This article is a part of Poland Unpacked. Weekly intelligence for decision-makers
The Ministry of Finance has published the latest data on the estimated execution of the state budget in the first half of the year. State budget revenues amounted to PLN 333.9 billion (EUR 78.7 billion), while expenditures reached PLN 475.0 billion (EUR 111.9 billion). This translates into a deficit of PLN 141.1 billion (EUR 33.2 billion).
But, as we have repeatedly stressed in these pages, the more meaningful measure of the fiscal position is not the headline budget deficit itself, but the deficit of the general government sector, calculated under EU methodology.
Interactive chart VAT surprises on the upside
How have VAT revenues – the most important component of the state budget’s income – performed so far? From the beginning of the year through July, they amounted to PLN 193 billion (EUR 45.5 billion), an increase of PLN 3.7 billion (EUR 0.9 billion), or 2%, compared with the same period last year. This is slower growth than assumed in the 2026 budget law, which projects a 6.2% increase in VAT revenues.
In July alone, VAT revenues rose by nearly 13% year on year. VAT payments recorded in July relate to June tax returns and therefore still reflect the impact of the government's CPN program ( “Lower Fuel Prices”) program. For VAT, this meant cutting the rate on liquid fuels from 23% to 8%. That makes the July result particularly strong, especially given the relatively weak VAT performance since the start of the year. Strong retail sales certainly helped. Measured at constant prices, retail sales rose by 6.2% year on year in June.
It is worth noting, however, that under the EU methodology, annual VAT revenues for 2026 comprise receipts for the period from February to December 2026, plus January 2027. Because of the very weak result in February – a decline of around 25% - total VAT revenues on this basis are PLN 4.4 billion (EUR 1.0 billion), or 2.8%, lower than in the corresponding period a year earlier. This will be important when assessing Poland’s deficit under the excessive deficit procedure. Nevertheless, strong VAT receipts in July reduced the shortfall by as much as PLN 3.5 billion (EUR 0.8 billion).
Excise Duties disappoint
Excise tax revenues amounted to PLN 52.3 billion (EUR 12.3 billion), up by around PLN 0.8 billion (EUR 0.2 billion), or 1.7%, compared with the January-July 2025 figure. In July alone, they were virtually unchanged from a year earlier for the second consecutive month, declining by around 1%. This was despite the fact that excise duty on fuels had been reduced in June – covering payments for that month – only through the middle of the month. The 2026 budget law assumes that excise tax revenues will increase by 11.6% this year.
The next report on the execution of the state budget will no longer reflect the impact of the CPN program on VAT and excise duties. CPN was not in effect in July, although it has been partially reinstated as of Monday, August 17, in relation to VAT.
Strong CIT and PIT
Revenues from direct taxes – CIT and PIT – continue to grow significantly. In the case of corporate income tax (CIT), state budget revenues are around PLN 11.7 billion (EUR 2.8 billion), or roughly 29%, higher than a year ago. The most important factor here is the increase in the tax rate applicable to banks.
Personal income tax (PIT) is also rising rapidly, as tax parameters remain frozen – both in terms of state budget revenues and those of local government units. PIT revenues increased by PLN 12.8 billion (EUR 3.0 billion), or 12.2%, year on year.
XYZ’s take: the budget is getting closer
Is this simply a one-off VAT spike, or is this revenue stream genuinely set for a sustained rebound? The question is particularly important in the context of the draft 2027 budget law, which is due to be published by the end of August. The Ministry of Finance will presumably have data on VAT receipts for another month – July – in the coming days.
This could prove decisive for the tax reform that is increasingly being debated, as well as for its scale. Ideas being floated include the unfulfilled 2023 promise to raise the tax-free allowance, increasing the PLN 120,000 (EUR 28,300) tax threshold, or changing the tax rate – or introducing a new one.
The stakes are enormous, because the budget concerns an election year, after all.