Jarosław Kaczyński - Leader of the Law and Justice party (PiS)
On the 20th of March, the Law & Justice party (PiS) will unveil their post-COVID recovery plan known as the ‘Polish New Order’. However, in order to do so the ruling United Right coalition has had to find votes to pass the EU Recovery Fund in the parliament as one of their coalition partners United Poland led by the Minister of Justice - decided not to vote for it. From the beginning, United Poland were against linking the Recovery Fund to the rule of law mechanisms, which they argue will be used against Poland and Hungary.
PiS, however, does not have to worry about not having enough votes anymore. The party found an unexpected ally on the left, whose leader announced that his party will vote with the government on this issue. The main opposition bloc Civic Coalition and a minor opposition Polish People’s Party stated that they would only vote with the government on the issue if their demands to transfer part of the EU funds to local government were met. For now, PiS has not responded to those demands and it is unlikely that it will. If the left keeps its word, in the near future the EU Recovery Fund will be fully approved by the Sejm (lower chamber of the parliament).
Under the EU Recovery Fund, Poland is set to receive nearly 258bln zloty from the EU: 104bln zloty in grants and 154bln zloty in loans. The government has already committed to investing some of this money into green energy, infrastructure, digitalization, and projects relating to the reduction of smog in Polish cities.
The ‘Polish New Order’ according to many reports will include further social programs which are set to cost billions of Zloty. Poland’s OKO.press reported that some of the ideas which are included in the ‘Polish New Order’ will increase the amount by which residents will start paying income tax to 30,000 zloty and exempt OAP's whose pension is lower than 2,500 zloty from paying tax.
The irony is that these two ideas originate from the opposition parties. The 30,000 Zloty tax-free amount was Trzaskowski’s (Civic Coalition candidate) campaign promise during the 2020 Presidential elections while exempting pensioners from paying tax was the Polish People’s Party’s (EPP) core promise. On his Facebook profile, the Prime Minister of Poland Mateusz Morawiecki declared that one of the most important pillars of the ‘New Order for Poland’ will be to help seniors and ensure that their financial security improves every year.
Polish economists have already warned that these two proposals will most than likely cost the tax payer at least 60bln zloty a year. In order to introduce these reforms the government will either have to increase taxes or create new ones, subsequently the discussions about reforming the Polish tax system have begun within the ruling coalition. High and higher-middle income earners will potentially see their taxes rise if all goes according to the government’s plan.
In 2019, the ruling coalition introduced a 4% Solidarity Tax on incomes higher than 1mln zloty to cover for its promise to give a 500-zloty welfare benefit to mothers whose children have a disability. The budget for 2021 was full of new taxes and increases on existing ones to reduce the budget deficit and generate revenue for the government to cover its welfare spending.
Since coming into power in 2015 the United Right emphasised expenditure on welfare programs that are aimed to support families, the elderly and prevent youth emigration. They introduced the 500 zloty (€123) child benefit, which is available to every child, raised the minimum wage by nearly 1,000 zloty (€235), introduced a 13th pension bonus worth 1,200 zloty (€260) which all pensioners will receive in May as well as a 14th pension bonus which will be paid to OAP's whose pension is lower than 2,900 zloty a month (€634) in November.
The Coalition also exempted residents under 26 years old from paying income tax, lowered income tax to its lowest rate ever from 18% to 17%, introduced a bank tax and lowered corporation tax for SMEs. Overall, their increase in spending cost the Polish budget over 120bln zloty (€27bln). Their massive increase in spending led to Poland being at the top of the EU charts when it comes to inflation. In 2020 inflation reached 3.4% in 2019 from a mere 2.3%. Since 2015 Poland’s national debt grew by nearly 500bln zloty.
It is still unclear what effect this latest proposal by PiS will have on Poland's economy. It is likely that recent cuts made in income tax, will be reversed in order to pay for this ambitious project. Meanwhile, loans from the EU as part of the Covid recovery plan will further add to the eastern European country’s national debt. Nonetheless, the "Polish New Order" project is set to be implemented in the coming weeks, but relies on those key votes on the left.