Changing the tax wedge in Poland in response to the COVID-19 crisis

Abstract

In response to the negative consequences of the COVID-19 pandemic, the Polish government proposed a number of reforms, placing them in a program called the “Polish Deal”. These reforms, in particular those concerning changes in the tax system, were the result of reduced budget revenues and increased expenditure as a result of the COVID-19 pandemic. Controversies related to the "Polish Deal" program have led to several amendments and, at the same time, numerous changes in shaping the tax wedge in wages.
The purpose of the article is to analyze the effects of the “Polish Deal” and its modifications on the size of the tax wedge in workers’ salaries, and to answer the question of whether the introduced reforms, in accordance with the legislator's intention, led to more progressive taxation of salaries in Poland. The basis for answering the research question was a comparative analysis of the distribution of tax wedges in four tax and contribution systems: before the introduction of the “Polish Deal” (2021), in accordance with its initial assumptions, in accordance with the “Polish Deal” law and in accordance with the “Polish Deal 2.0”. Fourteen variants of gross remuneration were analyzed. The results of the analysis confirmed that the goal included in the justification for the “Polish Deal” project had been achieved. A comparison of tax wedge distributions confirmed that each of the systems under the “Polish Deal” and its modifications assumed an increase in progressivity in payroll taxation, relative to 2021. The tax and contribution system under the “Polish Deal 2.0” should be considered to have the highest progressivity in payroll taxation among the analyzed systems.