Gov't anti-inflation scheme will cost Poland 1.2 pct of GDP - PKO BP

Radek Pietruszka/PAP

The total cost of the so-called anti-inflation shield launched by the Polish government to fight rising prices will carry a cost equal to 1.2 percent of Poland's 2022 GDP, the PKO BP bank has estimated.

Keeping prices in check will cost the government about PLN 34 billion (EUR 7.5 billion), according to a report released on Wednesday by PKO BP, the country's largest bank.

Protection against and compensation for soaring gas prices, which will cost the country PLN 15.3 billion (EUR 3.37 billion), constitute the biggest part of the extraordinary budget expenditure.

They are followed by PLN 4.1 billion (EUR 0.9 bln) in subsidies for low-earning households, PLN 3.1 billion (EUR 0.68 billion) to be spent on the reduction of VAT on fuels to 8 percent from the standard rate of 23 percent and, finally, PLN 2.9 billion (EUR 0.64 billion) in the costs of a lower VAT rate on unprocessed foods, which dropped to 0 percent from 5 percent this week.

"It is a lot, but one needs to understand that the application of the shield is a reverse flow of the additional revenue earned (by the government) on an 'inflation tax' - from the public sector back to the private sector - and not a dent in the original fiscal plans," the bank wrote.

"About PLN 14.6 billion (EUR billion) will return to the private sector in the form of direct tax-rate cuts. In its remaining scope, the 'anti-inflation shield' will be an additional transfer of funds to households and companies," the bank added.