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Government leaves out income tax increases from amended public finance rules


2010-10-27



The government on 26 October approved an amendment to the Public Finance Act designed to keep public debt below 55% of GDP and limit borrowing needs in the years ahead.

The bill provides for a combination of tax-raising and expenditure-cutting measures, including emergency fiscal adjustments in case public debt exceeds the 55% of GDP ceiling. However, the approved version has been watered down in comparison with the original proposals unveiled by the Ministry of Finance two weeks previously. In particular, the ministry decided not to include in it the various proposed changes to personal income tax laws, notably the abolition of child and internet tax reliefs and less favourable tax rules for workers in the creative industries and those employed on the basis of "services rendered" contracts. The ministry’s spokeswoman explained that decisions about these changes would be made “at a later stage”.

The key measures envisaged by the draft bill are emergency one-point increases in VAT rates (on top of the one that will lift the basic rate to 23% and the other two rates to 8% and 5% as of 2011), to a maximum of 25%, 10% and 7%, which the ministry estimates would bring PLN 2.9bn (€0.7bn) in extra revenues in 2012 and PLN 7bn (€1.8bn) in 2013; and a new spending rule that caps increases in discretionary spending at inflation plus one percentage point. The latter is expected to bring savings of PLN 2.8bn (€0.7bn) in 2011, PLN 8.5bn (€2.1bn) in 2012, and as much as PLN 17.4bn (€4.4bn) in 2013.

The draft bill now goes before the Sejm. Most of the measures require parliamentary approval, but the spending rule does not.



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