The draft of a new law on the income of local government units presented by the Minister of Finance in Parliament, announced as beneficial to all local governments, is, however, constructed in such a way that it will make the rich even richer and prevent the poorest from developing. The Minister presented simulations showing that in 2025, local governments will receive about PLN 25 billion additional funds, but the main beneficiaries of these additional financial resources will be large cities. According to more detailed calculations based on data presented by the Ministry of Finance, in small communes with up to 4,000 inhabitants, approximately PLN 400 of these additional funds will be allocated per person, while, for example, in Warsaw it will be more than PLN 1,100, that is, almost 3 times more.
The Minister of Finance announced that the project was created in close cooperation with organisations representing all types of local governments, which unanimously supported it in the Joint Committee on Government and Local Government, but smaller local governments, especially rural ones, were pushed against the proverbial wall. Either we accept the project presented by the government or we abandon the old solutions, but the Tusk government already in January this year stopped all investment programmes for local governments financed by the Gospodarstwa Krajowego Bank (BGK) and is unlikely to resume them. And within the framework of these programmes, over the past 3 years, almost PLN 120 billion has been transferred to all local governments in Poland for investments in technical and social infrastructure, often financed at a rate of 80% or more, and even at a rate of 98%, as in the case of post-state agricultural communes. Smaller local governments, especially rural ones, which previously had investment budgets from their own funds amounting to PLN 1-2 million, after this additional support had from several to several tens of millions of zlotys to invest per year.
The bill is based on personal income tax and corporate income tax, but the novelty is not the participation of local governments in these two taxes, but rather the percentage share of the income of residents – personal income tax payers or companies located in a given local government. In this way, local governments will be protected from the consequences of possible legal changes in these taxes, but not from possible declines in the level of income of taxpayers, for example, in the event of an economic crisis. In a situation where the Minister of Finance states that, on average, up to 80% of local government revenues will be based on these two sources of income, any economic crisis will be extremely unfavorable for their finances.
Extra money
Therefore, despite the Minister of Finance’s assurances that an additional PLN 25 billion will flow to local governments next year, the blocking of the current investment support for local governments, which amounts to approximately PLN 40 billion annually, means that they will ultimately have much fewer financial resources. In addition, the financing mechanism proposed in the law will provide stronger support to local governments with a large base of personal income tax and corporate income tax payers, i.e. mainly large municipal governments, especially smaller ones, will provide an additional PLN 1-2 million per year, while diverting the already mentioned several or even several tens of millions of zlotys annually to investments. Unfortunately, the Platform has in its DNA a complete lack of understanding of the strategy of providing opportunities to the less wealthy, equalizing levels of development, and the new Law on Income is a clear expression of this.
This refers directly to the polarisation-diffusion development model, famous in liberal circles, which consists of directing public funds to areas where their use guarantees the greatest efficiency and, at the same time, waiting until the development thus achieved “spills over” to less wealthy countries. This model has not yet worked anywhere in the world, including Poland, and a perfect example of this is Mazovia, where, after 25 years of operation of the autonomous voivodeship responsible for regional development, the GDP per capita in Warsaw is almost 170% of the EU average, and in the Radom region, 100 km away, only 64% of the EU average. Unfortunately, everything indicates that the new income law, if not amended during the parliamentary work on it, will unfortunately deepen this diversification of development.
