Bauc unveils plans to slash personal income tax
Finance Minister Jaroslaw Bauc unveiled an income-tax reduction plan last week that he hopes to push through the legislature before this year's parliamentary elections, scheduled for Sept. 23.
The plan envisions simplifying the income-tax system to a two-pronged scheme of 18.5% and 37% next year, compared to the current three-tier setup of 19%, 30% and 40%. In 2005, taxpayers would pay 17% or 34% under the program. As part of the project, Bauc would eliminate 53 kinds of tax deductions and tax breaks, such as the highly popular construction incentives, which help homeowners deduct some of their taxable income if they build their own houses. According to Bauc, the reform is aimed at boosting the economy and creating favorable conditions to increase individual savings.
The draft calls for a hefty trimming of three percentage points in the top tax rate, with only a half point lowering on the bottom end. "It's OK from an economic point of view because lower tax rates encourage wealthier people to invest or to increase their savings, while poorer people tend to spend their increased income on current needs," said Witold Orlowski of the Lodz-based NOBE economic research institute. But he added that the proposed cuts would face severe criticism because such sizeable breaks for the wealthy will be seen as a move against the poor.
Analysts were uniform in their response last week that the proposal has little chance of being implemented just four months before elections. "Let's be realistic and look at the political timetable," Orlowski said, referring to opinion polls showing that the Democratic Left Alliance (SLD) will likely emerge as winner of the elections.
