Finance Minister Speaks on Flat-rate Tax, Fiscal Reforms, and Public Finance Consolidation.

(From Polish News Bulletin)

The following is a summary of an interview, featured in a recent issue of Rzeczpospolita, with finance minister Andrzej Raczko.

Asked whether the finance ministry is loathe to the very idea of a flat-rate personal income tax, Raczko says the finance ministry is not by principle opposed to any idea. As a far as a flat-rate tax is concerned, the finance ministry has drawn up projections of its potential impact. A debate on these projections was important because it showed what steps are necessary in a reform of Poland's fiscal system. Moreover, the debate on a flat-rate tax has to give answers to some crucial questions about issues such as the tax-free amount, or tax-deductible costs. It is also important whether we should maintain a system in which small business is subject to personal income taxation. There is a number of issues that have to be considered, discussed and analysed in the context of a flat-rate tax.

Asked whether the finance ministry believes that the introduction of a flat-rate tax would stimulate economic growth, Raczko says in the first place it may boost the supply of labour. If a portion of income is subject to a lower tax, the taxpayer will have an incentive to work more. It needs to be remembered, however, that subject to PIT taxation in Poland are both people on regular jobs, as well as small businesses and the self-employed. The former are unlikely to seek extra work, so whether the tax is progressive or not, their labour market behaviour is not going to change.

It is different, though, with the self-employed. For them, a flat-rate tax is an incentive to work more. So one can say that such a tax's introduction would boost labour supply. It appears that in the current economic situation such growth is much needed.

But the main effect of a flat-rate tax is that it affects the structure of market demand. Its introduction means shifting incomes from one group to another. With progressive taxation, some of the funds collected as tax are redistributed to the lower-income groups, and …