Polish Government Increases VAT Rates
The Polish government adopted a Multi-Year Financial Plan last month in an attempt to rescue the budget deficit. Civic Platform (PO), which has a majority in coalition with the Polish Peasants’ Party in the Parliament, wishes to increase the basic VAT rates to five, eight and 23 percent. This means that the basic VAT rate, currently 22 percent, is to grow by one percent starting from next year, exceeding the EU average. VAT for unprocessed food will change from three to five percent, for processed food it will decrease from seven to five percent, and it will increase up to eight percent for construction products, pharmaceuticals and some media, according to Minister of Finance Jacek Rostowski.
Prime Minister Donald Tusk stated that this necessary step will be accompanied by dozens of legal acts to be passed by the Polish Parliament in autumn, including cuts on expenditure for the administration and abolishing regulatory restrictions for businesses. The essential element of the plan is the obligatory decrease in public expenditure. The budget deficit is to be reduced to 45 billion złoty next year, 40 billion in 2012, and to 30 billion by 2013, when the total budget deficit shall not exceed three percent of GNP.
Millions of people have been affected by the global crisis, and other European governments have responded with cuts on investments expenditure, salaries, pensions and other social benefits. In other European countries, the current situation is partly a result of the use of public money to save failing businesses. Poland has avoided such steps, and its current situation is better, Donald Tusk explained when defending his plan in Parliament.
Jacek Rostowski remarked that a decrease in taxation in 2006/07 resulted in the fall of budget income by 40 billion złoty this year. The decision was right then, but, according to him, the necessary further reforms were not undertaken, and the reforms of public finances will have to be accompanied by cuts in public spending in the forthcoming years.