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Poland scraps taxes for young adults to curb emigration

File photo of Poland Prime Minister Mateusz Morawiecki. Photograph:( AFP )

AFP Warsaw, Poland Aug 06, 2019, 10.44 AM (IST)

Polish teenager Franciszek Filipowski has just signed on for his first job at a vegetarian restaurant in Warsaw and thanks to a new government measure, he will not be paying taxes.

"The current party in power has scrapped taxes for those under the age of 26," the 19-year-old told AFP. 

"That way, they appear sympathetic towards young voters," he said, suggesting it could be a calculated political move ahead of a general election in October.

The tax break, which came into effect on August 1, could benefit around two million youths in the country of 38 million people, as it only applies to employees, not young entrepreneurs, according to Deputy Finance Minister Leszek Skiba.

He told AFP he hopes the legislation will encourage young people to quickly join the labour market, which is increasingly lacking in workers. 

The under-26 workforce will now receive fatter paychecks since their employers no longer have to hold back 18 per cent of the salary to hand over to tax authorities. 

'Magic wand'

The government is also hoping the measure will discourage young people from emigrating in search of higher wages.

"It's impossible to predict everything... but we think that any young people who are debating whether to stay or go work abroad will see that the gap between their net salary here and abroad is diminishing and that will motivate them to stay in Poland," Skiba said. 

In addition, "some of those who are already in Western Europe -- in Germany, Britain, France or Ireland -- will see a reason to consider a return home," he said. 

Skiba said the state could see around 2.5 billion zloty (580 million euros, $650 million) less in revenue, half of which would have gone to government coffers and half to local authorities. 

'Populism'

Another young man interviewed by AFP, 23-year-old Jan Piotrowski, said he is sceptical regarding the whole initiative. 

"The idea was floated just before the EU elections, so there's an element of populism," said Piotrowski, who had previously worked in commerce and at a bank and is now looking for a job in the logistics sector. 

"I don't expect to receive a windfall. More something along the lines of an extra 100 to 200 zloty (23-46 euros, $26-52)" per month, he said. 

There are no statistics for the average monthly wage specifically for young people, only for the working population as a whole, where it is a net 3,700 zloty (860 euros). 

But to provide an idea of how marginal the increase in a young person's take-home pay might be: a burger costs around 25 zloty.

Piotrowski said he has been "considering moving abroad for work over the last couple years" and such a small amount extra will not sway him. 

"I don't like the current government's policies and I don't expect them to change. A lot of my friends have the same view," he told AFP.

"Polish salaries won't skyrocket. Housing is expensive, the price of food is going up as well, slowly but surely,"

Some economists are also not convinced by the government plan. 

"Eliminating this tax won't make much of a difference for the economy," said Andrzej Sadowski, president of the Adam Smith Centre, a Polish think-tank espousing free market views.

"For an employer, it's not the 18 per cent tax on income that's expensive, it's the social security charges of just over 40 per cent," he told AFP. 

Employees pay about 24 per cent of their gross salary in social security contributions in Poland and employers around 18 per cent.

Like Sweden

Still, he believes that it is employers who will benefit the most from the programme.

"Now when they hire a young person, they'll be able to offer a salary on which they won't have to pay 18 per cent in taxes," he said. 

Sadowski does not discount an electoral motivation for the legislation, saying that "in Poland, like in France, the government often gives voters gifts ahead of the election."

"In this particular case, the measure favouring youths is meant to offset the negative effect of higher social security charges for small businesses," which are to come into effect in January, he said. 

Supporters of the new tax break see a precedent in Sweden, where in 2007 the centre-right government slashed employer charges in half for people under 26 years of age to ease their access to the job market.

The following centre-left administration scrapped the move in 2016, saying it was ineffective. 
 

Story highlights

The tax break, which came into effect on August 1, could benefit around two million youths in the country of 38 million people, as it only applies to employees, not young entrepreneurs