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Finance Ministry proposes new public finance rules to cope with public borrowing


2010-10-13

The Ministry of Finance has prepared an amendment to the Public Finance Act that envisages drastic fiscal adjustments over a period of three years in case public debt exceeds 55% of GDP. The objective is to reduce public debt and the cost of its servicing by limiting the borrowing needs of the public sector.

The proposed adjustments include various tax-raising changes, such as the abolition of child and internet tax reliefs, which is estimated to bring PLN 6bn or €1.5bn in extra tax revenues annually; less favourable tax rules for workers in the creative industries and those employed on the basis of "services rendered" contracts; the freezing of personal income tax brackets; or further one-point increases in VAT rates (on top of the one that will lift the basic rate to 23% as of 2011), to a maximum of 25%.

If public debt exceeded 55% of GDP already in 2010, the ministry estimates that the above measures would bring PLN 3.7bn (€0.9bn) in 2011, and a total of PLN 16.7bn (€4.2bn) over 2013-2014.

The document also introduces a new spending rule that caps increases in discretionary spending at inflation plus one percentage point.

The draft bill will go through a consultation process before it is submitted to the full cabinet.



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