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Wednesday, July 24, 2024

VAT. State budget 2024. Deputy Minister of Finance with “disturbing” results

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The latest results of the state budget implementation are more worrying, the Ministry of Finance is mainly looking at VAT revenues – admitted Jurand Drop, Deputy Minister of Finance on Monday, during a meeting of the Social Dialogue Council. According to economists, the level of income from tax on goods and services in 2024 may be approximately PLN 25-30 billion lower than the budget act provides.

​- The first monthly data (concerning budget execution – editor) from this year indicated good budget execution, there were no reasons to amend it. At this point, there are no such reasons. However, it is clear that the latest data is much worse and we will continue to look at it, especially at performance VATon what is happening in the economy and on this basis we will be able to say whether the budget execution is poor – said Drop.

– The last two readings are certainly more disturbing than the previous ones – he added.

After May, the state budget deficit amounted to PLN 53.1 billion, compared to PLN 39.9 billion in April. In its announcement regarding the implementation of the budget, the Ministry of Finance announced that the tax revenues of the state budget amounted to PLN 236.1 billion. Of this, VAT revenues reached PLN 122.1 billion and were higher by approximately PLN 19.5 billion (i.e. 19%) compared to the performance in the period January – May 2023. “State budget revenues from VAT in May 2024 were higher than those obtained from this source in May 2023 by approximately 21.9%. – added.

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VAT income

At the same time, according to Santander bank economists, the level of VAT revenues in 2024 may be approximately PLN 25-30 billion lower than provided for in the Budget Act (PLN 316.4 billion). In 2023, it was PLN 244 billion.

“Since the publication of the last quarterly report, the main threat to the implementation of the General Government deficit (public finance sector – ed.) at the level of 5.1% of GDP assumed by the government remains VAT revenues, which, according to the plan adopted in the budget act, should increase by about 30 percent y/y. Although in the first quarter of the year their net inflow was approximately 27% higher than in the first quarter of 2023, other fiscal data suggest that this was due to significant VAT refunds made in December last year. “Gross VAT revenues (after adding the amount of refunds) increased only by approximately 3% year on year,” it was written.

“Concerns about the realization of VAT revenues may also be raised by the fact that, at least in the last twenty years, the scale of their growth has never reached such a high level as the government currently expects,” we read.

“For the level of economic activity assumed in the Budget Act or the Multiannual State Financial Plan to increase VAT revenues by approximately 30%, there would have to be a significant deviation from the relationships observed so far,” it added.

Finally, Santander economists point out that the increase in VAT revenues is also not supported by the VAT gap, which, according to the estimates of the Ministry of Finance, increased from 7.3 percent. in 2022 up to 15.8 percent in 2023. “As a result, we still believe that the level of VAT revenues in 2024 may be approximately PLN 25-30 billion lower than provided for in the Budget Act,” they conclude.

“The forecast of VAT revenues in the 2024 budget is unrealistic”

Last week, the president of the Institute of Public Finance, Sławomir Dudek, also drew attention to the problem.

“The published data for May confirm that the forecast of VAT revenues in the 2024 budget is unrealistic. (…) The budget may lack PLN 25 to 35 billion. Only with VAT,” he warned on social media. “In the period January-May (IV), VAT revenues increased by 19% y/y. In the first quarter it was 27% y/y, but in the second quarter this dynamics has so far been approximately 8% y/y (on average April-May). To meet the budget forecast for 2024, VAT would have to grow by 37% y/y in the following months, which is twice as fast as the average after five months,” he explained. He calculated that if the 19% dynamics is maintained, the budget will be PLN 25 billion short. “But if it is 10%, there will be a shortfall of over PLN 35 billion,” he emphasized.

“It's time for a serious debate on public finances. We cannot wait until autumn. Incomes are weakening and profitability is rising. Further increase in debt in conditions of high servicing costs, mostly in currencies and high uncertainty (geopolitics, US elections, wars, bubbles) prices) will not improve Poland's security,” he emphasized.

Excessive deficit procedure

On Wednesday European Commission assessed that it was justified to open the excessive deficit procedure (EDP) for seven countries, including Poland. The EC intends to propose its opening to the EU Council in July. The EU excessive deficit procedure is triggered on the basis of the European Commission's recommendations if the public finance sector deficit in a given member state exceeds 3%. GDP or the debt is higher than 60%. GDP.

Lower than planned VAT revenues may not only increase the state budget deficit, which is planned in the Budget Act at a maximum of PLN 184 billion, but also increase the public finance sector deficit – taken into account by EU institutions.

Main photo source: Leszek Szymański/PAP

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