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PL

2019-07-04

FOR Communication 26/2019: Exemption of young people from Personal Income Tax (PIT) - buying votes in place of reforms

Exempting people under 26 from PIT is unfair. On the one hand, the government sees no problem in the fact that the wages of 27-year-olds earning a minimum wage (PLN 1774 net) are burdened with 40% taxes and contributions, including PLN 150 PIT, and on the other hand, it proposes to exempt over 3 times better earning 25-year-olds from PIT, thanks to which their net income will increase from PLN 5,909 to PLN 6,584, and the total tax burden will fall to 35%.

  • The diagnosis of the problem presented by the government is erroneous - in Poland, a greater problem than unemployment of young people is the low employment rate of people with lower education. Therefore, instead of reducing taxes on young people, regardless of their education and prospects, it is essential to reduce taxes on the lowest incomes in order to draw on the labor market of people currently economically inactive.
     
  • Young people in the labor market can be divided into at least three important groups: 15-19 year olds, women aged 20-24 and men aged 20-24. In the first group, 15-19 year olds, we have one of the lowest employment rates in the European Union. This is probably due to the restrictive regulation of underage work. In the second group, women aged 20-24, we have a relatively low employment rate in comparison with the EU. The reason for this is the insufficient availability of childcare services. In the third group, men aged 20-24, the employment rate does not differ significantly from that of men in the older age groups. The importance of PIT exemption for the first and second group will be small, while the third group does not need such an exemption.
     
  • The exemption of young people from PIT does not solve any significant problem, it is expensive and, in addition, it reduces public finance income by PLN 2.5 billion annually. This means that in order to finance this loss, it will be necessary to obtain over PLN 100 more annually from other taxpayers.

Authors:

Aleksander Łaszek, Chief Economist
​aleksander.laszek@for.org.pl

Rafał Trzeciakowski, economist
rafal.trzeciakowski@for.org.pl

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