Poland needs to improve tax collection by about PLN12bn (€2.8bn) in 2017 in order to keep its budget deficit below the 3% recommended by the European Union, the country's deputy finance minister said on March 29.
Poland left the EU’s Excessive Deficit Procedure – launched for member states with deficits exceeding 3% - in 2015, shortly before the populist Law and Justice (PiS) won power with generous spending promises. Doubts have been gathering over the new administration's ability to keep the deficit at bay as it seeks funds to pay for the pledges, which include a child benefits programme set to cost PLN17bn (€4bn) in 2016 and PLN23bn in 2017.
Next year is going to be particularly difficult in terms of controlling the deficit, because it will be the first full year of child benefits being paid out, after their launch from April this year, deputy Finance Minister Leszek Skiba told Rzeczpospolita.
“We will also begin carrying out other government pledges [in 2017], such as lowering of the retirement age, [increasing] of tax-free income, [or] changes in the copper tax,” Skiba said.
The government has introduced a bank tax and is working on a retail levy, although it is not yet clear what form this tax will ultimately take. Warsaw has also suggested numerous times that it plans to lower the mining tax, which is essentially a special levy on state-controlled copper miner KGHM.
“Our early estimates show we will need at least PLN12bn in improved tax collection to keep the deficit at 3% of GDP,” Skiba said. He also suggests the room for further spending plans is “minimal” if the deficit is not to go over the 3% threshold.
Joint revenue from the bank and retail taxes would be around PLN7.5bn in 2017, the official estimates. However, lenders are reportedly working out legal means to avoid the bank tax, while the fate of the retail tax is unclear.
On top of that, unless copper prices rebound in 2017, revenue from the mining tax is also in doubt. The government is already resigned to reducing projected income from the tax to around PLN1bn in 2016, from earlier estimate of PLN1.53bn, it says.
Skiba admits in the interview that the European Commission has estimated Poland’s deficit at 3.4% of GDP. “We are expecting the commission will be sceptical about [Poland’s ability to improve tax collection],” the minster said.
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