The new socio-economic program for 2021-30 was announced by the Polish government on 15 May and includes an amount of spending a risk to inflation:
• an increase in health expenditure from 5.3% of GDP in 2021 to 6% of GDP in 2023 and 7% of GDP in 2027;
• an increase in the tax-free amount to PLN 30k per year and the tax threshold from PLN 85.5k to PLN 120k;
• new personal income tax relief (PIT) for employees working on employment contracts with an annual income of between PLN 70k and 130k;
• order contracts should be subject to full social security contributions with a view to the introduction of the single contract;
• the launch of a linear health contribution (9%) proportional to income for all types of contracts, not deductible from PIT;
• infrastructure investments: a network of expressways, railway lines, a new central airport, cultural and sports infrastructure in municipalities, digital infrastructure, all financed by the issue of bonds from a new BGK fund;
• state guarantees for the contribution of mortgages up to PLN 150k, grants of up to PLN 160k for the purchase of social housing or for families with many children;
• assistance in the repayment of mortgages after the birth of the second child or subsequent up to PLN 150k;
• construction of single-family houses up to 70 square meters only on the basis of notification, without permission, construction supervision, or construction registers.

The maximum cost is expected to amount to PLN 651.6 billion in total in the years 2021-2030, or PLN 65 billion per year. These are very rough estimates since many of the projects are still concepts of a bill and most of the time is not specified. At this stage ING points out that the proposed changes to personal income taxes, health care contributions, and spending are specified in a little more detail, so based on these assumptions analysts try to estimate the impact on the budget. And the increase in the tax burden for the wealthiest part of society and the self-employed would not be able to cover the reduction in the tax burden for low- and middle-income taxpayers. According to the Ministry of Finance, the revenue lost in PIT is expected to reach PLN 20-22 billion: the increase in the health contribution should provide PLN 14 billion, but all this should be spent by increasing health spending from 5.3% of GDP to 6% of GDP in 2023. A slower reduction in the budget deficit is therefore expected. In addition, Poland intends to promote at European level the proposal to exclude military expenditure from spending limits: the country spends more than 2% of GDP on defense purposes, excluding it from the spending limit would give space to the implementation of the socio-economic program, but would increase public debt.

The tax cut is not the only burden that the Polish Ministry of Finance has to cover: the 500+ childbirth grant cannot be covered by EU funds. Past experience shows that the deficit resulting from new social transfers is supported by higher tax rates among other taxpayers, mainly businesses. This has led to greater uncertainty and a reduction in investment, especially from SMEs. The new program is expected to generate a new stimulus to demand, but on the other hand concerns the negative impact on investment propensity: a smaller proportion of private investment limits productivity growth, the factor which would mitigate price pressures resulting from increased consumer demand. All this carries a higher risk for the 2022 forecast of GDP (5% year-on-year) and inflation (3.4%).

Wholesale inflation accelerated from 3.9% to 5.3% in April, more than expected (+4.9%); prices in manufacturing accelerated sharply, from 3.3% in March to 5.0%. And metal ore prices also continued to rise (+60.1%) due to the rebound in demand for raw materials in the global economy. As ING points out, inflationary pressure in Poland is currently largely cost-oriented: commodity prices are rising and supply chain disruptions are forcing a reorganization of production processes, generating higher costs, passed on to the prices of finished products. This is also a global trend: in April, PPI inflation in China and the US accelerated to 6.8% and 6.2% respectively, while in the eurozone in March it was already at 4.3% compared to 1.5% in February.