Poland plans EU-funded boost to revive economy sapped by pandemic

(Bloomberg) – The Polish government will increase spending on health and housing as part of its sweeping stimulus package – funded mostly by European Union funds – with the aim of rejuvenating the economy and regaining its popularity.

The Polish economy contracted for a fourth consecutive quarter on an annual basis in the first three months of 2021, as the latest wave of the pandemic kept business activity on its back.

The plan calls for an overhaul of the country’s taxes which will increase redistribution, reducing taxes for the less fortunate as well as for families with children. Health spending will reach 7% of economic output within six years, up from 5.3% in 2021, while rules on mortgage lending will be reorganized to make credit more accessible.

“For the first time, we can take our destiny into our own hands with this program,” Prime Minister Mateusz Morawiecki said at a conference in Warsaw. The plan, dubbed Poland’s New Deal, will allow the country to modernize while warding off “foreign” threats to its Catholic roots, he said.

The three parties in the governing coalition, which have bickered for months on issues ranging from EU cooperation to climate policies and personnel decisions in state-controlled companies, have signed on to the stimulus package.

The plan aims to pump 72 billion zloty ($ 19.3 billion) a year to help rebuild the economy after the pandemic, according to the PAP news agency. The EU Pandemic Relief Fund has allocated € 58 billion ($ 70.4 billion) in grants and loans to Poland.

The opposition has said that instead of tackling the country’s ills, the plan is a glorified source of pork barrel spending aimed at keeping the Law & Justice party in power after the next general election, slated for 2023.

Key elements of the program include:

  • Non-taxable allowance of 30,000 zlotys per year and changes in personal income tax which Morawiecki says would represent “benefits” for 18 million Poles, or about half of the population
  • State guarantees for real estate loans of 100,000 zlotys for borrowers up to 40 years; grants for mortgage payments of 20,000 zlotys per child, from the second child, up to 160,000 zlotys
  • End of “trash contracts”, which allow workers to be employed without pension benefits; one-time allowance of 12,000 zlotys per child from the second
  • Health spending, funded in part by a new tax, will rise from around 200 billion zlotys by 2027 to around 150 billion to 160 billion expected in 2023.

The planned tax changes will increase the disposable income of those with a higher propensity to consume, adding 0.3 to 0.4 percentage points to economic growth in 2022, according to analysts at Bank Pekao SA, a company controlled by the State. They predict that Poland’s GDP will grow by more than 5.5% next year.

The pandemic plunged the 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 recorded the most deaths since World War II. Law & Justice’s popularity has fallen below 30% in some polls, suggesting the opposition could rise to power in the next election, if they unite.

The government initially sought to unveil the stimulus package in March, but a further outbreak of the pandemic and tensions within the coalition have forced repeated delays. Earlier this month, one of the government’s satellite parties voted against ratifying the EU’s stimulus package, fearing the EU would deprive Poland of funds due to alleged erosion of the EU. Rule of law.

© 2021 Bloomberg LP

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