Polish Opposition Candidate Proposes Tax Cuts in Presidential Race

As the Polish presidential election heats up, one of the main candidates, Rafał Trzaskowski of the Civic Coalition (KO), has proposed a significant tax cut package as part of his campaign platform. The "Wage+Taxes-" agenda, floated by Trzaskowski, aims to simplify the tax system and boost economic growth. However, the proposed tax cuts have sparked debate and raised concerns about their potential impact on the country's fiscal balance, income inequality, and social welfare.

The proposed tax cuts include abolishing public tributes such as PIT, CIT, contributions to the National Health Fund, Social Security, the Labor Fund, and the Guaranteed Employee Benefits Fund. Instead, Trzaskowski proposes introducing new taxes on wages, legal entities, IDGs, small companies, dividends, and a uniform VAT rate. The goal is to simplify the tax system and encourage economic growth.



However, the proposed tax cuts have raised concerns about their potential impact on the country's fiscal balance. Poland's fiscal gap is already sizable, with the general government deficit amounting to PLN36.6bn in 2Q23, compared to PLN5.4bn in 2Q22. The 2024 budget draft envisages record-high net borrowing needs of PLN225bn (6.1% of GDP). The proposed tax cuts could exacerbate this situation, leading to higher interest payments and potentially forcing adjustments in other spending areas.

Moreover, the proposed tax cuts could have mixed effects on economic growth and unemployment. On one hand, lower taxes could stimulate investment, new jobs, and increased demand, as suggested by Szymon Holownia, a presidential candidate. On the other hand, higher borrowing costs and potential adjustments in other spending areas could offset these benefits.

The proposed tax cuts could also have significant implications for income inequality and social welfare. The Tax Foundation's International Tax Competitiveness Index 2023 ranked Poland 33rd out of 38 OECD countries surveyed, indicating that the current tax system is not particularly competitive or equitable. The proposed tax cuts could further widen the income gap if not designed carefully to offset potential regressive effects. It is crucial for the government to ensure that the new tax system does not disproportionately burden lower-income individuals and that the revenue generated is used to improve social welfare.

In conclusion, the proposed tax cuts by Polish opposition candidate Rafał Trzaskowski could have significant impacts on the country's fiscal balance, economic growth, income inequality, and social welfare. While the tax cuts could stimulate investment and job creation, they could also exacerbate fiscal gaps, increase inflationary pressures, and lead to higher income inequality. To mitigate these risks, policymakers should carefully evaluate the potential benefits and costs of the proposed tax cuts and consider alternative fiscal policies that promote sustainable economic growth and social welfare.