Reactions mixed about gov't tax on savings

Analysts' reactions were mixed last week about a government proposal to slap a 20% tax on personal bank savings starting next year. While some said the tax would not hit investors hard as real interest rates remain high - with a number of investors likely to plow cash into the ailing Warsaw Stock Exchange (WSE) - others said the tax could stimulate spending, which in turn would boost the economy through higher receipts from additional taxes. The government said the saving tax would generate zł. 3 billion ($730 million) in 2002.

"Real interest rates in Poland are around 10%, so a 20% tax wouldn't hit investors that hard," said Sławek Zawierucha, a broker at DM MBT in Poznań. "Added to this, most Poles don't juggle their investments as in more mature economies, and whatever they may shift out of bank savings might easily end up on the WSE."

Whether they move the cash or not, brokers said the new tax would probably not have a huge impact on either savings or the WSE, although others were concerned about the threat to savings.

"The plan would give the budget short-term growth in income, said Andrzej Wolski, deputy president of the Banking Association. "But for the economy, less so as some funds will flood abroad, some into dollars and some into euros, others into credit repayments. It would definitely reduce the willingness to save, at least in banks. After the funds leave the bank deposits, a shallow market could reduce deposits and bonds to the cost of the state budget."

Another variable is whether the government decides to tax both savings and T-bonds. "If the government taxes savings and not T-bonds, many investors might be tempted to buy into government securities," said Katarzyna Zajdel, an analyst at Bank Handlowy. "If the government decides to tax both, investors might shift to capital markets."

Analysts also warned that the time required to set up IT systems in banks and brokerage houses for regulating the new tax may not be enough. They said the legislation would have to be passed by the end of November for it to have any chance of going into effect next year. Brokerage houses, already in poor financial shape, may find that timetable unrealistic.