the prime minister is one of them. Even if the government manages to fix the teething problems, the damage seems to have already been done.

This applies in particular to Morawiecki, who was already under pressure within the coalition. His rivalry with junior coalition partner Zbigniew Ziobro is well known, but the prime minister also has critics within the senior ranks of his own Law and Justice (PiS) party. The debacle of the Polish Deal’s implementation will give further ammunition to his internal opponents.

Main image credit: Krystian Maj/KPRM (under CC BY-NC-ND 2.0)

Marcin Makowski

Marcin Makowski is a Head of News at Interia