Polish tax shake-up cosmetic
The tax package is essentially revenue-neutral and aimed at reducing
by one-seventh the tax wedge, the difference between take- home pay and
employment costs that is partly responsible for the 16.5 per cent
unemployment rate, the highest in the European Union.
The aim is to recoup the money by eliminating loopholes, such as
those that allow artists and scientists to deduct half their income
from their tax bills.
Zyta Gilowska, finance minister, said the package was intended to prepare the country for tax cuts in 2009.
Analysts called her project "cosmetic" and said it did nothing to
reduce the ratio of tax to gross domestic product, or Poland's very
high level of social spending.
Ryszard Petru, chief economist at Bank BPH, said: "There is a danger of an explosion of spending."
The government faces widespread demands for higher spending, many of
them prompted by last year's electoral promise to help those who have
not prospered from the transition to a market economy.
Doctors and nurses are on strike over demands for a 30 per cent pay rise and a 100 per cent increase next year.
Coal miners staged a two-hour warning strike on Monday and are planning to protest in Warsaw later this month.
They want a 223m zloty ($72m, 56m, 39m) share of the 1.2bn zlotys
that state-owned coal mines earned last year, despite the fact that it
was only the second year of profits in the last 15 years and the coal
mines have run up losses of more than 33bn zlotys.
"It's a trap into which the government has fallen - these promises
were needed to win the elections but they are unrealistic to carry
out," said Bohdan Wyznikiewicz, an economist with the Gdansk Institute
for Market Economics.
The government's populist allies, particularly the left-leaning Self-Defence party, also want more spending.
Ms Gilowska said recently there was no money in the budget for
increases in social spending suggested by Anna Kalata, Self-Defence
labour and social policy minister.
But the finance minister has proposed few spending cuts. And
analysts say a plan to cut spending on government wages by 10 per cent
Kazimierz Marcinkiewicz, the prime minister, insists the government
will stick to its promise of running a deficit no larger than 30bn
zlotys. He can probably do that this year and raise spending, because
of unexpectedly strong growth.
But although the finance ministry says 5.5 per cent GDP growth is
possible this year, expansion is forecast to slow to 4.5 per cent next
"We have good economic foundations and there will be no crisis this
year," said Mr Petru. "The danger will come when the budget is prepared
for next year."