OVERVIEW

  • Over the last two years, Poland has shown that it is possible to reduce budget deficits without imposing painful austerity measures. 

  • As Poland’s finance minister, current Polish Prime Minister Morawiecki dramatically improved tax collection while cutting tax rates and strengthening the social safety net.

  • Since 2015, Poland’s economic model has fused competitiveness, entrepreneurship, innovation, and “solidarism,” or responsibility for the community at large.

  • Rooted in the tradition of the Solidarity movement, this model aims to promote competitiveness while fostering equality, without compromising Poland’s commitment to market economics.


THE THIRD WAY ON TAXES: SHERLOCK HOLMES IS BETTER THAN ROBIN HOOD

  • Fiscal responsibility is a key policy goal, but austerity isn’t the only way to achieve it.

  • Poland’s implementation of the strategy for responsible growth shows that it is possible to cut taxes, increase fiscal transfers to improve the safety net, and reduce the budget deficit at the same time.

  • The primary focus of recent global public debate has been on the level of taxation. The case of Poland shows that tax collection – or enforcing existing tax laws – is just as important.

    • Between 2007 and 2015, Poland lost $64 billion to VAT fraud, nearly a full year of national tax revenue. Poland’s total government revenues for 2015 were approximately $87.7 billion.

  • Poland is aggressively tackling fraud and the VAT collection gap with new technologies (e.g., Standard Audit Files for Tax and split payment mechanism) and tougher law enforcement.

  • Poland’s 2017 VAT collections were $7.3 billion higher than the prior year.
     

    • In the first 9 months of 2017, revenues from VAT collections increased by 23.3%, compared to the same period in 2016.
       

    • Revenues from CIT (corporate income tax) collections increased by 12.6%, compared to the same period in 2016.
       

  • The IMF praised the Polish government’s “strong fiscal performance and improved tax collection” in its 2017 Article IV Report.

  • When discussing tax policy, Prime Minister Morawiecki says that it is better to be Sherlock Holmes than Robin Hood.

  • The VAT Gap – the difference between VAT projected and collected – is a significant problem throughout the EU.
     

    • According to a 2017 Report on the EU VAT Gap, the total amount of VAT lost across the EU-27 was around $186 billion in 2015, or approximately 12% of the total expected VAT revenue.  
       

    • The VAT gap differs from country to country. The largest gaps were found in Romania (37%), Slovakia (29%), and Greece (28%). Half of the EU-27 Member States recorded a gap above 11% percent.
       

    • Poland is the unquestioned leader in closing the VAT gap in the EU. Poland’s success in challenging tax fraud and improving tax collection has been recognized by PWC and others.
       

  • As a result of the additional revenue from improved tax collection, Poland’s government has been able to finance its flagship project of providing benefits of 500+ PLN / month per child (approximately $147) for families with 2+ children. As a result, Poland has significantly decreased child poverty in Poland in just two years. (The program is not designed for single parent household).

  • Poland’s government is challenging fraud and corruption generally. The fight against illegal fuel trade (unrecorded, untaxed transactions) has resulted in the increased consumption of legally purchased fuels and, consequently, both higher tax revenues and improved energy sector results. In the first three quarters of 2017, Polish fuel consumption was 12% higher than during the same period in 2016. This has helped energy companies (such as Orlen) achieve historic sales and spend more money on R&D in electromobility.