Polish Deal – “Polski Ład” in English

The government officially announced new program, called Polski Ład (Polish Deal). Name changed not so long ago from Nowy Ład (New Deal/Order). We have heard a rumor about it for some time, but few days back, we finally received official confirmation about “the shape” of it. The program consists of 5 pillars, which I described below in a form of a short summaries and quotes from statements of politicians, sorted out by the category. I tried to present this data in possibly most original form. I will also share my impression and short analyze of most important changes from my perspective in the next paragraphs of this article.

• Polski Ład in 5 pillars
• Original conference
• 6 most important changes
• Summary

Polski Ład in 5 pillars

Let’s start with mentioned pillars.

The first pillar is a health care.

• “We want to reach 6% of GDP (PKD) in 2026 and 7% of GDP in 2027.”
• “We want to educate new doctors and specialists.”
• Funds for the modernization of regular hospitals and highly specialized hospitals.
• “[..] there will be an act about the quality of medical benefits, there will be a fund for those who have fallen a victim to medical mistakes or 24-hour on-call duty in each district.”
• New order of processing the patients: telephone consultation, doctor’s intervention, and an ambulance.
• “The mechanism of coordination of the most serious diseases (cardiologist, cancer) will be improved.”
• A modern digital platform of the health care system (general database) that will also measure the level of patient satisfaction.
• “We will implement free prenatal testing.”

The second pillar is a fairer tax system.

• “We are abolishing the degressive tax system, but we are also raising the tax-free amount to 30,000.”
• The lowest national salary and 65% of pensions without tax
• “The 2nd tax threshold will increase from PLN 85 thousand to PLN 120 thousand.”
• Linear health contribution (NFZ) without tax relief and without limits.
• “We want to regulate remote work and to abolish junk contracts.” (Umowy Śmieciowe / Umowa o dzieło)
• “We are introducing a correction factor to tax solutions, higher tax-deductible costs for those earning from 6,000 to 10,000 PLN”
• “A new source of financing health care from a flat rate without the possibility of tax deduction.”
• “[..] support for families in the first 3 years after the birth of a child. We will introduce family care capital – PLN 12,000 to be used between the 12th and 36th month of a child’s life, for the second and subsequent children.”
• Refund for excise duty per hectare for farmers.
• Simplification of procedures for farmers, starting with machine registration finishing on applications for subsidies and paying taxes.
• “We will eliminate problems with handing over the farm (for example parents to children)”

I described in details Polski Ład and impact on your salary in separate article. (click here)

The third pillar is a pension.

• Pension up to PLN 2,500 thousand without tax
• Tax-free work for retirees
• Better life for seniors (no details given)

The fourth pillar is related to housing.

• “It will be possible to obtain a bank guarantee up to PLN 100,000 but not more than 40% of the value of an apartment.”
• “The government will also repay some loans for those who have children. For the second child it will be, for example, PLN 20,000 and for the third one, it is already PLN 60,000.”
• “Houses up to 70 square meters can be built without a permit, without a ledger, without a construction manager, only upon a notification.”
• “The new regulations will not allow housing estates to be built without equipping them with nurseries, schools, green areas. We will introduce transparent plans and eliminate decisions that disturb the spatial order.

The fifth pillar is a great investment program.

• “Polish villages and towns will also be changed by the investments – 4,000 community centers, 300 pitches and swimming pools. Also, 3,600 pitches to be renovated and revitalized.”
• “We want to announce the “Nursery in every district commune” – program for willing communes.”
• “Statutory professional status for artists”
• “We will rebuild castles, palaces, including “The Saski Palace in Warsaw”, [..] there will be also new museums.”
• “In secondary schools, we will introduce two mainstream of history lessons, i.e. universal history and Polish history. For each of these trends there will be 2-3, maybe more hours a week. It will be a huge change.
• “New road investments, investments in broadband internet and 5G infrastructure.”
• “Building up heating plants in up to 120 cities.”

Below you may find the full movie with a transmission from this conference of “Polski Ład”. The main part of the conference starts around 1:09:30. No subtitles or translation – sorry. Still, I tried to summarize above everything what I found in this part of the conference. There is also an official gov page about it.

6 most Important changes of “Polski Ład”

So, the most important changes. I will support myself with analyze made by “Maciej Samcik” – specialist from finances who published summary about “Polski Ład” on his own blog as well(Polish only). He pointed out 6 main biggest changes on the base of information which we received from the government.

1. The tax-free amount grows, you will earn up to PLN 120,000 with a lower tax.

As expected, the “Polish Deal” includes a large increase in the tax-free amount. Everyone who earns in Poland the minimum wage (PLN 2,800 gross per month, i.e. PLN 2,060 per hand, or PLN 12 net for each hour of work) will not pay any income tax on this earnings.

The “Polish Deal” also promises from next year to shift the threshold from which 32% of income tax is paid from the current PLN 85,000 to about PLN 120,000. This means that if someone earns PLN 10,000 gross a month, he will save about PLN 5,000 on PIT per year (so far in the last two months of work his income was taxed at a rate of 32%, and now it will no longer be). If someone earns PLN 7,000-8,000 gross, they will save from PLN 2,000-3,000 per year (15% of tax savings on that part of the income, which today exceeds PLN 85,000, so it would be taxed at a higher rate).

Both things seem to be relatively good changes. But there we come with…

2. Linear health insurance contribution without relief, which means a gigantic increase in the “para-tax” on the National Health Fund (NFZ).

How is it going to be from next year? The prime minister said: “(…) linear health insurance contribution without the possibility of tax deduction.” On the other hand, on the website of the “Polish Deal” you can read: “introducing the same rules for paying the health insurance contribution for business activities as in the case of employment contracts (in proportion to income)”. There are no more details, but it looks like there will be two painful changes:

• It is not possible to deduct from tax, the amount of contributions paid to the National Health Fund. This would mean that the PIT tax will be higher by 7.75%, which is equal with the part of the NFZ contribution that we are deducting from tax today. What could this mean for someone earning the minimum wage? Earning PLN 2,800 gross, you will not pay PIT anyway (because you will be in the tax-free amount, so you are ahead of PLN 1,650), but we do not know what about the NFZ contribution (so far, you could write it off your PIT). And what will it be like for a person with higher earnings?

Example

If someone earns PLN 5,000 gross a month (i.e., PLN 3,600 net), the inability to deduct paid contributions to the NFZ will increase their tax by PLN 4,500 per year. If someone earns PLN 10,000 a month, his tax will increase by PLN 9,000 per year due to the inability to deduct the National Health Fund contribution. For people who are employed and earn between PLN 6,000 and PLN 10,000, the government wants to introduce a new tax break that will cover the difference between what they lose due to the higher health contribution and what they gain from increasing the tax-free amount.

• The linear health insurance contribution, dependent only on income, paid by entrepreneurs. People running a business will come out the worst with this change. If today such a person has a net income of PLN 10,000, he will pay almost PLN 800 instead of a health insurance fee of PLN 380. If someone earns PLN 30,000 a month thanks to running a business, he will pay – as part of the NFZ levies, about PLN 2,500 per month more than today. It is not certain whether entrepreneurs will also be subject to a higher tax-free amount, which makes calculations difficult.

So, summarizing the part about the taxes:

It seems that if someone earns more than PLN 6,000-7,000 per month, the increase in the health insurance contribution will “eat up” his savings from the lower tax. In turn, if someone earns over PLN 10,000 – he will have an increase in the cost of the National Health Fund contribution by 7.75% (due to the lack of a tax deduction), but … at the same time he will save on the fact that he will pay 17% tax on the total income. And it may even make a minimal profit from the “Polish Lad (hence the politicians saying that the “Polish Deal” also protects the middle class).

If someone earns more than PLN 12,000, the surplus is not only taxed at a rate of 32%, but also amounts to 7.75% of the “National Health Fund” tax, which in fact increases the “real” taxation to 40%. It is extremely opaque and confusing.

Money from higher health contributions supposed to be used to increase the income of the National Health Fund. This year it is PLN 120 billion (5.3% of GDP), in 2023 this amount supposed to increase to PLN 150-160 billion (6% of GDP), and in 2027 – to PLN 200 billion (7% of GDP). The question is: how this higher amount of money will be used? We need more doctors and the development of research into the production of our own medicines. But will it go in this direction?

The part about the taxes has been already changed with the newest update coming with Polski Ład 2.0. You can find the details about it on my blog in this article:

• Polski Ład in English 2.0

3. Additional “subsidy” – PLN 12,000 for each child.

We already have 500+ for each child, per month. We have a child tax allowance (approx. PLN 1,000 a year of tax return), we have 300+ for school equipment and now there will be one more child bonus comming from Polski Ład. Each second and subsequent child aged between one and three years is entitled to a one time benefit in the amount of PLN 12,000.

The money will not be “marked”, you can spend it on anything you want. Which means, that you can pay for a nursery, babysitter, shopping or to buy the necessary furniture for the house. You will be able to take PLN 1,000 per month for one year or PLN 500 per month for two years (payment: probably together with 500+).

4. A flat without own contribution, repayment of part of the loan by the state and 70m2 home without permission

Another government idea is a bank guarantee up to PLN 100,000, not more than 40% of the value of the apartment (or home), allowing you to take a mortgage without own contribution. You also get the possibility coming from the government fund (i.e. all taxpayers) to repay PLN 20,000 to PLN 150,000 of a mortgage in exchange for “development” families. This means PLN 20 000 up to PLN 60 000 per each single newborn child.

Program is also introducing the possibility of building a house with a base up to 70 m2 (this includes the walls) without a permit (with an attic, up to 90 m2 of usable area in total), provided that those willing to buy the land and that there is a zoning plan in the place where they want to build the house.

5. Retirement work tax free. How much higher pension?

Not only pensions up to PLN 2,500 will be tax free. Work at retirement age will not to be charged with PIT. The prime minister mentioned something about the fact that if someone works in retirement, he will be able to raise it even twice. This is, of course, a complete fake. Exemption from PIT of income earned at retirement age may only minimally affect the final result of pensions.

6. “Polski Ład”, a state investment program worth PLN 750 billion

For 7 years, the government wants to invest PLN 750 billion. I am quite afraid of this. Especially that 750 billion of PLN are only 10 714.3 Sasin’s. But jokes aside – taking into the consideration previous decisions from last years, I am just hoping that PIS will realize their promises and not waste this money.

The summary of Polski Ład in English?

New taxation model will hit mostly people with contract, who earn more than PLN 10 000 gross and entrepreneurs having their sole proprietorship. On the other hand, it will increase budget of health and medical services, which (nomen omen) must be increased. PIS invests a lot of energy as well to motivate young people for having own four walls and families (preferably with many children). But after the experience from the last few years, I am afraid (rather convinced, just a matter of a time) that such “free money distribution” will be reflected in an even more rampant inflation rate. As well as prices of apartments or houses.

In general, the entire statement and the form in which it was shown (from my perspective), was still pretty unclear (sometimes even confusing) and sprinkled with propaganda. PIS aims with this campaign their largest part of potential voters, which should allow them to secure a term of office after the next election. This part of the job from their side, was done perfectly. But what will bring the future? I can’t say it – it would be pure speculation. Let’s prepare for the worst and hope for the best.

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