Poland will launch new tax cuts to fight inflation, writes Reuters

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© Reuters. FILE PHOTO: Supermarket Worker Cleans Shopping Baskets After Coronavirus Outbreak (COVID-19) at Cascade Shopping Center, Szczecin, Poland, March 13, 2020. Photo taken March 13, 2020. REUTERS / Cezary Aszkielowicz / Agencja Gazeta

WARSAW (Reuters) – Poland will cut value added taxes on gas, food and petrol as part of a second package of measures to mitigate the impact of rising inflation, the prime minister said on Tuesday.

The rapid rise in prices has eaten away at household budgets, a headache for a government that has built its popularity largely on raising the living standards of ordinary Poles through generous social benefits.

“(The program) aims to leave as much money as possible in the wallets of Poles,” Mateusz Morawiecki told a news conference.

Measures, several of which have been announced earlier, include a reduction in VAT on basic foodstuffs and gas to zero, a sharp reduction in VAT on fuel, heating and electricity.

Poland has been hit by the European energy crisis, which began last year when the lifting of the COVID-19 restriction placed great demands on depleted stocks. Rising fuel prices over the winter have contributed to lower living costs across the region.

Morawiecki said anti-inflation measures would cost the budget 15-20 billion zlotys ($ 3.74-4.99 billion).

Morawiecki’s ruling nationalists Law and Justice (PiS) faced a difficult start to the year, with companies complaining about rising energy costs and mistakes in a leading economic program that was supposed to cut taxes for most people but resulted in some workers, such as teachers, who receive lower salaries in January.

Particularly damaging were reports that institutions such as schools and hospitals faced much higher gas bills than a year ago.

The latest package of anti-inflation measures contains a proposal to add these institutions to the tariff mechanism that protects households from rising gas prices.

This (mechanism) meant that the increase in gas bills for households was still very large, but an average increase of 54% for these customers compared to several hundred percent … for other entities, we must say that it was quite reasonable “, Deputy Prime Minister Jacek Sasin told public radio on Tuesday morning.

Economists say government measures will reduce the peak of inflation in the first half of 2022, but could later serve to boost price growth.

On Monday, analysts at Credit Agricole (OTC 🙂 said a temporary reduction in food VAT to zero would actually lead to higher prices than it would otherwise be when taxes return to normal, citing the risk of companies partially absorbing the tax break down as a profit.

(1 dollar = 4.0090 zlotys)

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