Walking in a minefield

   In this hectic time of presidential electoral campaigns and pressures for early parliamentary elections, the minority government – which has practically no clout these days, especially with the media – needs to be careful of its every move.

   The government's plans to increase VAT on building materials and introduce it to the sale of apartments and houses may cause a public opinion storm comparable to that caused last summer by former Finance Minister Leszek Balcerowicz when he issued his White Book of Taxes without first consulting Prime Minister Jerzy Buzek.

   The current VAT law on goods and services posits three rates: 22%, 7% and 0%, the latter applying to the sale of apartments, single-family houses and books, among other things. According to the government's negotiation position published in February 2000, all three rates are compatible with European Union (EU) regulations, but the reach of the lower ones is too broad. So to oblige the EU, Poland is gradually updating the VAT rates not subject to granted transition periods to one 22% rate for all goods and services by 2003.

   With 2003 as the country's ostensible accession date, the current 7% VAT rate on building materials will have to increase to 12% next year, 17% in 2002 and 22% in 2003, according to the Finance Ministry. The current 0% VAT rate on apartment and single-family house sales will also need to increase to 7% in 2001, 17% in 2002 and to 22% in 2003.

   Additional budget revenue from changes in VAT rates could be spent on developing the housing sector, though such revenue gains are not a given. In addition, one of the government's most frequent arguments for increasing VAT is the need to comply with accession regulations. But it's not hard to imagine that many may not accept further increases in housing prices. Two million families are now waiting for apartments, according to the Housing and City Development Office. If VAT goes up, housing prices may jump by 15%, estimated Andrzej Chrzanowski, Solidarity Election Action (AWS) deputy and vice president of the parliamentary housing and building committee.

   Other political parties say that they would cooperate when it comes to integrating Poland into the EU. But it's doubtful that the post-communist opposition will not use the perspective of a collapse on the housing market in its electoral campaign.

   Given public opinion surveys that show the Democratic Left Alliance (SLD) with a huge advantage over AWS and other parties in an election, it would be easy to create a large opposition to painful changes resulting from EU accession preparations. Poles are still insuficiently aware of the advantages of EU membership. On the contrary, they are getting more and more aware of the short-term disadvantages.