Warsaw will lose billions in revenue due to government tax reform, says mayor

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Warsaw will lose 3.5 billion zlotys (754 million euros) revenue over two fiscal years in 2022-23 due to a recent overhaul of the tax system introduced by the government, says the capital’s mayor, Rafał Trzaskowski, who is a leading opposition figure.

Given that his city is also facing greater financial burdens due to the pandemic and the recent influx of refugees, Warsaw is “at risk of disaster”, warns Trzaskowski. A deputy finance minister says the government is “listening carefully” to local authorities and is ready to discuss the issue with them.

The Polish Deal: How a landmark tax reform turned into a public relations disaster for the government

“The budgetary situation for this year is off to a bad start,” the mayor told a press conference, quoted by the Gazeta Wyborcza Daily. “And I’m not even addressing the issue of massive inflation and the huge effort needed to try to integrate Ukrainian refugees, for which money has to be found.”

The mayor was referring to a set of tax reforms introduced this year creating a more progressive system, in part by reducing personal income tax (PIT) for low earners, which is one of the main sources of funding for local authorities.

“We can already see that PIT revenue in February was 11% lower than a year ago, while the state budget increased by 31%,” Interia quoted Trzaskowski as saying.

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While an increase in the income tax allowance to 30,000 zlotys introduced in January has already put a dent in local government finances, Trzaskowski said that a cut in personal income tax physical from 17% to 12%, announced last monthwill further reduce the capital’s income by almost 1 billion zlotys per year.

“The 2022/2023 budget situation and another tax cut are going to be disastrous for the city budget,” Trzaskowski said, adding that at the same time “the government is shifting more responsibilities” to local authorities, “to start with the pandemic” and now manage the unprecedented influx of refugees from Ukraine.

In the seven weeks since the Russian invasion, the city of Warsaw has spent 55 million zlotys (11.8 million euros) to help Ukrainian refugees, but has so far received less than 8 million. zlotys (1.7 million euros) to help cover the costs, according to the mayor.

Warsaw spent 55 million zlotys to support Ukrainian refugees

This year’s tax overhaul was introduced as part of the government’s flagship ‘Polish Deal’ programme. The changes have been heavily criticized by opposition politicians and many pundits as being hastily prepared and full of errors.

Initially, the government dismissed criticism, but later acknowledged some problems and worked to address them. The latest patches, which allow entrepreneurs to change a form of taxation during this fiscal year, were made public on Wednesday.

On the same day, Deputy Finance Minister Artur Soboń said that the government is “listening carefully” to local authorities and is “ready to talk about systemic solutions related to the[ir] participation in taxes, including income taxes,” but declined to provide further details, reports the Polish Press Agency (PAP).

Main image credit: Adam Stepien / Agencja Wyborcza.pl

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