Poland’s state budget recorded a deficit of 69.5 billion złoty in the first quarter of 2026, remaining within the annual limit, while costs related to public debt increased significantly.
Q1 Budget Deficit Remains on Track
The Polish state budget deficit for the first quarter of 2026 reached 69.5 billion złoty, staying within the annual limit of 271.7 billion złoty. This represents 25.6% of the planned annual deficit.
The deficit is lower compared to the first quarter of 2025, which saw a deficit of 76.3 billion złoty.
Revenue and Expenditure Breakdown
According to the Ministry of Finance, revenue for the first quarter of 2026 totaled 125.2 billion złoty, representing 19.1% of the annual plan. Expenditure reached 194.7 billion złoty, or 21.2% of the annual plan.
Revenue Growth Driven by Taxes
Revenue increased by approximately 6.8 billion złoty (5.7%) in the first quarter of 2026 compared to the same period in 2025, reaching 118.4 billion złoty. This growth was primarily driven by higher tax revenues, including VAT and excise duties.
Total budget expenditure remained at a similar level in both the first quarter of 2025 and 2026, representing slightly over 21% of the planned budget expenditure for each year.
Rising Public Debt Servicing Costs
Costs associated with servicing the country’s public debt increased noticeably in the first quarter of 2026 compared to the same period last year. Debt servicing costs rose from 9.6 billion złoty in the first quarter of 2025 to 15.3 billion złoty in the first quarter of 2026.
This 5.7 billion złoty increase is attributed to the growing volume of debt being serviced. The share of debt servicing costs in total state expenditure increased from 4.9% to 7.8%, and their burden on the generated deficit nearly doubled from 12.6% to 22%.
Tax Revenue Details
Tax revenue for the Polish state budget amounted to 112.4 billion złoty, an increase of approximately 6.7 billion złoty (6.3%) compared to the January-March 2025 period.
VAT and Excise Duty Performance
VAT revenue reached 86 billion złoty, up by approximately 1.7 billion złoty (2%) compared to the same period last year (84.3 billion złoty). This year’s result was positively influenced by settlements related to public (including military) investments made in December 2025, but negatively impacted by a decline in industrial and construction output due to exceptionally cold weather.
Excise duty revenue totaled 22 billion złoty, an increase of approximately 2.5 billion złoty (12.7%) compared to the January-March 2025 period.
CIT and PIT Revenue Trends
Corporate income tax (CIT) revenue reached 29.1 billion złoty, higher by 3.8 billion złoty (15%) than in the first quarter of 2025 (25.3 billion złoty). This growth was driven by higher payments from annual settlements and the increased CIT rate for commercial banks from 19% to 30% effective January 1, 2026.
Personal income tax (PIT) revenue was negative, amounting to -31.1 billion złoty, and lower by approximately 2.4 billion złoty compared to the January-March 2025 period. The negative result is due to the 2025 reform of local government financing, which now receives a very large share of this tax.
Funds Transferred to Local Governments
A total of 74.5 billion złoty was transferred from the central budget to local governments in the first quarter of 2026, an increase of 11.4% compared to the previous year. Considering total PIT revenue (for both the state budget and local governments combined), there was a clear increase, reaching 43.4 billion złoty, 5.2 billion złoty higher than in the first quarter of last year.
Expenditure Structure Shifts
Although total budget expenditure in the first three months of 2026 amounted to the same as the previous year (194.7 billion złoty), its structure changed significantly. The largest expenditure items in the first quarter of 2026 were: ZUS (Social Insurance Institution) – 41.7 billion złoty, a significant increase of 8.1 billion złoty compared to the first quarter of last year (33.7 billion złoty). This increase is due to benefit indexation of 5.3% (from March 1, 2026) and a rise in the number of people receiving support benefits. A subsidy to the Social Insurance Fund amounted to 14 billion złoty.
Other major expenditures included National Defense (24.2 billion złoty), general subsidies for local governments (17.6 billion złoty), and public debt servicing (fourth position), and healthcare (14.7 billion złoty).
Budget Savings and One-Off Decreases
Savings were found in the ‘Economy’ sector. Expenditure in this area in the first quarter of 2026 was lower by as much as 19.2 billion złoty compared to last year, when 19 billion złoty was paid in March last year to repay bonds issued by the Polish Development Fund (PFR) during the pandemic to finance “Financial Shields”.
Economic Outlook and Risks
According to economists at Bank Pekao, “looking at the nominal figures, it is easy to conclude that the situation of public finances is developing fully in accordance with the budget law plan”. However, the war in the Middle East has emerged as a new risk factor, impacting the budget through estimated revenue losses of 1.6 billion złoty per month due to the fuel price reduction program ‘CPN’.
Bank Pekao economists believe that lower budget revenues from VAT and excise duties on fuels “may be partially offset by the fact that inflation growth (+0.6 percentage points on average) will exceed the projected slowdown in consumption (-0.3 percentage points). In other words, nominal consumption per saldo may even be higher than in the baseline, pre-war scenario, which will lead to higher budget revenues from indirect taxes”.
Economists at PKO BP, however, suggest that the sector’s situation may worsen in the coming months “due to lower VAT revenues, caused by the temporary reduction in VAT and excise rates on fuels under the CPN program”.
