Important Tax Decision. Minister Puts His Cards on the Table

• Next year's state budget does not include an increase in the tax-free allowance from the current PLN 30,000 to PLN 60,000. Fulfilling this promise would cost the budget approximately PLN 55-60 billion in lost personal income tax revenue, according to Finance and Economy Minister Andrzej Domański.
• When asked by the host of the "Pytanie Dnia" program on TVP about how the government would react to the bill by president-elect Karol Nawrocki, which would increase the tax-free amount, Domański stated that the government would look into what sources of financing Nawrocki would indicate.
• According to our information, it is not certain that a project to increase the tax-free amount will be created at the back of Nawrocki, and the freezing of the implementation of the election promise by the ruling team may result not only from economic reasons, i.e. the very poor state of public finances.

The tax-free allowance will remain unchanged in 2026 (currently PLN 30,000). Poles will have to wait until it is raised to PLN 60,000, according to an announcement on Friday (July 25) by Minister of Finance and Economy Andrzej Domański , who announced this on TVP's "Question of the Day."

"We are currently working on the 2026 budget. I don't think the tax-free allowance of PLN 60,000 will fit in this budget. However, we are working at the ministry to fulfill this promise," Domański said vaguely.

The fight against the VAT loophole is a myth. What's behind the minister's decision?

Asked by the program's host, journalist Justyna Dobrosz-Oracz, whether this amount would increase from 2027, Domański replied that "the ministry is working on it."

Domański, however, responded rather nervously to a question about how the government would react if President Karol Nawrocki proposed such a bill (after being sworn in). He said the government would carefully analyze the source Nawrocki had indicated to close the PLN 55-60 billion tax gap in the budget that would result from implementing such a measure. He added that suggesting that combating the VAT gap would cover this gap was "fairy tales."

Is the freezing of the implementation of the ruling coalition's election promise a result of the dramatically poor state of public finances ( we have the largest public finance deficit in 30 years, reaching PLN 289 billion, which is 7.3% of GDP , while the safety limit in the EU is 3% of GDP ), or perhaps a cold political calculation?

It is worth starting with the fact that the circle of President-elect Nawrocki, with whom we contacted, did not confirm to us that the tax package being prepared also included a higher tax-free amount.

Secondly, Nawrocki has no statutory obligation to indicate in the project the sources of financing the loss of revenue in the budget.

And thirdly, fulfilling such a promise is politically unprofitable , most ordinary Poles do not understand complex tax issues, they need to be presented to them by means of the potential benefits they could gain from it.

"Therefore, I don't expect the government to fulfill this election promise. It costs a lot, but brings relatively little political gain," says Dr. Aleksander Łożykowski, a tax advisor and legal counsel at the LTCA law firm, an academic lecturer at the Warsaw School of Economics, and previously director of the Tax Department at the Ministry of Finance.

What to expect in the 2026 budget?

According to our interlocutor, if the government decides to increase the tax-free amount, it will involve introducing certain conditionalities (e.g. by introducing limits or groups of taxpayers) in order to minimize the potential gap in tax revenues.

On the other hand, it can also propose political solutions to Poles that will allocate public money to "more impactful" programs – for example, financing a large housing program .

It is worth noting that housing, along with the former deputy minister of development, Tomasz Lewandowski (Left), who supervised it, has been transferred to the new economic superministry and will now report to Andrzej Domański.

We also asked Dr. Łożykowski what would happen if, hypothetically, Nawrocki found a "miraculous financial source" other than the mythical VAT loophole, such as the new cadastral tax , which the Left explicitly calls an "anti-speculation tax."

According to Dr. Łożykowski, there is no such miracle cure. "The cadastral tax has very negative connotations among Poles and would be a serious political burden for the ruling parties in the upcoming elections in 2027. Furthermore, it would directly benefit the budgets of the local governments that would collect it, not the state budget," our interlocutor notes.

Economists dash all hopes

In turn, according to Mariusz Zielonka, chief economist of the Lewiatan Confederation, there is no chance of reducing the tax-free amount.

"This idea was unrealistic from the very beginning, and only the Civic Coalition's strongest supporters seemed to believe it was possible. Excluding defense spending from the excessive deficit procedure is irrelevant. The Finance Minister is facing the prospect of exceeding the precautionary debt threshold of 60% of GDP. This, in turn, is a constitutional requirement, and the minister faces liability for any breach," the economist reminds.

According to Zielonka, it should therefore come as no surprise that there is no gradual increase in the tax-free amount to PLN 60,000 .

"Removing defense spending from the excessive deficit procedure (from the 2026 budget - ed.) will only help prevent cuts in social spending . The budget and structural plan, which is supposed to be a guide to reducing the deficit, assumed increasing revenues, not cutting expenditures. Therefore, despite recommendations from the European Commission, there were never any plans to reduce this part of the balance sheet," Zielonka emphasizes.

Also, Chief Economist of Grant Thornton and BCC, Dr. Marcin Mrowiec, points out that Minister Domański's decision was predictable.

- There has never been room to raise the tax-free amount to PLN 60,000 without a simultaneous significant increase in other taxes/levies - and this is an obvious issue for anyone who understands the situation in public finances - says Dr. Mrowiec bluntly.

It reminds us that we have a huge public finance deficit, to which the current government has added its own – not two cents, but tens of billions (the "Active Parent" program alone, popularly known as the "Grandma's" program, will – according to the official government Regulatory Impact Assessment (RIA) – cost almost PLN 65 billion over a decade, and the "widow's pension" after the first two years of lower spending will ultimately cost PLN 12 billion annually – i.e. PLN 120 billion over the course of the decade...).

There is therefore no room for adding further burdens. On the contrary, spending must be reduced – or taxes raised.

"Not only because 'that's what the EU wants,' because we're in the excessive deficit procedure – but above all because we're constantly accumulating a mountain of debt (recent statistics showed that the total public sector debt exceeded two trillion zloty), on which we have to pay increasingly higher interest. We can't continue like this indefinitely, because within a few years the interest burden could become unbearable and could trigger a crisis," warns the economist.

Mrowiec believes that for now there is still time to be "wise before harm happens" – the sooner voters reject the rhetoric of constant promises of ever new "gifts" from politicians, the sooner they understand that these "gifts" are at their expense – only with interest and deferred payment – the better.

"The Minister of Finance rightly noted that the stories about how it would be enough to tighten VAT to find money for the tax-free allowance of PLN 60,000 are fairy tales. Another observation can be added to this – promises of reaching the tax-free allowance of PLN 60,000 in a few years were also fairy tales from the start..." the economist concludes succinctly.