Five plagues of Poland’s tax debate

Vague proposals, a growing patchwork of exemptions, no assessment of previous reforms, unclear objectives and a failure to account for the cost to the public purse – these are the defining flaws of Poland’s tax debate, evident in both new and long-standing policy proposals.

The latest election pledges bring these shortcomings into sharp focus. The analysis below examines the most significant of them.

Last week Poland’s main opposition party, Law and Justice (PiS), unveiled its latest tax proposals. The flagship measure is to raise the upper threshold of the second personal income tax bracket from PLN 120,000 (around EUR 28,000) to PLN 180,000 (around EUR 42,000) in 2028. According to estimates by the Ministry of Finance, the change would cost approximately PLN 25bn (around EUR 5.8bn).

The party also proposed a program called “Silver Work.” Under the plan, “the first PLN 2,500 (around EUR 580) of a senior employee’s monthly earnings would be exempt from personal income tax, as well as pension and disability insurance contributions paid by both the employee and the employer.” No further details or cost estimates for the proposal have yet been published.

Meanwhile, the governing Civic Coalition (KO) has yet to deliver on its flagship tax pledge from the 2023 parliamentary election campaign: increasing the tax-free allowance to PLN 60,000 (around EUR 14,000).

The first plague: vague proposals

It has not been specified what sources of income are covered by the term “senior employment income.” Does it refer only to earnings under an employment contract, or does it also include income from civil-law contracts and self-employment? Nor is it clear who qualifies as a “senior.” Is it someone who has reached a certain age, or someone who has become eligible for a state pension?

The distinction matters. In Poland, employees must first terminate their employment before they can begin drawing a state pension. As a result, some people have reached retirement age but continue working without claiming a pension.

Without clarifying these issues, it is impossible to assess the proposal properly. This is the first plague of the intersection between politics and public finance: announcing slogans instead of presenting well-defined policy proposals accompanied by a credible assessment of their likely impact.

“Silver Work”: a PLN 6.5bn bill?

In December 2025, around 880,000 people in Poland who had acquired entitlement to a state pension were still in work and covered by the public health insurance system on grounds other than their pensioner status. Of these, roughly 550,000 were also paying pension and disability insurance contributions. The gap between the two figures is largely explained by pensioners who are self-employed, as this group is exempt from paying pension and disability insurance contributions.

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Using a number of simplifying assumptions about the design of the proposed scheme, I estimated its approximate cost under several scenarios. If the proposal applied only to people already entitled to a state pension, its annual cost would amount to at least PLN 6.5bn (around EUR 1.5bn). If the tax exemption were also extended to the self-employed, the cost would increase by several hundred million złoty.

The second plague: patching an already complex tax system

It is worth noting that since 2022 Poland’s tax system has included the so-called PIT-0 for seniors. This relief exempts from personal income tax annual employment income of up to PLN 85,500 (around EUR 20,000) for people who have reached retirement age but have chosen to defer claiming their state pension while continuing to work. According to the latest available data, 159,000 taxpayers benefited from the measure in 2024.

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This raises an obvious question: would those already benefiting from this tax relief also qualify under PiS’s new proposal? If so, they could potentially claim the standard tax-free allowance, an additional PLN 30,000 (around EUR 7,000) tax-free allowance under the “Silver Work” program, and the existing PIT-0 for seniors exemption of up to PLN 85,500 (around EUR 20,000).

That would leave Poland with the standard tax-free allowance, two additional tax preferences for seniors covering both personal income tax and social security contributions, while the existing PIT-0 reliefs would continue to operate alongside them. Whether this is how the scheme would ultimately be designed remains unclear. What is clear is that it would hardly make for the world’s simplest tax system.

This brings us to the second plague: adding yet more patches to an already highly complex system.

The third plague: no evaluation of previous reforms

New layers of complexity are being added to the tax system without any meaningful assessment of whether earlier reforms have actually worked. PIT-0 for seniors has been in place for several years, yet there is still no clear evidence as to whether it has achieved its intended objectives.

The economic rationale behind the measure is straightforward: to encourage older people to remain in the labor market for longer. But the relief also benefits individuals who would have continued working even if it had never been introduced. To assess the program’s effectiveness properly, policymakers would first need to estimate how many people postponed retirement specifically because of the tax incentive. They could then compare the benefits – higher receipts from personal income tax and social security contributions from those who remained in work, together with savings from delaying pension payments – with the costs, namely the forgone income tax revenue resulting from the relief granted to all beneficiaries.

In December 2024, researchers at the Warsaw School of Economics (SGH) prepared an evaluation of the impact of PIT-0 on extending working lives, commissioned by the Ministry of Family, Labor and Social Policy. The report was produced as part of a milestone under Poland’s National Recovery and Resilience Plan (KPO).

A close reading of the report, however, suggests that it does not answer the central question. It does not examine how many people actually delayed retirement because PIT-0 was introduced. Instead, the analysis assumes that the reform influenced the retirement decision of every taxpayer claiming the relief. Yet even before the measure was introduced, in 2021, many people who had reached retirement age continued working without drawing a state pension. In my view, that assumption fundamentally undermines the credibility of the study.

Return to a PLN 60,000 tax-free allowance

It is worth recalling a key pledge made by the main governing party (KO-Civic Coalition) during the 2023 election campaign. Raising the tax-free allowance to PLN 60,000 (around EUR 14,000) in 2027 would cost an estimated PLN 58.7bn (around EUR 13.6bn), equivalent to 1.34% of GDP. The Ministry of Finance also broke this figure down by taxpayer group, based on primary sources of income.

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According to these calculations, employees on standard employment contracts would receive around 60% of the benefit, amounting to PLN 34.4bn (around EUR 8bn). Pensioners and disability benefit recipients would account for 34% of the benefit, or PLN 20.2bn (around EUR 4.7bn). For comparison, this is equivalent to roughly two-thirds of total spending on Poland’s so-called 13th and 14th pension payments, which together exceed PLN 30bn (around EUR 7bn). Self-employed taxpayers operating non-agricultural businesses would receive around 3% of the benefit. This relatively small share reflects the fact that most high-income entrepreneurs are taxed under a flat rate or lump-sum regime, where the tax-free allowance does not apply.

At what stage is this pledge now? In a recent response to a parliamentary interpellation, the Deputy Finance Minister stated: “The Ministry of Finance maintains its previous position that raising the tax-free allowance from the current level of PLN 30,000 (around EUR 7,000) to PLN 60,000 (around EUR 14,000) remains part of the government’s legislative plans. This declaration remains valid, although its implementation depends largely on the state of public finances.”

The fourth plague: lack of policy objectives

Another plague is the absence of any clear economic rationale behind the proposed reforms. This applies both to the increase in the tax-free allowance and to the adjustment of the second tax bracket threshold. What specific economic objective are these changes meant to achieve?

It is worth noting that the two ideas have very different redistributive effects. In the case of raising the second tax threshold in full, the main beneficiaries would be individuals whose taxable income exceeds PLN 180,000 (around EUR 42,000). Those with income below PLN 120,000 (around EUR 28,000) would gain nothing. The reform would therefore be targeted at relatively high-income taxpayers who settle their taxes under the progressive tax scale.

By contrast, the benefits of increasing the tax-free allowance would be much more widely distributed. Gains would accrue both to minimum-wage earners and to high-income individuals. At the same time, as already noted, as much as PLN 20bn (around EUR 4.7bn) – or 0.5% of GDP – would go to pensioners and disability benefit recipients. Beyond a general reduction in taxation, it is difficult to identify a clearly defined economic objective in this proposal.

An alternative approach could be, for example, increasing deductible employment costs for people on standard employment contracts. This would allow for more precisely targeted support for labor market participation at a lower fiscal cost. Excluding pensioners and disability recipients from such a measure would further strengthen incentives to remain economically active for longer, which is particularly relevant given Poland’s demographic trends.

In the case of raising the tax threshold, the incentives to increase labor market participation would be even weaker than in the case of raising the tax-free allowance. They would apply to a narrower group of taxpayers, and any resulting increase in activity would be of an intensive nature – meaning more hours worked or greater effort – rather than an extensive one, meaning taking up employment. Paradoxically, PiS’s proposal is therefore aimed primarily at higher-income taxpayers, even though the highest incomes are taxed…

The fifth plague: proposals detached from fiscal reality

The costs of the proposals under discussion are substantial. According to Finance Minister Andrzej Domański, raising the second tax bracket threshold alone would cost the budget PLN 25bn (around EUR 5.8bn). If the cost of the “Silver Work” program is added, the total revenue loss would amount to approximately PLN 32bn (around EUR 7.4bn), or 0.6–0.7% of GDP. Raising the tax-free allowance to PLN 60,000 (around EUR 14,000) would, in turn, cost the equivalent of 1.3% of GDP.

This leads to the fifth plague: the presentation of electoral slogans that increase the deficit, without any explanation of their impact on public finances or identification of funding sources. The issue is also illustrated by the unfulfilled pledge to raise the tax-free allowance to PLN 60,000 (around EUR 14,000). Given the state of public finances, the difficulty of implementing such a measure was already apparent at the time the program was announced.

Poland is currently subject to the EU Excessive Deficit Procedure, whose constraints are temporarily softened by a national escape clause linked to higher defense spending. Under the next fiscal-structural plan, which will apply from 2028, annual spending cuts or tax increases of around 1% of GDP will most likely be required. How can this be reconciled with tax cuts worth 0.6–1.3% of GDP? It would imply the need for even tighter fiscal consolidation in other areas.

Neither the governing coalition nor the opposition is currently presenting concrete measures that would allow EU fiscal requirements to be met over this horizon. A serious debate about the state must include such plans.

Key Takeaways

1. Law and Justice (PiS) proposes raising the second personal income tax bracket threshold from PLN 120,000 (around EUR 28,000) to PLN 180,000 (around EUR 42,000) per year, as well as introducing a program called “Silver Work”, which would exempt part of the income earned by working seniors from personal income tax and from social security contributions. Meanwhile, the Civic Coalition continues to declare its intention to implement the pledge made during the 2023 election campaign to raise the tax-free allowance from PLN 30,000 (around EUR 7,000) to PLN 60,000 (around EUR 14,000).
2. The first plague is the presentation of vague proposals lacking detail and impact assessment; the second is the layering of additional tax reliefs and exemptions that further complicate the system; and the third is the absence of rigorous evaluation of earlier reforms. The fourth concerns the lack of clearly defined economic objectives behind tax changes, while the fifth involves ignoring the costs to public finances and broader budget constraints. As a result, the tax debate often focuses on promises of tax cuts rather than on the problems they are meant to solve or how they would be financed.
3. Raising the second PIT threshold from PLN 120,000 (around EUR 28,000) to PLN 180,000 (around EUR 42,000) would primarily benefit higher-income taxpayers subject to the progressive tax scale. Those whose taxable income exceeds PLN 180,000 would receive the full benefit, while taxpayers earning no more than PLN 120,000 would gain nothing. By contrast, increasing the tax-free allowance to PLN 60,000 (around EUR 14,000) would distribute benefits much more broadly – covering both low- and high-income individuals, with a significant share also accruing to pensioners and disability benefit recipients. Both reforms would therefore reduce taxes, but the first would concentrate benefits among higher-income groups, whereas the second would be far more universal in nature.