The headline budget deficit shrank markedly in 2017 thanks to higher tax revenues, reflecting strong economic growth and measures to improve tax compliance. Fiscal policy is projected to be supportive of growth in 2018‑19, as the lowering of the retirement age will raise public spending. Given the strength of the economy, implementing a tighter fiscal stance through revenue‑raising tax reforms would be appropriate. Giving a stronger role to the progressive personal income tax, limiting the reliance on reduced VAT rates and strengthening environmentally‑related taxes would increase revenues, while promoting more inclusive and greener growth. Monetary policy has been appropriately accommodative given subdued inflation. Yet, inflation is projected to increase, reflecting accelerating wages and demand pressures on capacity. In the wake of a further increase in price pressures, the central bank is projected to gradually raise interest rates from late 2018 to ensure inflation remains well within its target range.
The recent lowering of the statutory retirement age may accentuate the challenges of an ageing population and risks increasing old‑age poverty, particularly among women. Strengthening efforts to make pensioners aware of the benefits of working longer for their pension income would be beneficial. Facilitating the combination of work and family life by investing further in childcare facilities would help increase female employment and mitigate the growth‑inhibiting impact of demographic change. Raising skills and ensuring a continuous increase in funding for tertiary education would boost Poland’s innovative capacity.
