Polish gov't launches second anti-inflation package

All the VAT reductions are likely to cost the Polish budget PLN 15 billion-20 billion (EUR 3.3billion-4.4 billion), according to Morawiecki. Marcin Obara/PAP

Mateusz Morawiecki, the prime minister, on Tuesday announced the introduction of a second anti-inflation shield which is a package of tax cuts that are aimed to trim consumer price inflation by up to 1.5 percentage points.

The government rolled out its first anti-inflation shield at the end of 2021 as the Consumer Price Index (CPI) reached 8.6 percent year on year in December, as reported by Poland's Central Statistical Office.

The last time Poles saw such high inflation levels was more than two decades ago, before the country's EU accession.

"I want to say that according to economists, the first anti-inflation shield has sheared about 1-1.5 percentage points from the inflation peak," Morawiecki said at a press conference.

"The second (shield) should have a positive effect of a similar extent," the prime minister added.

The latest solutions will be introduced for a period of six months, starting from February 1, according to the prime minister.

The government will cut VAT on food products to zero percent from the standard 5-percent rate while VAT on fuels will go down to 8 percent from the standard level of 23 percent.

Meanwhile, the European Commission (EC) is still in consultations with the Polish government over planned VAT reduction on energy, including fuels, whose prices have soared at the beginning of 2022. On Monday, the finance minister Tadeusz Kościński said that the EC had given silent consent for reducing VAT rate on food to zero percent.

The government has also decided to cut VAT on fertilisers to zero owning to a spike in their prices which has negatively affected farmers and could further inflate food prices.

In the manufacturing process, fertiliser producers use vast amounts of natural gas, which are now extremely expensive.

"These cuts may cost (the budget) more than PLN 6 billion or even PLN 7 billion (EUR 1.32 billion-1.54 billion) this year," said Morawiecki.

All the VAT reductions are likely to cost the Polish budget PLN 15 billion-20 billion (EUR 3.3billion-4.4 billion), according to Morawiecki.