Commentary of the Union of Entrepreneurs and Employers on the announcement of the “Anti-Inflation Shield”

Warsaw, 25^th November 2021

Commentary of the Union of Entrepreneurs and Employers
on the announcement of the “Anti-Inflation Shield”

Prime Minister of the Republic of Poland Mateusz Morawiecki presented today his plan to introduce an “Anti-Inflation Shield”. This package of solutions consists to a large extent of a series of temporary tax cuts, mainly concerning VAT and excise duty. The initiative to reduce these burdens considering rapidly growing inflation is in our view worth supporting. According to data from Statistics Poland, in October 2021, prices increased year-on-year by as much as 6.8%. This is a record high level, unheard of in years. Moreover, according to some forecasts, inflation is expected to continue to rise and in January 2022 it may even reach a double-digit level¹. This situation requires urgent intervention. Apart from monetary policy, there are also fiscal tools at the government’s disposal, and it is good news they decided to make use of them.

In terms of fuel prices, an excise duty reduction was announced to the minimum level permitted in the European Union to being on 20^th December 2021 and to last until 20^th May 2022. Minimum excise duty on fuels is set out in Council Directive 2003/96/EC of 27^th October 2003 restructuring the Community framework for the taxation of energy products and electricity (known as the Energy Taxation Directive), and it is different for each type of fuel. The second solution aimed at reducing fuel prices is the retail sales tax exemption from 1^st January to 31^st May 2022. The so-called “emission fee” is also to be temporarily abolished. These measures are to reduce fuel prices by PLN 0.2-0.3 per litre. It will not only impact drivers, but the whole industry and all consumers as transport costs are included in the price of virtually all goods.

Moreover, VAT on natural gas is to be reduced from 23% down to 8%. Natural gas is one of the most important energy resources used, among others, to heat households, water, and gas stoves. It is also of key importance in the energy industry. It is estimated that for households, a VAT reduction may translate into lower bills to pay – by several up to even several dozen zlotys per month. In terms of electricity prices, VAT will be reduced from 23% down to 5% in January 2022, whereas excise duty will be brought down to 0%.

Obviously, the reduction of costs which is to result from changes in tax on energy carriers is a step in the right direction. Rising energy prices are responsible for a significant part of the overall price increase – the reasons for these increases lie largely beyond the control of the state authorities. However, tax reduction is a mechanism that equalises these increases.

Another of the PM’s announcements we find praiseworthy is the introduction of savings in public administration. At this stage, we are unaware of any specific details, but limiting the number of jobs in administration has been one of the postulates raised by the Union of Entrepreneurs and Employers for a long time. The announcement of savings and caution in spending public funds on the functioning of the state sets a good course of action.

The Prime Minister also announced the introduction of the so-called “shield allowance” for people and families with the lowest income in the amount from PLN 400 to 1,150. Its purpose is to compensate for the increase in food prices. However, this is yet another public transfer of a social nature and will constitute a further burden on the state budget. Increasing the system of social benefit, which is already rather extensive, may turn out to be counterproductive and lead to an even higher inflation. We are unequivocally critical of this particular element of the “Anti-Inflation Shield”.

Furthermore, Prime Minister Morawiecki criticised the CO₂ emission allowance trading system and noticed its disastrous impact on energy prices in Europe. In our report “EUA: Price bubbles and the competitiveness of Poland and the European Union” of September 2021², we elaborated in detail on the price bubble on the emission allowance trading market. For this reason, we support the announcement of actions to improve this system.

To sum up, the Union of Entrepreneurs and Employees is in favour of most of the proposals envisioned in the “Anti-Inflation Shield”. The announced tax cuts may slow down price increases and they are the right response to one of the greatest inflation crises in years.

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