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Sejm approves key tax and spending measures


2010-12-05



The Sejm on 3 December enacted a government-sponsored 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. First, it introduces a spending rule that caps increases in non-discretionary spending and any new forms of discretionary spending at inflation plus one percentage point, effective from 2011. Cumulative savings from this measure are estimated at PLN 2.8bn (€0.7bn) in 2011, PLN 8.5bn (€2.1bn) over 2011-2012, PLN 17.4bn (€4.4bn) during 2011-2013, PLN 29.5bn (€7.4bn) over 2011-2014 and PLN 45.1bn (€11.3bn) during 2011-2015. Second, it authorises up to two 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) over a period of a maximum of three years, effective from July 2012, July 2013 or July 2014, in case public debt exceeds 55% of GDP. If implemented in mid-2012, the measure would increase tax revenues by PLN 2.9bn (€0.7bn) in 2012, PLN 7bn (€1.8bn) in 2013, and PLN 4.1bn (€1bn) in 2014, the government calculates.

The amendment also suspends the payment of state pensions to people who remain in work despite reaching the retirement age, which is expected to cut the expenditures of the Social Insurance Fund (FUS) by approximately PLN 700m or €175m a year; and gives the Ministry of Finance control over the finances of some government agencies, which is expected to reduce public debt thanks to improved liquidity management. In 2011 alone the measure is to bring the debt down by the equivalent of 1.3% of GDP.

Also on 3 December, the Sejm passed legislation authorising the axing of 10% of public-sector jobs by the end of 2013, and approved a revenue-positive change in the VAT treatment of passenger cars converted into utility trucks.



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