A new report examines the first year of Poland’s reformed local government revenue system, revealing improvements alongside ongoing challenges like education funding gaps.
New Revenue System Improves Local Government Finances
A report by the Jerzy Regulski Foundation for Local Democracy Development assesses the impact of the new local government revenue system implemented in 2025. The system replaced local governments’ share of PIT and CIT revenues with a share of income tax paid by residents and businesses within their jurisdiction.
Authors of the report generally evaluate the new solutions positively, noting an improvement in the financial standing of local governments, even without the one-time transfers from the state budget—so-called “drip feeds”—seen since 2021.
Linking Local Tax Base to Budgets
The report highlights the positive aspect of linking the local tax base to local government budgets through residents’ and businesses’ PIT and CIT contributions. This reduces the potential influence of political decisions on future local government revenues through tax breaks.
Investment Spending and Financial Margins
In 2024, per capita capital expenditure by local governments decreased in almost all categories compared to 2023, but rebounded to pre-2023 levels in 2025. Forecasts for 2026 predict investment spending per capita of 2248 zł in cities with powiat rights, 2241 zł in rural municipalities, 2010 zł in rural-urban municipalities, and 1962 zł in cities.
The report also points to improved gross operating margin ratios, reflecting the relationship between gross operating surplus and current revenue—an increase indicating improved financial health. The highest margins are in rural municipalities (13.1%), followed by rural-urban municipalities (9%), cities (7%), and cities with powiat rights (4.3%).
Future Revenue Projections and Challenges
Despite projected revenue growth in 2026 from resident and business taxes and general subsidies, the report anticipates a decline in the margin ratio. Experts note this mirrors previous years, potentially due to cautious budget planning by local governments.
Education Funding Remains a Key Concern
The report identifies the funding gap in education—the difference between current education expenditure and current local education revenue—as a major challenge for local government finances. In 2025, education expenditure reached 153.5 billion zł, exceeding 108 billion zł in revenue, resulting in a gap of over 45.5 billion zł.
Demographic Shifts and Future Funding
Current problems, particularly in rural areas, will be compounded by demographic trends—a declining birth rate—leading to increased per-student costs. A decrease in the overall number of students could be used as justification for reducing state funding for education, requiring local governments to prepare accordingly.
Recommendations for Improvement
Experts recommend adequate funding for delegated tasks and more detailed, long-term information on resident and business income tax revenues, as well as data on equalization system determinants. Local governments should also rationalize spending on public services, considering demographic and socio-economic factors.