On Thursday, the government proposed a number of changes to the tax systemamong other things Reducing the profit rate before investment from 17 to 12 percent. For taxpayers on the tax scale and exclusion of health insurance contribution from the taxpayer’s tax base on the flat tax, lump sum and tax card. The so-called relief of the middle class (more about it here). The tax limit is 120 thousand PLN and the free amount is 30 thousand. PLN shall remain unchanged. The budget cost is 15 billion PLN annually. The changes are due to take effect on July 1.
Prime Minister Morawiki stated that as a result, the deficit could rise by 0.5 percentage point. Percentage of gross domestic product. The assessment of the regulatory impact attached to the bill shows that the cost of tax changes to the public finance sector in 2022 is PLN 6.8 billion, and in 2023 it will rise to PLN 23.8 billion.
Lower Taxes, Higher Deficit
“The announcement of tax reform is a good opportunity to update our financial forecast. The last time we did it was over a month ago, without knowing that a war would break out in Ukraine, which would lead to a massive influx of refugees into Poland and we also did not anticipate changes in the tax system so that the anti-shields would be extended for inflation. However, we expected further consolidation, albeit slow, of fiscal consolidation in 2022 and 2023. At the end of this period, we saw a deficit of just under 2%. Gross domestic product “ Pekao Bank economists argue.
In their opinion, the influx of refugees will cost the state budget from PLN 17 billion (the base scenario) to PLN 35 billion (the pessimistic scenario). Half of the higher costs in this regard should be expected in 2023. Next year’s budget will also be burdened with increased spending on armaments.
So they think their increase to 3 percent. GDP would not be feasible, as supplies of military equipment often stretch over time.
Therefore, we assume an increase in spending in this category from 2.2 to 2.5 per cent of GDP. With these assumptions, the fiscal deficit will rise to 3.7%. in 2022 and 4.4 per cent. In 2023, and in the negative scenario it will reach 5.4%. At the end of this period– they point out.
The higher the deficit, the higher the rates
Specialists from ING Bank Śląski agree with them. According to them, Poland, we enter “Specific Policy Mix Period”And the Where monetary policy tightening will be accompanied by loosening of fiscal policy.
“In terms of spending, the increase in the deficit will be due, inter alia, to the increase in spending related to refugee admission (higher social and health expenditures), armaments and the so-called anti-inflation shield, and now also plans to reduce direct taxes. We estimate that in 2022 the overall governance deficit will be around 4.5%. GDP, and in 2023 it will remain above 4%. Gross domestic productING believed.
However, higher deficits should not produce the most important debt ratio, i.e., the ratio of public debt to GDP. However, nominal GDP should rise faster, which is difficult to achieve with the expected economic slowdown. Especially as the economy will have to darken NBP, and raise interest rates higher than previously expected.
Exactly such a scenario – experts expect from Millennium Bank higher interest rates and, accordingly, higher loan installments.
“The proposals simplify the rules from 2023 and reduce the chaos around the terms of the New Deal, which is of course good news. However, this is an increase in fiscal stimulus of about 0.6% of GDP, and in our opinion, 2023 is not a good time for this kind of Policy, due to expected higher inflation, especially since an increase in household net income is questionable to reduce wage demands and could mean an increase in the scope of necessary tightening of monetary conditions, economists wrote in a report on Friday.
According to them, it also reduces the financial capacity of local governments, Which may be a problem in the face of the increasing burden due to the influx of refugees from Ukraine and, at the same time, the increased investment needs resulting from the influx of EU funds.
“We do not believe, however, that these changes will affect the Polish debt rating,” they added.
Mikołaj Raczyński, a board member of Noble Funds TFI, does not hide his critical view of government policy. Calls proposals for change in the Polish Lada “Financialization of Inflation”Ie pumping demand while it is not a problem in the current situation, the supply of products and costs resulting from higher prices for raw materials. In his opinion, this will lead to higher interest rates or a weakening of the zloty.
“The economy has to find its equilibrium point. Calculating inflation leads to its consolidation and a change in the balance of payments. So the economy must be balanced by either high interest rates or currency depreciation. Prices are already at 6% at EURPLN 4.75.00 More budgeting is either at higher rates (and longer is longer) or currency drift to the north. Both scenarios are highly undesirable in the current situation.” – The analyst points out on Twitter.
According to Raczyński, “the economy is inflated” (through public finances) It will have negative long-term consequences over time. As he explains, there are two-speed economies in economics.
“Export industries are resilient, industries with slower growth opportunities (which does not mean the worst), imports and the public sector are lagging behind. There is an increase in inequality, an increase in mergers and acquisitions (mergers and acquisitions – editorial note), because companies on a smaller scale are unable to operate, and a collapse in the quality of public services. The competitiveness within the economy and the bargaining power of the employee is reduced. For people working in sectors that are lagging behind, this means a significant deterioration in living conditions that in no way can be compared with any reduction in income tax.– The expert at Noble Funds TFI ends.
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