Polish cities fear losing billions from draft tax reform

An online tool allows calculating how much exactly each city will lose under the proposed taxation system

Polish municipalities will lose 145 billion zlotys (31.7 billion euro) in 10 years, from the New Economic Polish Deal: this is the conclusion of the Association of Polish Cities (miasta.pl), published on Wednesday.

The conclusion derives from the proposed reform in personal and corporate income tax presented on Monday. The changes that the Finance Ministry proposes are regarded beneficial to taxpayers, but particularly detrimental to local budgets.

To make the calculation even more clear, the Association, together with the Union of Polish Metropolises (UMP), have published an online tool allowing to calculate how much exactly each municipality is likely to lose.

The Polish Deal – another collision between local and central government

While the central budget will likely gain PLN 27 billion, according to Miasta.pl, cities are expecting great losses, as their budgets are based on the share of personal income tax (PIT). The calculation goes as follows: Warsaw will lose PLN 1.7 billion, Kraków - PLN 0.5 billion, Wrocław over PLN 400 million, Poznań over PLN 300 million, and Gdańsk about PLN 250 million.

All this will affect cities’ abilities to invest and it will interfere with their day-to-day operations, which will ultimately impact education, transport, services and culture, explained the announcement.

Anyone can check the numbers for 2022 for each municipality at natwojkoszt.pl. The website’s slogan translates as “The government invites, at your expense”. The estimations refer to the number of shares in PIT, given to all local government units by the Minister of Finance for budget planning purposes for 2021. They are outlined in the regulatory impact assessment of the proposal.

Jacek Sutryk, Mayor of Wrocław, went as far as saying that the financial effects of the changes in the PIT tax announced by the Law and Justice government will be worse for local government budgets than the effects of the COVID-19 pandemic.

The Minister of Finance Tadeusz Kościński speaking for Money.pl talked of historic tax cuts. In his words, 18 million taxpayers will benefit from them, while two-thirds of retirees will stop paying taxes at all. In total, PLN 8 billion would remain in the pockets of citizens.

Obviously, the changes are highly controversial, and experts do not agree on who exactly will benefit from them. The publication Rzeczpospolita explained the Polish Deal (Polski Ład) as a draft amendment to numerous tax laws, which will make entrepreneurs pay more, albeit their rates do not increase.

The changes should take effect on 1 January 2022, but the Ministry of Finance has decided to extend the public consultations until the end of August.