Poland’s government has announced that it will end the 0% VAT rate on food introduced two years ago to help soften the blow of soaring inflation. The Finance Ministry argues that the recent slowing of price rises renders the measure no longer necessary.
However, the opposition Law and Justice (PiS) party, which introduced the VAT cut while in office, criticised the decision, saying that the government was “draining Poles’ wallets”.
“Due to the latest inflation readings and forecasts of the dynamics of the prices of basic food products subject to the transitional 0% VAT rate, the Finance Ministry has decided not to extend the temporary reduction of the VAT rate after March 31,” announced the ministry on March 12 morning.
It noted that, when the measure was introduced in February 2022, annual inflation reached 9.2% the previous month. Inflation then soared to a peak of 18.4% in February 2023, but had been in decline since then.
In January, it fell to 3.9%, the first time it had been below 4% in almost three years. Food and drink prices rose by 4.9% YoY in January, the lowest figure since September 2021.
The Finance Ministry notes that food price growth and overall inflation are set to continue to slow in the data for February and March, thereby justifying the return to the previous 5% VAT rate on food from the start of April.
However, its decision was met with strong criticism from PiS, which was removed from office in December 2023 and was now the largest opposition party.
“From April 1, the zero VAT rate on food will disappear, and unfortunately this isn’t an April Fool’s joke,” tweeted Mateusz Morawiecki, who as PiS prime minister introduced the 0% rate in 2022. “The government is again draining Poles’ wallets.”
When the outgoing PiS government renewed the 0% VAT rate in December 2023, the Finance Ministry estimated that the policy would cost the state budget 2.93 billion zloty (EUR 684 million) in lost tax revenue across the whole of 2024.
On March 11, Poland’s central bank released forecasts indicating that, if protective measures such as VAT cuts and energy-price freezes remained in place, then inflation this year would be 3%. But without them, it would stand at 5.7%.
“The future economic situation and the path of inflation in Poland are strongly dependent on current and future fiscal activities in Poland, including the scale and scope of anti-inflation protective measures undertaken,” said the bank. (Notes from Poland/Business World Magazine)
