Government Targets Tax Burden on Middle-Class Workers
Poland’s government is preparing a major adjustment to personal income taxes aimed at easing the growing burden on middle-class workers as wages rise and existing tax thresholds remain largely unchanged. Prime Minister Donald Tusk announced the proposed changes on Wednesday, with the government seeking to deliver relief to millions of taxpayers while maintaining control over public finances.
The proposal comes ahead of Poland’s next general election and addresses a problem that has become increasingly visible in recent years: bracket creep. As salaries increase because of inflation and economic growth, workers can move into higher tax brackets even when their purchasing power has not increased by the same amount.
The government’s plan would restructure the income levels at which higher personal income tax rates apply, giving middle-income earners more room before they face significantly higher taxation.
Tax Threshold Set to Rise to 130,000 Zloty
Under the proposed changes, Poland would raise the threshold for the second personal income tax bracket from 120,000 zloty to 130,000 zloty a year. The government would also introduce a new 24% tax rate for income between 130,000 and 150,000 zloty.
Income above 150,000 zloty would continue to face the existing 32% rate. The changes would therefore create a more gradual transition between the lower and higher tax brackets instead of moving directly from 12% to 32%.
The proposal is designed to reduce the tax shock faced by workers whose earnings have gradually risen above the existing threshold. For many employees, the current system has meant that nominal wage increases can result in a disproportionately larger tax bill.
Bracket Creep Puts Pressure on Workers
Bracket creep has become an important issue across economies where tax thresholds do not keep pace with inflation and wage growth.
Poland experienced a period of elevated inflation following the Covid-19 pandemic and Russia’s invasion of Ukraine. At the same time, wages increased significantly. When tax brackets remain fixed while nominal incomes rise, more workers can find themselves paying higher rates without necessarily becoming substantially wealthier in real terms.
The Polish Economic Institute has highlighted this broader problem, noting that tax systems that fail to adjust to inflation can increase the effective taxation of labor income.
For Poland’s middle class, the issue has become particularly politically sensitive because workers can see their gross salaries rise while the amount they retain after taxes does not increase at the same pace.
Government Seeks Relief Without Large Budget Impact
Finance Minister Andrzej Domanski said the changes are designed to balance the benefits for individual taxpayers with the government’s budget requirements.
Rather than relying entirely on spending cuts or accepting a large reduction in tax revenue, the government plans to compensate for the personal income tax changes by increasing taxes on some large companies.
Under the proposal, the corporate tax rate for companies with annual revenues above €50 million would increase from 19% to 22%. The government says this approach would help keep the overall fiscal impact of the reform broadly balanced.
The shift would therefore redistribute part of the tax burden, reducing pressure on middle-income workers while asking larger corporations to contribute more.
Reform Fulfills an Election Promise
The proposed changes also carry political significance for Tusk’s government.
Poland’s ruling Civic Coalition made tax reform a major component of its 2023 election campaign. One of its promises involved raising the tax-free income allowance, which currently stands at 30,000 zloty. More recently, coalition politicians have also discussed raising the personal income tax threshold as an alternative or additional way to provide relief.
The government has been under pressure to demonstrate progress on its tax commitments, particularly as the next election approaches.
That makes the middle-class tax proposal both an economic measure and a political strategy. Providing visible relief to workers could help the government appeal to voters who have seen their earnings rise but feel that taxation has absorbed an increasing share of their income.
Debate Over the 60,000-Zloty Tax-Free Allowance
The tax overhaul comes amid a broader debate over whether Poland should increase the tax-free allowance from 30,000 to 60,000 zloty.
The 60,000-zloty proposal was one of the major promises associated with the Civic Coalition’s 2023 election campaign. However, concerns about the condition of public finances have complicated efforts to implement the full measure immediately.
Instead, raising the higher tax threshold and introducing an intermediate tax rate could provide targeted relief while costing the government less than a major increase in the tax-free allowance.
This approach would particularly benefit workers approaching the current second tax bracket, while limiting the fiscal cost of the reform.
Large Companies Face Higher Corporate Tax
The other major element of the proposal is an increase in corporate taxation for Poland’s largest businesses.
Companies generating more than €50 million in revenue would see their corporate tax rate rise from 19% to 22%. The measure reflects the government’s effort to find additional revenue while reducing personal taxation for middle-income earners.
For businesses, however, the change could increase concerns about Poland’s investment environment and competitiveness.
Large companies could face higher effective tax costs at a time when governments across Europe are competing for investment, manufacturing capacity and international businesses. The impact will depend partly on how companies respond through investment decisions, pricing, wages and corporate structures.
Tax Reform Could Shape Poland’s Election Debate
The proposed changes are likely to become an important issue in Poland’s political debate ahead of the next election.
The government can present the reform as a way of ensuring that ordinary workers are not pushed into higher tax rates simply because their salaries increase. Opposition parties, meanwhile, could challenge the proposal over its impact on companies, government revenues or whether it goes far enough.
The debate could also extend to the question of whether the government should prioritize a higher tax-free allowance rather than modifying existing income brackets.
Looking Ahead
Poland’s planned tax overhaul reflects a growing challenge for governments across Europe: how to prevent inflation and wage growth from quietly increasing the tax burden on workers.
By raising the second tax threshold to 130,000 zloty and introducing a 24% intermediate rate, the government wants to provide middle-class taxpayers with relief while avoiding a major hit to public finances. At the same time, the proposed increase in corporate taxation for large companies would help offset the cost of the personal tax changes.
The reform could ultimately become an important test of Poland’s ability to balance tax relief, fiscal discipline and political promises. With an election approaching, the government will face pressure to deliver tangible benefits to households while ensuring that any changes remain financially sustainable.
As Poland’s economy continues to grow and wages rise, the debate over tax brackets is likely to become even more important. The outcome could determine not only how much middle-class workers take home but also how Poland balances competitiveness, investment and government revenue in the years ahead.
