Arthur Laffer is a distinguished economist who has stirred debate for decades. His concept of the relationship between tax rates and government revenue continues to divide experts around the world. In an interview with Business Insider Polska, the American economist argues that Poland has ended up on the wrong side of this relationship — and he presents figures which, in his view, speak for themselves.
Arthur Laffer is the creator of the famous “Laffer Curve.” He was a long-time adviser to U.S. President Ronald Reagan, was awarded a presidential honor by Donald Trump, and served as his economic adviser during the 2016 campaign. In his latest interview with businessinsider.com.pl, the economist assessed the policies of Poland’s finance minister, Andrzej Domański.
In the interview, Laffer points in particular to increases in taxes on nicotine products. He noted that the Polish government had projected revenues of approximately PLN 37 billion, yet the state budget ultimately received PLN 5 billion less. The plan was simple: a higher tax rate was supposed to generate higher revenues for the state. The outcome proved the opposite.
The economist has no doubt that the causes include smuggling, the expansion of the grey economy, and the influx of low-quality products. As he emphasized, this may not be the end of the issue: “Now your minister has a tough nut to crack, because you are planning further increases.”
A similar scenario — Laffer recalls — was previously experienced by Ireland. Sharp tax hikes there led to a surge in illegal cigarette trade. The state lost revenue, while consumers were pushed toward lower-quality, often more harmful products. In his view, such decisions primarily affect individuals who have limited ability to change their habits.
According to Laffer, the role of government is not to maximize tax rates but to increase the wealth of society. The optimal solution, therefore, remains a low rate, a broad tax base, and a simple flat-tax system. When budget revenues become the sole measure of success, fiscal policy can easily go astray. It is a lesson that — as Laffer suggests — Poland is currently learning.