FOR Communication 15/2019: The Kaczynski noose around the taxpayer's neck
- The costs of Kaczyński's Five promises accumulate with the costs of previously announced government programmes, forcing tax increases and reductions in other expenditures, primarily on public services. Despite the high costs, the new programmes do not solve any significant problems, and are focused primarily on the electoral effect.
- The 13th pension does not fight poverty among pensioners because it will reach both the rich and the poor. Nor does it encourage people to work longer, as it is not linked to the length of service.
- Extending the 500+ programme to first child is not an effective way of fighting poverty - benefits targeted at the poorest would achieve this goal much more effectively. On the other hand, experience from other countries shows that in supporting fertility, the availability of high quality services (crèches, kindergartens, schools, hospitals) is more effective than money transfers.
- The proposed changes to the PIT do not address two key issues: high taxation of low incomes and high profitability of self-employment. At the same time, they exacerbate the third problem of tax system complexity (the introduction of the third tax threshold, entrepreneur test) and hit the most highly qualified people, undermining efforts to increase the innovativeness of the economy.
- The 13th pension does not fight poverty among pensioners because it will reach both the rich and the poor. Nor does it encourage people to work longer, as it is not linked to the length of service.
- In its Multiannual Financial Plan for the years 2019-2022, the Ministry of Finance presented how the government intends to finance new electoral promises without breaking the fiscal rules.
In 2019, the deficit is expected to increase, while taxes and contributions are expected to increase in the following years, while public expenditure as a share of GDP is expected to decrease. In total, the government plans to increase taxes and social security contributions from 36% of GDP in 2018 to 37.8% in 2021, only in 2022 assuming a slight decrease due to a reduction in VAT rates.
Public expenditure is due to reach its highest level in the election year 2019 (43.3% of GDP) before gradually falling to 42.1% in 2021. In 2020, the 13th pension disappears, turning Kaczyński's Five into his Four, and all expenditures on social transfers are expected to decline gradually. Expenditures on public sector wages are to be further reduced. In 2020, the implementation of Kaczyński's Four, the previously declared expenditures and the adjustment of pensions with the most optimistic assumptions does not leave room for an increase in other expenditures, which, taking inflation into account, means a real reduction in expenditures on other issues.
Authors:
Aleksander Łaszek, Chief Economist
aleksander.laszek@for.org.pl
Rafał Trzeciakowski, economist
rafal.trzeciakowski@for.org.pl
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