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Reduced VAT Rate on Food Ends in April: inflation will jump, budget will benefit

ECONOMYReduced VAT Rate on Food Ends in April: inflation will jump, budget will benefit

The Ministry of Finance announced yesterday the end of the reduced VAT rate on food. This decision was previously announced by Prime Minister Donald Tusk, and we have now received confirmation of it. From April 1st, which will not be an April Fool’s joke, VAT on most food products will return to a rate of 5%.

This means that March will bring us a definitive inflation minimum this year. This is attributable to both the base effect and the expiry of the reduced VAT. The reinstatement of the standard VAT rate in April will result in a sudden increase in inflation of about 0.9 percentage points. Considering that food plays a significant role in GUS’s consumer basket and indeed, constitutes a major part of our expenditure (27%), the change will be noticeable for citizens, particularly those earning less. Concurrently, food prices have recently contributed to the deceleration of inflation. We should also factor in the strengthening of the zloty, which weakens the effect of rising food prices, and perhaps most importantly, the increase in real wages. From this analysis, it seems that there is no better time to remove the anti-inflation shield from food than now.

Of course, this is also grist to the mill for opposition parties, but only the naive could assume that anti-inflation shields would stay with us for longer. Thanks to the return to the 5% VAT rate, the state budget will gain almost 12 billion zlotys. The next step will presumably be to remove the price protection for energy for SMEs.

Mariusz Zielonka, Confederation of Lewiatan

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