On 3 July 2026, the Council of the European Union adopted a recommendation on Poland's economic, social, employment, structural and budgetary policies, urging Warsaw to adhere to maximum net expenditure growth rates of 6.3% in 2025, 4.4% in 2026, 4.0% in 2027, and 3.5% in 2028, and to implement reforms addressing key challenges identified in the European Semester. The recommendation targets Poland's rising deficit and debt, untargeted social benefits, low tax revenues, pension system sustainability, and regulatory burdens.
The recommendation follows the activation of the national escape clause for 2025-2028, which the Council allowed on 8 July 2025, giving Poland temporary flexibility to deviate from net expenditure growth rates due to increased defence spending. Defence expenditure stood at 3.4% of GDP in 2025, projected at the same level in 2026. Poland's general government deficit rose from 6.4% of GDP in 2024 to 7.3% in 2025, projected at 6.5% in 2026 and 6.3% in 2027. General government debt increased from 54.8% of GDP at end-2024 to 59.7% at end-2025, projected to reach 64.5% by end-2026 and 68.3% by end-2027. Net expenditure grew 8.5% in 2025, above the recommended rate, but the deviation is within the escape clause flexibility due to defence spending. The excessive deficit procedure for Poland is held in abeyance as of 3 June 2026.
The Council identifies several structural challenges. Untargeted social benefits and limited spending review impact weigh on fiscal efficiency. Tax revenues remain low. The pension system faces adequacy decline, with the benefit ratio falling from 66% in 2005 to 55% in 2024, and the fragmented KRUS system for farmers is subsidised at 0.7% of GDP in 2025. Regulatory burdens are cited as a barrier by 71% of businesses. Regional disparities persist, with eastern Poland's GDP per capita at 61.3% of the EU average in 2024. Poland also adopted untargeted excise and VAT reductions on fuels until 15 May 2026, with a fiscal cost of 0.1% of GDP in 2026; if extended to end-2026, the cost would reach 0.4% of GDP.
The recommendation impacts several stakeholders. Polish taxpayers face continued fiscal consolidation, with net expenditure growth capped, potentially limiting public services unless efficiency improves. Polish businesses could benefit from regulatory simplification, but may face short-term adjustment costs. Pensioners are affected by the declining benefit ratio, though reforms could improve long-term adequacy. The EU institutions gain a framework to monitor Poland's fiscal discipline, with the Council holding the excessive deficit procedure in abeyance pending compliance. The recommendation is non-binding but carries political weight as part of the European Semester. The European Parliament is expected to debate the recommendation in its economic affairs committee, and the Commission will monitor Poland's implementation in upcoming country reports.
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