Wednesday's vote by the Council of Ministers was the final approval by the executive branch of a proposed budget for 2020-21. The bill now moves on to the two houses of Poland's Parliament, which is expected to vote in favor of the delay.
Under current rules, two of the country's three VAT rates — the standard rate of 23% and the reduced rate of 8% — were scheduled to drop by one percentage point starting next Jan. 1.
"Due to the current state of the epidemic and the need to rebuild the economy, lowering VAT rates would not be justified at present," the Council of Ministers said Wednesday in a statement.
Proceeding with the rate cuts would reduce budget revenue and the government's ability to make crucial investments in public programs following the pandemic, the statement said.
Lowering rates will be up for debate once the ratio of Polish government debt to gross domestic product falls below 43%, the country's Finance Ministry said in a statement Wednesday, among other conditions tying lower rates to "the lasting good condition of the budget."
The ministry said it expected that the return to lower VAT rates will take place within a year of the government meeting the debt-to-GDP target and the adoption of a stabilizing expenditure rule.
On Thursday, the Finance Ministry estimated that Poland's budget deficit for the forthcoming fiscal year will total 82.3 billion zlotys ($22.1 billion).
Earlier in August, the government accepted a revision to the current-year budget that forecasts a deficit of 109.3 billion zlotys. Before the pandemic, the government had been planning for Poland's first balanced budget in three decades.
"The draft 2021 budget accepted today is another stage in the plan to get back on the path of growth following the global lockdown caused by COVID-19," Finance Minister Tadeusz Kościński said in a statement, referring to the respiratory disease caused by the novel coronavirus.
The government's annual deficit, per European Union methodology, will be about 12% of GDP in the current fiscal year, falling to 6% in 2020-21, the ministry said.
Income is expected to be 403.7 billion zlotys while spending will be 486 billion zlotys, it added.
--Editing by Robert Rudinger.
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