Bloomberg / Warsaw
The Polish government will boost spending on healthcare and housing as part of its sweeping stimulus plan – financed mainly from European Union funds – in an attempt to rejuvenate the economy and win back popularity. Poland’s economy shrank for a fourth straight quarter on an annual basis in the first three months of 2021, as the latest wave of the pandemic kept business activity on the back foot.
The plan foresees a revamp of the country’s taxes that will increase redistribution, reducing levies for the less affluent as well as families with children. Health care spending will rise to 7% of economic output within six years, from 5.3% in 2021, while home loan rules will be revamped to make credit more available.
“For the first time, we can take our fate into our own hands with this programme,” Prime Minister Mateusz Morawiecki said at a conference in Warsaw. The plan, dubbed Poland’s New Deal, will allow the country to modernise while warding off “foreign” threats to its Catholic roots, he said.
All three parties in the government coalition, which have for months bickered over issues ranging from EU cooperation to climate policies and personnel decisions in state-controlled companies, signed the stimulus programme. The plan aims to pump 72bn zloty ($19.3bn) per year to help rebuild the economy after the pandemic, according to PAP news agency. The EU’s pandemic relief fund has earmarked €58bn ($70.4bn) in grants and loans for Poland. The opposition said that instead of tackling the country’s ills, the plan is a glorified source of pork barrel spending aimed keeping the Law & Justice party in power after the next general election, due in 2023.
The programme’s key components include:
Tax-free allowance of 30,000 zloty per year and personal income tax changes that Morawiecki said would amount to “benefits” for 18mn Poles, or about half of the population. State guarantees for home loans of 100,000 zloty for borrowers up to 40 years old; subsidies for mortgage payments of 20,000 zloty per child, starting with the second child, and topping out at 160,000 zloty.
End of so-called “trash contracts,” which allow workers to be employed without pension benefits; one-time benefit of 12,000 zloty per child starting from the second. Spending on health care, in part funded by a new tax, will increase to about 200bn zloty by 2027 from about 150bn to 160bn expected in 2023. The planned tax changes will increase the disposable income of people with a higher propensity to consume, adding 0.3-0.4 percentage point to economic growth in 2022, according to analysts at state-controlled Bank Pekao SA. They predict Poland’s GDP will expand more than 5.5% next year.
The pandemic plunged Polish economy into its first recession since the fall of communism in 1989 and brought the underfunded health care system to the brink of collapse. Last year, the country registered the most deaths since World War II. Law & Justice’s popularity fell below 30% in some polls, suggesting that the opposition could sweep into power during the next ballot, if it unites.
The government has initially sought to unveil the stimulus program in March, but a renewed outbreak of the pandemic and tensions within the coalition forced repeated delays.
Earlier this month, one of the satellite parties in government voted against ratification of the EU stimulus program amid concerns that the EU could strip Poland of funds due to alleged erosion of the rule of law.
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