Polish PM sets off on tour to promote new economic plan

By Alan Charlish and Pawel Florkiewicz

WARSAW (Reuters) - Poland's prime minister set off on a tour of the country on Monday to promote his government's "Polish Deal" economic programme, which he says will make taxes fairer but the opposition has branded divisive.

The ruling nationalists Law and Justice (PiS) say the programme, unveiled on Saturday, will help the economy bounce back strongly from the COVID-19 pandemic and create a bigger middle class by cutting tax for lower earners.

Economists largely expect the "Polish Deal" to boost growth, but also stoke inflation.

On a visit to a flower factory in Stezyca, around 100 km (60 miles) southeast of Warsaw, Prime Minister Mateusz Morawiecki said the government was "rebuilding the tax system to make it fair".

Since coming to power in 2015, PiS has mobilised poorer voters outside the main cities by delivering generous social benefits and an increased minimum wage, while pledging to protect traditional Catholic values.

It is these lower-income voters who stand to gain most from the new proposals, analysts say.

Borys Budka, leader of the largest opposition party, the liberal Civic Platform, said the plan would divide Poles.

"(The tax reforms) will bring a real benefit only to those who earn up to 6,000 zlotys gross, and will hit entrepreneurs and the middle class," he told Rzeczpospolita daily in an interview published on Monday.

The average corporate sector wage in Poland was 5,929 zlotys (1,307 euros) per month in March, according to statistics office data.

Under the "Polish Deal", the tax-free limit will rise to 30,000 zlotys a year, 10 times higher than in 2016. The threshold for going into the higher tax bracket will rise to 120,000 zlotys a year, from 85,500 zlotys currently.

However, health insurance contributions will no longer be tax-deductible, a change that will affect high earners and the self-employed most.

Rafal Benecki, chief economist at ING in Poland, said that the plan would boost gross domestic product and inflationary pressures, but private investment was likely to remain subdued.

"The stimulus is actually continuing the policy of the previous years where fiscal plans and transfers were supporting the consumption side while a higher deficit was covered from higher effective tax rates from other tax payers like companies or high earners," he said.

According to PiS, 18 million of Poland's 26 million taxpayers will benefit from the latest changes in the tax system, which will cost the budget from 5 to 7 billion zlotys. ($1 = 3.7371 zlotys)

(1 euro = 4.5378 zlotys)

(Reporting by Alan Charlish, Pawel Florkiewicz and Anna Wlodarczak-Semczuk in Warsaw; Additional reporting by Michael Nienaber in Berlin; Editing by Alex Richardson)