Poland plans to lower personal income tax for middle earners and raise taxes on large companies from 2027, proposing a broadly budget-neutral package a year before the next parliamentary election.

The threshold above which annual taxable income would be subject to higher rates would rise to PLN130,000 (€34,850 equivalent) from PLN120,000. A new 24% rate would apply to income between PLN130,000 and PLN150,000, while income above PLN150,000 would continue to be taxed at 32%, Prime Minister Donald Tusk said on August 19.

The annual tax saving would reach PLN3,600 at a taxable income of PLN150,000 and remain unchanged at higher income levels because the portion above PLN150,000 would still be taxed at 32%.

The standard corporate income tax rate would rise to 22% from 19% for companies with annual revenue above €50mn, offsetting the PIT reduction, Tusk said.

“The changes proposed today more or less balance each other out,” Finance Minister Andrzej Domański said at at a press conference outlining the proposal. It would be “probably” the first tax change in years that would not cost the budget, Domański also said.

The PIT threshold has been frozen since 2022 despite rapid wage growth, pushing an estimated 11% of people taxed under the general scale into the 32% bracket, Finance Ministry data showed.

Lower personal taxes were a central pledge of Tusk’s Civic Coalition in the 2023 campaign, but its flagship promise to double the tax-free allowance to PLN60,000 remains unfulfilled.

The Finance Ministry estimates that implementing that pledge in 2027 would cost PLN58.6bn. Tusk has said several times that the budget is under pressure from the need to maintain adequate defence spending.

Since Russia’s invasion of Ukraine in 2022, Warsaw has been wary of Russian provocations or a potential attack and has become one of NATO’s largest defence spenders relative to GDP.

The new tax plan is likely to prompt competing proposals from opposition parties as campaigning intensifies before next year’s parliamentary election.

The main opposition party, the right-wing Law and Justice (PiS), has already proposed raising the threshold at which the 32% PIT rate applies to PLN180,000 from 2028 if it wins the election.

Tusk’s five-party coalition is struggling in the polls against a potential right-wing bloc comprising PiS, two far-right parties and Rozwój Plus, a new group that recently broke away from PiS.

The proposed tax changes would require parliamentary approval and President Karol Nawrocki’s signature. The opposition-backed president has repeatedly opposed tax increases and could veto the package. The ruling coalition lacks the three-fifths parliamentary majority required to override a presidential veto.