Poland's high defence spending as challenge to deficit reduction
Poland faces the need for high defence spending, which will present a challenge to reduce the deficit, according to the medium-term budget and structural plan for 2025-2028, adopted by the government on Tuesday.
"Throughout the plan period, a significant challenge will be the need to incur high defence spending, including defence investments, while reducing the excessive deficit. However, the gradual deficit reduction planned in Poland, in line with EU rules, will not jeopardise public investments," the plan stated.
"Their average in relation to GDP will be maintained in 2025-2028 at a level higher than before the plan and significantly higher than the EU average, which is an important element of the economy's development strategy, and securing their financing is one of the government's main objectives in the plan horizon," it added.
It was stated that the sector's level of investment will be shaped primarily by the modernisation programmes of the armed forces, but also by the implementation of the government's multiannual programmes in the area of road and rail infrastructure, financed, among others, by the EU's multiannual financial framework for 2021-2027 and the EU's Recovery and Resilience Facility (RRF) as well as new programmes, including Polish nuclear power programme PPEJ.
The document assumes that, considering changes in the EU rules allowing the fiscal adjustment to be spread over several years, the sector deficit is planned to be reduced to 5.5 percent of GDP in 2025, this is by 0.2 percentage points compared to 2024.
The start of deficit reduction in 2025 will be supported by:
- maintaining the PIT thresholds and the tax-free amount with nominal increases in salaries and pensions: 0.3 percent of GDP;
- realigning excise tax rates (by 25 percent on cigarettes and by 38 percent on tobacco and other products): 0.1 percent of GDP;
- restoration of the standard VAT rate on food (5 percent): 0.1 percent of GDP;
- limiting conservation measures to limit the impact of energy price increases;
- monitoring of transport of ready-mixed concrete to reduce VAT extortion in construction: 0.03 percent of GDP;
- keeping non-insurance benefits unchanged in relation to GDP despite the introduction of new programmes, for example 'Active Parent' programme (0.1 percent of GDP);
- keeping the nominal values of the upbringing benefit ('Family 800 plus' programme) and family benefits stable.
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